Charge Registration
Cases
Peleton Ltd (in receivership) -v- Companies Acts
[2011] IEHC 479
Laffoy J.
“1.3 On this application the Applicant seeks an order pursuant to s. 106 of the Companies Act 1963 (the Act of 1963) extending the time for registration in the CRO of a “Deed of Charge” dated 20th October, 2004 entered into between Peleton Limited (the Company) of the one part and Allied Irish Bank Plc (the Bank) of the other part.
2. Section 106
2.1 Sub-section (1) of s. 106, insofar as it is material to this application, provides as follows:
“The court, on being satisfied that the omission to register a charge within the time required by this Act . . . was accidental, or due to inadvertence or to some other sufficient cause, or is not of a nature to prejudice the position of creditors or shareholders of the company, or that on other grounds it is just and equitable to grant relief, may, on the application of the company or any person interested, and on such terms and conditions as seem to the court just and expedient, order that the time for registration shall be extended, . . ..”
The notes on the Court’s jurisdiction under s. 106 and on the effect of an order under that section contained in MacCann and Courtney Companies Acts 1963 – 2009 (2010 Ed.) outline the current state of the law accurately.
4.5 To summarise the title position, the October 2004 Charge has been registered as a burden on Folio 3380L, having been lodged with the PRA in December 2008. However, as I have pointed out, the date of the lease under which the property is held by the Company is incorrectly stated in the schedule to the October 2004 Charge.
4.6 Returning to how the December 2004 Charge came into existence and how particulars thereof came to be filed in the CRO, I assume that Mr. Campbell did not have the benefit of seeing the certified copy of the documents lodged originally in the Land Registry and now held by the PRA. In my view, it is absolutely clear that the October 2004 Charge was not lodged in the Land Registry with the dealing on 15th November, 2004. Therefore, I believe the Company’s solicitors retained the original of the October 2004 Charge. The original has not been produced on this application. However, it seems from Mr. Campbell’s inquiries and investigations that the error in failing to have particulars of the October 2004 Charge delivered to the CRO, within the time limited by, and in accordance with, s. 99 of the Act of 1963, was identified at some point and that that led to the execution of the December 2004 Charge. What appears to have happened was that although the October 2004 Charge had been executed by the Company, that fact was ignored and a replica was executed by the Company and the date 21st December, 2004 was inserted in it. The original of the December 2004 Charge has been put before the Court, as I understand it, it having been received from the Company’s solicitors. The December 2004 Charge was never stamped, and, it would appear, was never intended to be acted upon by the Bank, although particulars of it were delivered to the CRO for registration as if it were an effective charge. Clearly this should not have happened. The Bank had the benefit of the October 2004 Charge and it apparently intended to rely on it. Accordingly, an application should have been made at that stage under s. 106 to extend the time to register the October 2004 Charge.
5. Conclusions and order
5.1 I am satisfied that the Applicant is a “person interested” who may seek relief under s. 106, having taken over the security of the Bank under the October 2004 Charge. I am also satisfied, on the basis of the evidence now before the Court in the form of Mr. Campbell’s affidavit, that the failure to deliver particulars of the October 2004 Charge to the CRO in accordance with s. 99 of the Act of 1963 was due to inadvertence on the part of the Bank, which has accepted that the delivery of the particulars was its responsibility. However, the manner in which the Bank set about rectifying the omission to register the particulars in accordance with s. 99 in December 2004 was wholly inappropriate. Therefore, as a condition to granting the relief sought on this application, I intend requiring the Bank to –
(a) give an undertaking to stamp the December 2004 Charge, and
(b) in accordance with the letter of 28th November, 2011, to give an undertaking to the Court confirming that it will not rely on the December 2004 Charge and will take all steps necessary to ensure that it cannot be relied on by executing a Deed of Release in favour of the Company and having a memorandum of satisfaction registered in the CRO.
5.3 The usual form of order made on an application under s. 106 contains a proviso that the order is without prejudice to the rights (if any) of parties acquired between the date of creation of the charge and the date of its actual registration in the CRO. While the general rule is that a subsequent chargee will have priority over a chargee who has failed to register in time, even though he had notice of the unregistered charge at the time he obtained his own charge, it is well settled that, if the subsequent charge is expressly subordinated to the earlier charge, the earlier charge will gain priority after late registration has been effected (Re Clarets Limited; Spain v. McCann [1978] ILRM 215).
5.5 Accordingly, subject to the Bank giving the undertaking referred to at para. 5.1 above, there will be an order extending the time for registration of the particulars of the October 2004 Charge for twenty one days from the date of perfection of the order, but the order will be expressly without prejudice to the rights, if any, of parties acquired between the date of the creation of the said charge and the date of actual registration.Finally, the order will amend the originating notice of motion to show that the application is brought by the Applicant.
5.6 Counsel for the Applicant referred the Court to s. 218 of the Act of 2009, which provides that an acquired bank asset is not invalidated or rendered void or voidable as against the Applicant by, inter alia, s. 99 of the Act of 1963. The conclusions set out above were not influenced by that provision.
Investment Options and Solutions Ltd -v- Companies Acts
[2010] IEHC 107
Laffoy J.
“5. Insofar as is relevant for present purposes, s. 106(1) provides as follows:
“The court, on being satisfied that … the omission or mis-statement of any particular with respectto any such charge … was accidental, or due to inadvertence or to some other sufficient cause, or is not of a nature to prejudice the position of creditors or shareholders of the company, or that on other grounds it is just and equitable to grant relief, may, on the application of the company or any person interested, and on such terms and conditions as seem to the court just and expedient, order … that the omission or mis-statement shall be rectified.”
There is a useful résumé of the effect of that provision in MacCann and Courtney on Companies Acts 1963-2006 2008 Ed. at p. 225, in which it is stated:
“An error in the particulars delivered to the Registrar will not affect the validity of the charge, once a certificate of registration has been issued pursuant to [the Act of 1963], s. 104. Courtney [The Law of Private Companies … para. 21.090] argues therefore that an application for rectification may be superfluous, particularly if the court were to impose the same conditions as are applied in the case of an order extending time. In any event, the jurisdiction conferred on the court by s. 106 only allows it to correct an omission or mis-statement in the delivered particulars and does not allow for the deletion of an entire entry. Furthermore, the court’s jurisdiction is confined to rectifying errors in the particulars which are required by law to be delivered to the registrar of companies: there is no jurisdiction to order the rectification of factual errors in particulars the delivery of which is not required by law.”
A number of points arise out of that résumé which require to be commented on in the context of this application.
7. First, s. 104 of the Act of 1963, which deals with the certificate of registration, provides:
“The registrar shall give a certificate under his hand of the registration of any charge registered in pursuance of this Part, stating the amount thereby secured, and the certificate shall be conclusive evidence that the requirements of this Part as to registration have been complied with.”
The conclusiveness of the certificate of registration relates to compliance with the statutory registration requirements. There is a wealth of authority for the proposition that, because of the conclusiveness of the certificate, the registration of the charge cannot be challenged even when the registration requirements have not in fact been observed. On this application, counsel for the applicant relied on three Irish authorities: Lombard and Ulster Banking (Ireland) Ltd. v. Amurec Ltd. [1976-77) I.L.R.M. 222; Re Shannonside Holdings Ltd. (Unreported, High Court, Costello J., 20th May, 1993,) and Re Valley Ice-Cream (Ireland) Ltd. [1998] IEHC 119. Having regard to the effect of s. 104, a question arises as to whether this application is superfluous. Counsel for the applicant answered that question on the basis that the receiver, in reliance on his powers under, inter alia, the deed of mortgage and charge dated 22nd June, 2001, intends selling assets of the notice party and queries may arise as to his authority to do so and as to title derived therefrom, because of the mis-statement of the date thereof. It seems to me reasonable, in order to obviate such potential difficulties, to apply to have the mis-statement of the date of the deed of mortgage and charge in the particulars filed in the CRO rectified.
8. Secondly, I am satisfied that it would not be appropriate to impose the same conditions on this application as are applied in the case of an order extending time. When an application is made under s. 106 for an order extending the time for a registration of a charge, the invariable practice is to include a “without prejudice” provision, for example, an express saver for the rights of any other secured creditors acquired during the period between the expiration of the twenty one days within which the particulars should have been delivered to the CRO pursuant to s. 99 of the Act of 1963 and the actual registration of the particulars on foot of the extension of time.
9. On the evidence before the Court, I think it is reasonable to infer that the mis-statement of the date on the Form No. 47 was accidental. I am satisfied that an order should be made under s. 106. That the order will direct the Registrar of Companies to rectify the mis-statement of the date of the instrument creating the charge by substituting 22nd June, 2001 for 3rd July, 2001 in the registered particulars and the certificate of registration.
Valley Ice Cream Ltd., Re
[1998] IEHC 119
Mr. Justice McCracken
“7. There is one further factual matter which is relied upon by the Liquidator, namely that the form 47 filed in the Companies Office pursuant to section 99 of the Companies Act, 1963 includes among the particulars of the property charged:-
“An irrevocable undertaking to execute, procure the execution of a mortgage over the equipment in the form attached in the first schedule to the debenture forthwith upon expiration or earlier termination of each lease to which the equipment is subject (as hereinafter defined).”
8. The reference to the mortgage being in the form in the first schedule to the debenture is clearly wrong, as the draft mortgage is contained in the fifth schedule to the debenture. It is suggested that this is misleading, as any creditor looking at the file in the Companies Office would not realise or understand the form of the mortgage to be executed. In my view, this is not relevant, as what is registered is the fact that there is an irrevocable undertaking to procure the execution of a mortgage over the equipment, and the equipment is clearly set out in the form 47. What section 99 requires to be registered is particulars of the charge, not the form which the charge is to take. In my view, it is quite clear from what was registered that there was a charge in the form of an irrevocable undertaking to execute a mortgage over this equipment, and that satisfies section 99.
9. Clause 5.4 clearly creates a legal and binding obligation on the Company to execute a mortgage as soon as any lease of equipment expires or terminates. It does not, and cannot, of itself create a legal mortgage over the equipment, as the equipment is not an asset of the Company at the time of the execution of the debenture. However, at the moment that the lease of any one piece of equipment terminates or expires, there is no doubt that Master Foods would be entitled to obtain an immediate order of specific performance to enforce the execution of a legal charge or mortgage. Furthermore, the form of the charge as set out in the fifth schedule to the debenture quite clearly is intended to create a fixed charge over the goods, as it specifically assigns the goods and the benefit of any insurance thereon. I think it is beyond doubt that the clear intention of this document is that there will be a fixed charge on the specific goods as soon as the document is executed. The only question, therefore, is whether an irrevocable agreement to grant such a fixed charge does of itself create an equitable fixed charge.
10. In my view, the law on this is quite clear. I can do no better than to quote from Fisher & Lightwoods Law of Mortgages (10th Edition) at page 12 where, under the heading ” Equitable Mortgages “, it is stated:-
“Generally, the essence of any transaction by way of mortgage is that a debtor confers upon his creditor a proprietary interest in property of the debtor, or undertakes in a binding manner to do so, by the realisation or appropriation of which the creditor can procure the discharge of the debtor’s liability to him, and that the proprietary interest is redeemable, or the obligation to create it is defeasible, in the event of the debtor discharging his liability. If there has been no legal transfer of a proprietary interest but merely a binding undertaking to confer such an interest, that obligation, if specifically enforceable, will confer a proprietary interest in the subject matter in equity. An equitable mortgage is a contract which operates as a security and is enforceable under the equitable jurisdiction of the court. The court carries it into effect either by giving the creditor immediately the appropriate remedies, or by compelling the debtor to execute a security in accordance with the contract. It is applicable to all property of which a legal mortgage can be made, even where statute provides, as, for example, in the case of ships, a particular method for passing the legal property therein.”
11. The first part of this statement of the law is taken verbatim from the judgment of Buckley J. in Swiss Bank Corporation -v- Lloyds Bank Limited [1980] 2 All E.R. 419 at page 426.
12. In the present case, there has not been a legal transfer of a proprietary interest, but there has been a binding undertaking to confer such an interest, which undertaking is specifically enforceable. I think it is entirely in keeping with the principles governing the creation of a fixed charge that such a charge should be created under these circumstances. The essence of a fixed charge is that property is irrevocably set aside in such a way that the creditor can have recourse to it to satisfy his debt. The clear intention of clause 5.4 was that, as each of the items came into the ownership of the Company, it would immediately be subject to a legal charge in favour of Master Foods, which was to be implemented by the execution of a deed. It is a well known maxim of equity, which is frequently enforced, that equity regards as being done that which ought to be done, and it is for this reason that the undertaking contained in clause 5.4 would be specifically enforceable. It must also be a consequence of the truth of this maxim that, while a legal charge may not have been created, equity will regard a charge as having been created because it ought to have been created under the terms of clause 5.4. That charge must be a fixed charge, as what clause 5.4 contemplates clearly as a fixed charge. Accordingly, I will grant a declaration that the debenture creates a fixed charge in equity over the leased assets to which it refers.”
Byrne v. Allied Irish Banks
[1978] I.R.449
McWilliam J.
“The relevant paragraphs of the letter of the 8th April, 1974, from Wm. Fry & Sons on which the claim of Allied Irish Banks Ltd. is based, are as follows:
“We now therefore undertake in consideration of your granting the company a bridging loan of £4,000 on the strength of the contract for the sale of their premises in Grafton Street to hold such documents of title to the said premises as we may have in trust for the Bank and to hand over sufficient monies out of the proceeds of the sale to redeem this bridging finance as soon as the sale is closed. It is however to be strictly understood that this firm undertakes only to hand over out of the proceeds of sale and should there be any delay in closing the sale the firm cannot be held responsible for the money until the sale has been finalised.”
Having decided that this letter was sufficient to create an equitable charge, I had this matter re-entered for argument on the question of what property was charged and, if it was the purchase money which was charged, whether it was a charge that was required to be registered under s. 99 of the Companies Act, 1963, either as a charge on land or any interest therein or as a charge on book debts of the company.
Since the hearing I have been furnished with the judgment of Mr. Justice Kenny of 1st June, 1976, in Tempany v. Hynes 4 in which he discusses at length the nature of the interest retained in land by a vendor after a contract for sale has been signed, and the extent to which this can be charged so as to affect a purchaser. In the present case I am only concerned to ascertain whether the purchase price was charged. Mr. Justice Kenny’s judgment is only relevant in so far as I suggested originally (and counsel for the bank argued) that the company retained no interest in the lands after the contract for sale which could be charged.
I am satisfied that it was intended to charge the purchase money, that the letter was effective to do this, and that the purchase price is not a book debt within the meaning of the section. Accordingly, I will make the necessary declaration in favour of the bank.
The remaining issue is a question of company law. The company contends that the unpaid vendor’s lien is void against the liquidator because it is a security given by the company which was not registered in accordance with s. 99 of the Companies Act, 1963. That section is practically identical with the corresponding English provision in s. 95 of the Companies Act, 1948, which was considered by Brightman J. in London Cheshire Co. v. Laplagrene Co. 3 Brightman J. held that an unpaid vendor’s lien was the creature of the law; that it did not depend on contract but on the fact that the vendor had a right to a specific performance of his contract and that, accordingly, it was not registrable under s. 95 of the Act of 1948. The learned judge pointed out that the provision in question had been in force since the Companies Act, 1908, but no one had suggested that it was the practice for a vendor to register an unpaid vendor’s lien when selling to a company. The lien is created on the formation of the contract of sale and the time for registration would expire 21 days thereafter. The lien is not discharged until the purchase money is paid on completion. If registration were necessary, every vendor selling to a company would be put to the inconvenience of having to register the unpaid vendor’s lien as a matter of course on the off chance that circumstances might arise which would render it necessary for the vendor to rely on the unpaid vendor’s lien. For the reasons given by Brightman J. I am satisfied that s. 99 of the Companies Act, 1963, does not require registration of an unpaid vendor’s lien arising on the purchase of property by a company. “
Unitherm Heating Systems Ltd -v- Wallace
[2015] IECA 191
Court of Appeal Irvine J.
“Discussion
37. It is beyond doubt that the leading authority on proceeds of sale clauses at the time of the High Court judgment was that of Murphy J. in Carroll, a case in which the Court concluded that the relevant proceeds of sale clause did not create a fiduciary relationship between the buyer and seller but rather confined the seller to a charge over the funds received in respect of the resale of its goods, which required registration.
38. In reaching a contrary conclusion in the present case, the High Court judge distinguished not only the contractual provisions in both cases but also the manner in which the respective parties had conducted their business and, on that basis, found that the relationship of principal and agent existed.
39. For the purposes of considering the distinction drawn by the High Court judge between the two cases, I will briefly summarise the facts in Carroll.
40. In Carroll, the plaintiff, a well-known tobacco company, had supplied goods to the defendants (“Bourkes”) as retailers. Those companies had gone into liquidation. The contract between the parties contained a reservation of title clause which provided that no property in the goods would pass until all sums due to the plaintiff had been discharged. It also gave the defendants the right to resell the goods to a third party on their own account, but not as agents for the plaintiff. Further, the contract included a proceeds of sale clause which required the defendants to “hold all monies received from such sale or other disposition in trust for the company (“Carrolls”) and undertake to maintain an independent account of all sums so received and on request [to] provide all details of such sums and accounts”. No such account was ever established, a fact that the High Court judge concluded was probably known to Carrolls.
41. In the course of the liquidation an issue arose as to the plaintiff’s rights in respect of the proceeds of sale of the goods sold on by the defendants to third parties. The plaintiff argued that these were impressed with a trust in its favour, thus entitling it as a beneficiary standing in a fiduciary relationship with the defendants to trace such proceeds into any other property acquired therewith by the trustees.
42. Murphy J. set out the basic legal principles as follow ([1990] 1 IR 481, 483):-
“The issue in the present case relates to the right of Carrolls in respect of the proceeds of sale of the goods supplied by it. In this context too the basic legal principles are well established. Where a trustee or other person in a fiduciary position disposes of property the proceeds of sale are impressed with a trust which entitles the beneficiary or other person standing in the fiduciary relationship to trace such proceeds into any other property acquired therewith by the trustee … Whether fiduciary obligations are imposed on one party or another depends in part upon the character in which they contract and partly on the nature of the dealings in which they engage. Obviously one would be slow to infer that a vendor and purchaser engaged in an arms length commercial transaction undertook obligations of a fiduciary nature one to the other. On the other hand if one postulates that in any context one person is selling the goods of another the assumption of fiduciary obligations in relation to the sale and in particular the proceeds thereof might well be appropriate. It seems to me that the question must be asked: how does a party come to sell property of which he is not the owner? Is he selling as a trustee in pursuance of a power of sale? Is he selling as the agent of the true owner? Does the sale constitute a wrongful conversion? If any of those questions were answered in the affirmative it seems to me that the law would impose a trust on the proceeds of sale which would confer on the true owner the right to recover those proceeds from the actual seller or, if the proceeds were no longer in the seller’s hands, to trace them into any other property acquired with them.”
43. Murphy J. concluded that it was clear from the terms of the contract that it was envisaged that the defendants would sell on the goods on their own account and not as an agent for Carrolls. Accordingly, he could see no basis upon which to find a fiduciary duty. If such an obligation was to be found, it had to be established by reference to the actual bargain or in the conditions of sale. He was satisfied that the parties intended that the property would pass to the sub-purchaser who would become the full owner.
44. In coming to that conclusion, Murphy J. considered the following facts to be material. Firstly, the contract anticipated that, on the onward sale, the sub-purchaser would become full owner. Secondly, the clause specifically provided that Bourkes were not selling on as an agent of Carrolls, and this being so, they could not be considered a fiduciary. Thirdly, Bourkes could set their own price for the onward sale of the goods. This meant that, following their sub-sale, they were not necessarily going to be replaced by assets of equal value. Fourthly, while Bourkes were contractually obliged to place the monies received in respect of the onward sale of the goods into a separate account, no such account had been established, a fact which Murphy J. inferred was known to Carrolls. Fifthly, the contract provided for a four week credit period, a facility the purpose of which Murphy J. stated was uncertain if Bourkes were not free to use the proceeds during that period. Murphy J. analysed how that arrangement “properly implemented” would work given that the sums of money credited thereto, assuming that the goods were resold at a marked-up price, would be in excess of the amounts due by Bourkes to Carrolls. That being so, Carrolls, if entitled to have recourse to that account for the purposes of discharging monies due to them, would not be entitled to the entire fund which suggested to Murphy J. that the rights of the seller bore all of the characteristics of a mortgage or charge. The charge so created required registration under s. 99 of the Companies Act 1963 and in the absence of such registration was invalid.
45. In the course of his judgment, Murphy J. stressed the importance of looking beyond the contractual terms themselves and warned that the attachment of labels to the dealings of the parties was not determinative of their legal status. The rights of the parties and the nature of the transaction which they were engaged in had to be determined by reference to a consideration of the document as a whole as well as the obligations and rights which it imposed on the parties. Murphy J. expressed himself satisfied that the true nature of the relationship between the Carrolls and Bourkes was one of debtor/creditor and the fact that the proceeds of sale were dealt with by Bourkes in the ordinary course of their business supported that conclusion.
Decision
48. As was stated by Mummery J. in Compaq Computer Ltd v. Abercorn Group Ltd. [1993] B.C.L.C. 602, the seller’s aim in insisting on a retention of title clause or a proceeds of sale clause is to prevent the goods and the proceeds of sale of its goods from becoming part of the assets of an insolvent buyer, available to satisfy the claims of the general body of creditors.
49. However, as was made clear by Murphy J. in Carroll, it does not follow that, just because the seller has such an objective in mind, the protection which it seeks will be achieved. The court must consider the character in which the parties contracted and the nature of the dealings in which they engaged, apart from the contractual provisions themselves, in order to ascertain how the position of the seller was secured. It must also ensure that the substance of the scheme of registration prescribed by s. 99 of the 1963 Act is preserved and that this scheme is not circumvented or manipulated by artificial characterisations of the buyer/seller relationship.
50. What is not in dispute is that Unitherm, as the unpaid seller, must establish a fiduciary relationship between itself and BHT affecting the proceeds of sale by BHT of the goods in question in order to enjoy an equitable right to trace the monies received in respect of the onward sale into a mixed fund.
73. In general, most recent authorities have tended to treat “proceeds of sale” clauses as giving rise to charges which require registration and the courts have been reluctant to infer the existence of a fiduciary relationship between parties who, as Murphy J. described in Carroll, appear to be engaged in arms length commercial transactions as vendors and purchasers.
74. Counsel for Unitherm challenged the liquidator’s arguments that BHT had granted Unitherm a charge over the money it received from the sub-sale by reference to the decisions in Hickey, Romalpa and Armour and another v. Thyssen Edelstahlwerke A.G. [1991] B.C.L.C. 28 (“Armour”). I will deal with each of these in turn as I do not believe they provide adequate support sufficient to defeat the liquidator’s submissions.
94. McCann and Courtney, Companies Acts 1963-2009, (Dublin, 2010) in dealing with proceeds of sale clauses in the context of s.99 of the Companies Act 1963 provide the following helpful commentary:
“Proceeds of sale clause: In some cases it has been held that a clause which purports to retain the proceeds of a sub-sale of goods until the purchase price has been paid, will not be regarded as a registerable charge provided that it satisfies all or some of the following criteria:
(a) it expressly creates a fiduciary relationship between the seller and the buyer;
(b) it stipulates that in any sub-sale the buyer is to be regarded as acting for and on behalf of the seller;
(c) it imposes a duty on the buyer to keep the proceeds of any sub-sale separate from the buyer’s other moneys; and
(d) it requires the buyer to account for such proceeds to the seller.”
95. Most recent decisions, as is stated by the aforementioned authors, have leaned against the view that a clause in the above terms is successful in retaining title such as to entitle the seller to trace monies received by the purchaser following the resale of the goods. The greatest indicator in favour of title passing to the purchaser, regardless of the existence of a retention of title clause, is an agreement between the parties that the purchaser may sell on the goods in the course of its own business, an undisputed right of BHT in the present proceedings. If, on the one hand, Unitherm had retained full legal and beneficial title to the goods, the Court could not find that BHT had created a charge on the goods in favour of Unitherm as it is not legally possible for the buyer to charge in favour of the seller a title or interest which the buyer has not got. On the other hand, if on the true construction of the agreement the legal title to the goods has passed from the seller to the buyer, the Court may conclude that the legal consequences of the agreement is that the position of the seller is in fact secured by a charge created in his favour over the goods by the buyer.
99. A clause similar to that in the present case was considered by Mummery J. in Compaq Computer Ltd v. Abercorn Group Ltd [1993] B.C.L.C. 602. There, the seller required the buyer to account for the full proceeds of the resale of its goods. The Court took the view that the seller was not entitled to retain out of the proceeds more than what was sufficient to discharge the unpaid price of the goods. The seller’s right accordingly amounted to a limited interest in the proceeds by way of security.
105. The question I have to ask myself is whether the parties agreed that BHT would be trustee of the proceeds of sale. In that regard, in order for the seller to be entitled to the type of proprietary interest in the proceeds of sale as is contended for by Unitherm, the legal title to the proceeds of sale must vest in the buyer while their beneficial ownership vests in the seller. However, if the buyer is expressly or impliedly empowered to use the proceeds of sale as its own money, then it will not be considered to be a trustee of the proceeds but will be deemed to be in a normal creditor-debtor relationship with the seller.
Conclusions
109. In conclusion, clause 11 of Unitherm’s standard conditions of sale, that being the foundation stone upon which its claim is based, was clearly designed with the objective of securing its interests, so far as was possible, against the risk of non-payment after it had parted possession with its goods to any of its customers such as BHT.
110. It is accepted that the retention of title clause in the conditions of sale operated between Unithermand BHT as intended in relation to the supply contract. It is clear from those conditions and from the manner in which the parties traded that while Unitherm’s goods remained in BHT’s possession and payment therefore remained outstanding, title did not pass and was not intended to pass, hence the payment of €13,853.49 to Unitherm in respect of goods which fell into that category in the course of the liquidation.
111. As to the proceeds of sale clause and the relationship between the parties when BHT sold Unitherm’s goods to its customers, I am satisfied that the relationship at that stage was always intended to be one of creditor and debtor. The parties did not intend that BHT would act as fiduciary on behalf of Unithermeither as its agent or as bailee in possession of its goods with a power of sale.
112. As to agency, in my view, the High Court judge was wrong in concluding that the evidence supported a finding that the parties had entered into such a relationship. Such a relationship is not evidenced in the standard conditions of sale, the documentation concerning the supply contract, or the contracts for the resale of the goods, or by the conduct of the parties themselves.
113. As to a fiduciary relationship built upon a relationship of bailment, a relationship not considered by the High Court judge, I can find no evidence to support a conclusion that the parties intended that BHT would sell Unitherm’s goods as bailee in possession. Again, this relationship is not to be found in the terms and conditions of sale, the contractual provisions, the trading documentation, or the manner in which the parties conducted their business.
114. Against such a finding are:-
(i) BHT’s right to sell to it’s customers in the course of its own business;
(ii) credit terms of 60 days;
(iii) the standard conditions of sale which sought to impress the entirety of the purchase monies received, including BHT’s profit margin, with a trust, the latter being monies to which it had no legal or beneficial entitlement;
(iv) the fact that no separate account was ever created for the purchase monies; and
(v) the “all sums due” nature of the retention of title clause.
All of these are characteristics of a charge made in favour of the seller over a fund to which it might have recourse for the discharge of any monies outstanding.
115. Regardless of some differences in the underlying facts between the two cases, I am satisfied that the transaction whereby BHT sold Unitherm’s products to its customers was in substance the same as that with which the Court was concerned in Carroll. In this regard, I differ with respect from the conclusion reached by Peart J. in the High Court. That being so, I am satisfied that in substitution for the right of property which Unitherm had enjoyed in its goods until the point in time when BHT proceeded to resell them, BHT granted to Unitherm a charge in its favour over the proceeds of sale of those goods. That charge was one which required registration under s. 99 of the Companies Act 1963, and in the absence of such registration is invalid and void as against the liquidator.
116. Accordingly, for my part, I would allow the appeal.
Investment Options and Solutions Ltd -v- Companies Acts
[2010] IEHC 107
Laffoy J.
“6. There is a useful résumé of the effect of that provision in MacCann and Courtney on Companies Acts 1963-2006 2008 Ed. at p. 225, in which it is stated:
“An error in the particulars delivered to the Registrar will not affect the validity of the charge, once a certificate of registration has been issued pursuant to [the Act of 1963], s. 104. Courtney [The Law of Private Companies … para. 21.090] argues therefore that an application for rectification may be superfluous, particularly if the court were to impose the same conditions as are applied in the case of an order extending time. In any event, the jurisdiction conferred on the court by s. 106 only allows it to correct an omission or mis-statement in the delivered particulars and does not allow for the deletion of an entire entry. Furthermore, the court’s jurisdiction is confined to rectifying errors in the particulars which are required by law to be delivered to the registrar of companies: there is no jurisdiction to order the rectification of factual errors in particulars the delivery of which is not required by law.”
A number of points arise out of that résumé which require to be commented on in the context of this application.
7. First, s. 104 of the Act of 1963, which deals with the certificate of registration, provides:
“The registrar shall give a certificate under his hand of the registration of any charge registered in pursuance of this Part, stating the amount thereby secured, and the certificate shall be conclusive evidence that the requirements of this Part as to registration have been complied with.”
The conclusiveness of the certificate of registration relates to compliance with the statutory registration requirements. There is a wealth of authority for the proposition that, because of the conclusiveness of the certificate, the registration of the charge cannot be challenged even when the registration requirements have not in fact been observed. On this application, counsel for the applicant relied on three Irish authorities: Lombard and Ulster Banking (Ireland) Ltd. v. Amurec Ltd. [1976-77) I.L.R.M. 222; Re Shannonside Holdings Ltd. (Unreported, High Court, Costello J., 20th May, 1993,) and Re Valley Ice-Cream (Ireland) Ltd. [1998] IEHC 119. Having regard to the effect of s. 104, a question arises as to whether this application is superfluous. Counsel for the applicant answered that question on the basis that the receiver, in reliance on his powers under, inter alia, the deed of mortgage and charge dated 22nd June, 2001, intends selling assets of the notice party and queries may arise as to his authority to do so and as to title derived therefrom, because of the mis-statement of the date thereof. It seems to me reasonable, in order to obviate such potential difficulties, to apply to have the mis-statement of the date of the deed of mortgage and charge in the particulars filed in the CRO rectified.
8. Secondly, I am satisfied that it would not be appropriate to impose the same conditions on this application as are applied in the case of an order extending time. When an application is made under s. 106 for an order extending the time for a registration of a charge, the invariable practice is to include a “without prejudice” provision, for example, an express saver for the rights of any other secured creditors acquired during the period between the expiration of the twenty one days within which the particulars should have been delivered to the CRO pursuant to s. 99 of the Act of 1963 and the actual registration of the particulars on foot of the extension of time. In this case, the CRO search against the company exhibited discloses three charges against the notice party: the deed of mortgage and charge the date on which is incorrectly given as 3rd July, 2001; the mortgage and debenture dated 28th May, 2003 in favour of the applicant, on foot of which the receiver was appointed; and a judgment mortgage registered on 28th September, 2009 by Andrew McNabb. The applicant has put both the notice party and Mr. McNabb on notice of this application and there is proof of service of the notice of motion before the Court. Further, correspondence between Mr. McNabb’s solicitors and the applicant’s solicitors has been exhibited. However, there was no appearance on behalf of Mr. McNabb at the hearing of the application on 15th March, 2010. Nonetheless, I have noted what was stated in the correspondence from Mr. McNabb’s solicitors. Having said that, I am satisfied that, on the facts of this case, it would not be appropriate to include the usual condition which is imposed when an extension of time is granted under s. 106. The position here is that the charge was created on 22nd June, 2001. The Form No. 47 was received in the CRO on the 6th July, 2007, albeit with a mis-statement of the date of creation of the charge. However, the Form No. 47 was received within twenty one days after the date of the creation of the charge, as required by s. 99. Aside from the conclusiveness of the certificate of registration under s. 104, I am satisfied that s. 99(1), which provides that failure to deliver the prescribed particulars within twenty one days after creation of a charge “shall, so far as any security on the company’s property or undertaking is conferred thereby, be void against the liquidator and any creditor of the company” could not be applied in this case so as to render the deed of mortgage and charge dated 22nd June, 2001 void as against Mr. McNabb.
9. On the evidence before the Court, I think it is reasonable to infer that the mis-statement of the date on the Form No. 47 was accidental. I am satisfied that an order should be made under s. 106. That the order will direct the Registrar of Companies to rectify the mis-statement of the date of the instrument creating the charge by substituting 22nd June, 2001 for 3rd July, 2001 in the registered particulars and the certificate of registration.
Frank Bell & Sons Ltd -v- Shaw & ors
[2015] IEHC 108
White Michael J.
“Jurisdiction to Permit Late Registration.
Section 106(1) of the Companies Act 1963 provides that:- The court, on being satisfied that the omission to register a charge within the time required by this Act or that the omission or mis-statement of any particular with respect to any such charge or in a memorandum of satisfaction was accidental, or due to inadvertence or to some other sufficient cause, or is not of a nature to prejudice the position of creditors or shareholders of the company, or that on other grounds it is just and equitable to grant relief, may, on the application of the company or any person interested, and on such terms and conditions as seem to the court just and expedient, order that the time for registration shall be extended, or, as the case may be, that the omission or mis-statement shall be rectified.
“
11. The relief is discretionary on the court being satisfied:-
• That the omission was accidental or due to inadvertence or to some other sufficient case.
• It will not prejudice the position of creditors or shareholders of the Company or
• That it is otherwise just and equitable to grant relief.
12. The Applicants have submitted that the court if it extends time should direct the Registrar of Companies to register the charge in priority to the charge registered in the Companies Office on the 9th September, 2013 by Frank Bell, the director of the Company.
13. Section 99 (1) provides that any charge created by the Company shall insofar as any security on the Company’s property undertaking is conferred thereby could be void against the Liquidator and any Creditor of the Company….. “unless the prescribed particulars are registered within 21 days after the date of its creation.
14. Courtney the Law of Companies 3rd Edition 2012 at 19.08 states:-
“A registerable charge that is not registered will be void against a subsequent creditor even where that creditor is aware of the prior charge. Authority for this is again in a case of Re Monolithic Building Co where the subsequent encumbrancer, who registered his charge notwithstanding his knowledge of the existence of a prior unregistered mortgage, was held by the Court of Appeal, to have priority. His knowledge of the prior charge did not preclude him from insisting on his rights as a registered debenture holder. ”
15. In Re Monolithic Building Company [1915] 1 Ch. 643, the Court of Appeal confirmed that a subsequent chargeholder (who was also director) with notice of the prior unregistered charge was nevertheless entitled to take advantage of legal rights which flowed from the statutory provision, and the unregistered charge remained void against him. Phillmore L.J. described the consequences of non registration in the following terms:- at p667
“It makes void a security; not the debt, not the cause of action, but the security, and not as against everybody, but not as against the company grantor, but against the liquidator, and against any creditor, and it leaves the security to stand as against the company while it is a going concern. It does not make the security binding on the liquidator as successor of the company.”
16. If the court accedes to the application to admit the charge to be registered out of time, the issue arises as to the priority of the charge.
17. Courtney the Law of Companies 3rd Edition 2012 at 19.094 states:-
“It is usual for the court to insist the late registration is to be without prejudice to rights acquired by others”.
This principle is commonly referred to as the Joplin proviso from the early 20th century English case Re Joplin Brewery Co [1902] 1 Ch. 79.
Conclusion
24. The Applicants made serious errors over a number of years in failing to register the Bank of Scotland (Ireland) Limited charge on the Folio and failure to address the issue of notifying the Companies Office of the charge.
25. However the facility letter of the 22nd June, 2006 sets out at Paragraph 3 (i) “an extension of Bank of Scotland (Ireland) Limited’s first specific Charge over the freehold land and premises of the Borrower consisting of an industrial unit at No. 12 Mullingar Business Park, Mullingar, Co. Westmeath”. That facility letter was signed by Frank Bell on the 26th June, 2006. The Company’s opposition to the extension of time to register the charge is thus unreasonable.
26. The Applicants have not established mala fides against Frank Bell. He took financial advice in early 2012 about his loans to the Company and sought legal and Counsel’s advice. He could well have been confused as to what security was held against Unit 12 Industrial Estate, Mullingar, even though he had signed the facility letter of the 22nd June, 2006.
27. It is appropriate to extend the time to register the charge in the Companies Office without prejudice to the rights of Frank Bell. The charge should have priority in the Companies Office from the date of the application to this Court, the 13th February, 2014. It is appropriate that time be extended for a period of 21 days from the date of perfection of the order to allow the charge to be registered in the Companies Office.
Eisc Teoranta, In re
[1991] ILRM 760
McCRACKEN J
“Where either a receiver is appointed on behalf of the holders of any debentures of a company secured by a floating charge, or possession is taken by or on behalf of those debenture holders of any property comprised in or subject to the charge, then, if the company is not at the time in course of being wound up, the debts which in every winding up are, under the provisions of Part VI relating to preferential payments to be paid in priority to all other debts, shall be paid out of any assets coming to the hands of the receiver or other person taking possession as aforesaid in priority to any claim for principal or interest in respect of the debentures.
This section was considered by Lardner J in In re Eisc Teoranta [1991] ILRM 760 in circumstances where a receiver was appointed under a fixed and floating charge, discharged all sums due under the debenture out of the proceeds of sale of the assets subject to the fixed charge and was left in possession of the proceeds of sale of the assets subject to the floating charge. Subsequently an order was made winding up the company and a liquidator was appointed and the issue was whether the receiver was bound to discharge the preferential creditors out of the proceeds of sale of the floating charge before handing them over to the liquidator. Lardner J analysed the section at p. 763 as follows:
Despite the forceful submissions advanced by Ms Finlay, I think s. 98 is sufficiently clear and mandatory to enable a determination of this issue to be made. The section applies first where ‘a receiver is appointed on behalf of the holders of any debentures of a company secured by a floating charge’ which is this case. Then it imposes a clear duty on the receiver in these words ‘the debts which in every winding up are under the provisions of Part VI of this Act relating to preferential payments to be paid in priority to all other debts shall be paid out of any assets coming into the hands of the receiver … in priority to any claim for principal or interest in respect of the debentures.’ In my view the section specifies when this duty arises, namely, where a receiver is appointed on behalf of the holders of any debenture of a company secured by a floating charge. Then, if the company is not at the time, that is the time of the appointment, in the course of being wound up the duty is imposed on the receiver to make the preferential payments. It is noteworthy that the duty is to make these payments in priority to any claim for principal or interest in respect of the debentures. In my view such a claim is the basis of the appointment of the receiver. It is a claim which exists at the time of his appointment.
Accordingly, he held that the receiver was bound to discharge the preferential creditors. In the present case, counsel for the First National Building Society sought to make the distinction that this case had involved a liquidator, rather than a mortgagee, but I must say I fail to see how the distinction affects the construction of the section. The present case is similar to the Eisc Teoranta case in that the receiver in fact discharged the debenture holder’s debt out of the fixed assets, but he did take possession of the assets which were subject to the floating charge. It was sought to be argued that the priority referred to in s. 98 was only in respect of the debts due under the debentures, and as no part of the assets subject to the floating charge were used to discharge any monies due under the debentures, the section never came into effect. This is dealt with in the judgment of Lardner J where he holds, in effect, that once a claim has been made under the debenture, the obligation arises under s. 98 . I cannot see any practical distinction between the two cases, and I can see no good reason to differ from that judgment.
The only remaining point is whether the proviso in the order of Keane J extending time under s. 106 gives priority to the preferential creditors. If the judgment of Lardner J in the Eisc Teoranta case is correct, then the liability to discharge the preferential creditors arose on the appointment of the receiver, and was an existing liability of the company with a preferential status at the time of the order extending time. It was sought to be argued that, while they may have been preferential creditors, they were simply ordinary creditors who were given some form of preferential treatment, but I do not think I can accept that argument. On the appointment of the receiver, the preferential creditors were given a priority under s. 98 , and that priority was a right acquired prior to the time of the registration of the particulars of the mortgage of the First National Building Society.
Accordingly I would direct:
(a) That the receiver is bound to discharge the preferential creditors of the company out of the proceeds of sale referable to the sale of the property at Bagenalstown, Co. Carlow, and
(b) that the proposed payment by the receiver takes priority over any rights of the First National Building Society arising under the mortgage which was registered in its favour on 15 October 1993.”
In the matter of O’Carroll Kent, Limited
In the matter of the Companies (Consolidation) Act, 1908, Sections 93 and 96—Application of Alexander Hull and Company Limited
High Court.
24 February 1955
[1955] 89 I.L.T.R 72
Dixon J.
Summary Summons.
By an agreement dated 21st September, 1954, made between the applicant company, Alexander Hull & Co., Limited, Dublin, of the first part, and O’Carroll Kent, Limited, Dublin, of the second part, and others of the third part, O’Carroll Kent, Limited, agreed to issue a mortgage debenture to the applicants, charging the whole of their assets and undertaking, on payment to them of certain moneys which were duly paid.
A duplicate of the agreement was presented at the Companies Registration Office on 5th October, 1954, and an enquiry made there as to whether it would be accepted for registration as a debenture against O’Carroll Kent, Limited. An official in that office, having examined the document, stated that it was an agreement for a debenture only and could *72 not be accepted for registration. He added that the Registrar of Companies would require the debenture to which the agreement referred to be registered when executed and adjudged duly stamped. The said agreement had been stamped as a debenture by the Revenue Commissioners.
On 10th February, 1955, Dixon, J., in delivering judgment in the High Court on an application by the applicants in the present case for the appointment by the Court of a receiver and manager over the property and undertaking of O’Carroll Kent, Limited, on foot of the said agreement, ruled that that agreement was equivalent to a mortgage debenture, and on that basis granted the application for the appointment of a receiver and manager by the Court.1
In the meantime, the period of twenty-one days for registration of the agreement under s. 93 of the Companies (Consolidation) Act, 1908, had expired. On the 9th February, 1955, however, in reply to representations by the solicitors for the applicant company, the Deputy Registrar of Companies wrote that he would register the agreement when produced to him accompanied by copy of a Court order extending the time for registration.
On the 18th February, 1955, an affidavit by one of the directors of O’Carroll Kent, Ltd., was filed which stated:—
a) That the company appeared to be insolvent and unable to meet its liabilities.
b) That a meeting of the directors of the company had been held on 11th February, 1955, for the purpose of calling a meeting for the winding-up of the company, but had been adjourned to a date to be fixed.
c) That judgment for £884 had been recovered against the company in the High Court of Justice, England, and had not been satisfied.
The present application was ex parte and was for an order by the Court extending the time for registration of the agreement on the ground that the omission to register it within the time prescribed by s. 93 of the Act of 1908 was due to sufficient cause. A copy of the summons, however, had been served on O’Carroll Kent, Ltd.
Henry Moloney, S.C. (with him John Kenny ) for the applicants: The application in this case is made under s. 96 of the Companies (Consolidation) Act, 1908, which provides inter alia that a Judge of the High Court, on being satisfied that the omission to register a mortgage or charge within the period of twenty-one days prescribed by s. 93 of the Act is accidental or is due to inadvertence or to some other sufficient cause, or is not of a nature to prejudice the position of creditors or shareholders of the company, or that on other grounds it is just and equitable to grant relief, may, on the application of the company or any person interested, and on such terms as seem to the judge just and expedient, order that the time for registration be extended, or, as the case may be, that the omission be rectified. It is submitted that the omission in this case to register within the prescribed period is not due to any fault or negligence on the part of the applicants, and the Deputy Registrar of Companies is now prepared to accept the agreement for registration provided that the time for registration is extended by the Court.
He cited
In Re Joplin Brewery Co. Limited [1902] 1 Ch. 79;
In Re Spiral Globe Limited [1902] 1 Ch. 396;
In Re Fireproof Doors, Limited [1916] 2 Ch. 150.
Desmond Bell, S.C. (with him R. P. Humphries ) for O’Carroll Kent, Ltd.:—It is submitted that the document sought to be registered is merely an agreement, and creates no charge on the assets and undertaking of O’Carroll Kent, Limited.
The circumstances provided for in s. 96 of the Companies (Consolidation) Act, 1908, as entitling a judge of the High Court to extend the time for registration, do not obtain in the present case, in that the omission to register does not arise from accident, inadvertence or other sufficient cause.
There is no evidence to show that the extension of time sought, if granted, will not prejudice the position of other creditors of the company. (He referred to S. Abraham & Sons [1902] 1 Ch. 695.)
On 14th February, 1955, a meeting of the directors of O’Carroll Kent, Limited, was held for the purpose of calling a meeting for the winding up of the company, and was adjourned to a date to be fixed, so that steps are actually in train for the appointment of a liquidator. In these circumstances, if the extension of time sought for the registration of the agreement were to be granted, it would operate to the detriment of the interest of the liquidator in the property, and so tend to defeat the purpose of that portion of sub-s. 1 of s. 93 of the Companies (Consolidation) Act, 1908, which relates to the position of a liquidator, in regard to mortgages or charges.
If, however, the Court is disposed to accede to the application for an extension of time, the order should be in the form of that made by Clauson, J., in In Re L. H. Charles and Company Limited [1935] W. N. 16. In that *73 case the judge made an order extending the time for registration of the charge, the order to be without prejudice to any rights of the parties acquired prior to the time when particulars of such charge should be actually registered: the company, however, to be at liberty to apply to discharge the order within twenty-one days after the commencement of winding-up of the company, in the event of a resolution for the voluntary winding-up of the company becoming effective on or before December 16th, 1934.
Dixon, J., in giving judgment, said that he was satisfied that a case had been made for extension of the time for registration of the agreement, and he would make an order extending that time for seven days from the date of the order, without prejudice, however, to rights, if any, of parties acquired prior to the actual date of registration of the agreement.
The fact that a winding-up of O’Carroll Kent, Limited, was in contemplation was not, in his view, a matter which called for provision by him in the making of the order, such as had been made by Clauson, J., in the case cited. If the company were to be wound up, it would be open to the liquidator, if he were of opinion that his interests had been prejudiced by the extension of time, to take such proceedings as would be appropriate.
Independent Trustee Company Ltd -v- Registrar of Companies
[2016] IECA 274 (13 October 2016)
Composition of Court:
Finlay Geoghegan J., Peart J., Hogan J.
Judgment by:
Finlay Geoghegan J.
S
JUDGMENT of Ms. Justice Finlay Geoghegan delivered on the 13th day of October 2016
1. This appeal primarily concerns the power of the Registrar of Companies, the respondent, to record on the publicly accessible electronic Register maintained by her the status of a company as “receivership” where a notice is received that a receiver has been appointed over property of which the company is the legal owner and which it holds on trust for third parties. It also concerns the proper construction of ss. 99(1), 107(1) and 317(1) of the Companies Act 1963 (now ss. 409, 436(1) and (4), 29(1) of the Companies Act 2014) and their application to property of which a company is the legal owner but holds on trust for third parties.
Background to the facts
2. The parties agreed a statement of facts for the hearing of the case before the High Court, relied upon and recited by the trial judge. In summary, they are as follows.
3. The respondent is the officer appointed pursuant s.368 of the 1963 Act to conduct and oversee the registration of companies under the Companies Acts. As part of the duty the respondent is responsible for maintaining and updating entries in the Register of Companies (The “Register”).
4. An electronic Register was created in 1991. In the electronic Register the respondent created entries for each company entitled “status”, in one of the following terms, “normal”, “strike off listed”, “liquidation”, “receivership”, “ceased following cross-border merger” or “dissolved”. The application of these descriptions is a long standing practice, but it is not a requirement of the Companies Acts. The status descriptions are available free of charge to the public and accessible from the Companies Registration Office website (www.cro.ie).
5. The appellant is a pension provider and acts as the trustee to approximately 2,750 unit trust funds. As trustee the appellant holds the legal title to the properties owned by each fund on trust for the beneficiaries of such fund.
6. The fund relevant to this case is the Delta Fund, established by a declaration of trust made on the 2nd January, 2002, and later modified. The Delta Fund is subdivided into a series of sub-funds including Delta Fund 704530 (the “sub-fund”) which this case is concerned with.
7. Pursuant to the declaration of trust, the appellant stands possessed of the sub-fund’s property on trust for the unit holders of the sub-fund. Clause 9.00 of the declaration of trust prohibits the appellant from dealing in the assets or property of the sub-fund on its own account unless authorised to do so by the unit holders of the sub-fund. The provisions of the declaration entitles the appellant to discharge from the sub-fund disbursements and administration expenses, and to be paid remuneration and fees out of the assets of the sub-fund. The appellant is paid property management fees from the rent received from the sub-fund’s property from which disbursements are also discharged.
8. By facility letter dated 20th November, 2007, West Bromwich Commercial Limited (the “lender”) advanced a loan facility of £4,088,000.00 to the sub-fund to finance the purchase of Gloucester House, Silbury Boulevard, Milton Keynes, England (the “property”). The lender’s recourse for the loan was limited to the assets of the sub-fund together with the security outlined therein.
9. By deed of legal charge dated 16th April 2008 between the appellant as trustee of the sub-fund and the lender a fixed charge was created over the legal and beneficial interest in the property. Under its terms the lender was entitled to appoint a receiver over a secured asset upon an event of default specified in the deed. The respondent was notified of the creation of this charge pursuant to s. 99(1) of the 1963 Act and recorded and registered the charge in respect of the appellant.
10. In June, 2011, the lender asserted that an event of default had occurred when the maximum loan-to-value ratio between the property and the loan had been exceeded. The lender appointed two receivers over the property. The receivers’ appointment was limited only to the Property and did not relate to any of the other assets of the sub-fund or the assets of the appellant.
11. In July, 2011, the lender lodged an E8 form notifying the respondent of the appointment of the receivers, in compliance with the obligations set out in s. 107(1) of the 1963 Act. The lender then placed a notice in “The Irish Times” of the receivers’ appointment over the property and also referred to the appellant as being “in receivership”. The placing of the advertisement caused concern to the appellant’s customers and creditors such that it considered it necessary to issue a corrective statement to its creditors and the press.
12. When an E8 form is received by the respondent it is recorded on the Register as a “received” submission against the company to which it relates. On processing the E8 form, a staff member of the Register checks to ensure that the charge under which the receiver is appointed is registered in respect of the company concerned and that the form is fully completed, signed and dated. The form is then registered, and the respondent’s computer system automatically changes the company’s status to “Receivership”.
13. The E8 in relation to the appointment by the lender of the receivers over the Property was received by the respondent on 7th July, 2011, and recorded as “received” in respect of the appellant. Following contact from the appellant’s solicitor on 11th July and correspondence objecting to the registration of the form E8 supported by counsel’s opinion the respondent wrote to the Lender’s solicitors who presented the form E8 asking if they wished to withdraw this form,. This they declined to do by letter of 11th October, 2011, stating:
“It is our understanding that the company holds the legal ownership of the asset in question but does not hold the beneficial interest. Section 107(1) in our view is clear in its terms and requires a filing to be made where a receiver is appointed over the property of a company and does not distinguish between legal and beneficial interests. On this basis, it was and remains our view that a filing was required in this case and we do not intend to withdraw the Form E8.”
14. The respondent agreed to refrain from making any change to the Register regarding the appellants’ “status” pending the trial of the action. In a letter dated 20th June 2012 she stated:
“Whenever the status designation “Receivership” is applied to a company following registration of Form E8 by CRO, the following explanatory note now appears directly beneath the status field:
“Receivership” means that Form E8 (Notice of Appointment of Receiver) per s107 CA 1963 has been filed with the CRO in respect of all or part of the property of the company, which property may or may not be beneficially owned by the company. Please refer to the relevant E8 form(s) for further information.”
15. Limited oral evidence was adduced in the High Court from a director of the appellant which expanded upon the above but it is not necessary to refer to it for the purposes of deciding the issues on appeal, save to record that he explained that the registration of the charge was done by reason of a specific requirement of the lender.
16. Whilst the agreed facts refer to the fund and sub-fund in places as if they were a legal person, it was confirmed at the hearing of this appeal that they are not. The facility letter from the Lender is in fact addressed to the appellant as trustee of the fund.
High Court judgment
17. The appellant in the High Court sought injunctions restraining the alteration by the respondent of its status from “normal” and recording on the register that notification had been received from the lender that receivers had been appointed over the property. It also sought declarations that ss. 107(1) and 317(1) of the Act of 1963 did not apply to the appointment of the receivers over the property.
18. The trial judge (Hunt J.) in a judgment delivered on the 16th January, 2015, [2015] IEHC 12 dismissed all the claims. He held that the appellant held an interest in the property susceptible to the provisions of s. 99(1) of the 1963 Act; that s. 107(1) applied to the appointment of the receivers over the property and that s. 370(1) applied notwithstanding that the appellant was only the legal owner of the property and held it on trust for the unit holders of the sub-fund.
19. The trial judge also decided that the respondent was not acting in excess of the powers granted her by the Companies Acts in applying a “status label” to a company. Furthermore, whilst he accepted that the criticisms made by the appellant of the application of a single “receivership” label were well founded, he considered that the refinement introduced by the explanatory note set out at para. 14 above amounted to a sufficient explanation to meet the criticism.
Appeal
20. The primary focus of the appeal was the alleged error of the trial judge in deciding that the respondents practice of recording the “status” of a company is not ultra vires her powers and that even if intra vires the designation “receivership”, even with the explanatory note, does not accurately represent the position in relation to the appellant in this case.
21. The appellant also contended that the trial judge was in error in his construction of ss. 99, 107(1) and 317(1) of the 1963 Act.
22. The parties each made lengthy written submissions and oral submissions. To a considerable extent these were a repeat of the submissions made at trial and recorded by the trial judge in his judgment. Whilst I have taken them into account I do not consider it necessary to set them out in this judgment.
23. The 1963 Act applied at the time of the lodging of the form E8 in issue in the proceedings and at the time of commencement of proceedings and hence I propose continuing to refer to the relevant sections of that Act notwithstanding the commencement of the 2014 Act.
24. While the application of a “status” designation and in particular that of “Receivership” following the filing of a form E8 is the primary focus of the appeal nevertheless it appears to me more logical to consider first the submission that ss. 107(1) and 317(1) do not apply to the receivers appointed over the property and there was no obligation to register the charge created over the property pursuant to s.99 as the appellant holds the Property on trust for the unit holders.
Sections 99, 107 and 317 of the 1963 Act
25. Central to the appellant’s submissions on the obligations imposed by these sections is that they only apply where the property in question is beneficially owned by a company and that they do not apply where a company is only the legal owner of the property and holds it on trust for third parties.
26. The trial judge correctly approached the construction of the relevant sections in accordance with the interpretative principles set out by the Supreme Court in Howard v. Commissioners of Public Works [1994] 1 I.R. 101 (per Blayney J.), D.B. v. Minister for Health [2003] 3 IR 12 (per Denham J.) and Kadri v. Governor of Wheatfield Prison [2012] IESC 27 (per Clarke J.). As stated therein “the cardinal rule” is that statutes be construed according to the intention expressed in the Acts themselves by the words used. If the words of the statute are clear and unambiguous then no more is necessary than to give them their ordinary meaning. It is only where the meaning of a statute is not plain from the words used that a court may move on to apply other rules of construction. For the reasons explained by Clarke J. in Kadri, s. 5(1) of the Interpretation Act 2005, does not require any change in such approach.
27. Section 107(1) of the 1963 Act imposes an obligation to deliver to the respondent notice of appointment of a receiver “of the property of a company”. This provides:-
“If any person obtains an order for the appointment of a receiver of the property of a company or appoints such a receiver under any powers contained in any instrument, he shall, within 7 days after the date of the order or of the appointment publish in the Companies Registration Office Gazette and in at least one daily newspaper circulating in the district where the registered office of the company is situated, and deliver to the registrar of companies, a notice in the form prescribed.”
28. The term “A receiver of the property of a company” includes in accordance with s. 323(a) of the 1963 Act, inter alia, a receiver “of part only of that property”, unless the contrary intention appears. The 1963 Act did not define what constitutes “property of a company” in relation to land. I am in agreement with the trial judge that in its ordinary meaning it includes any interest in land including as in the case of the appellant the legal ownership of land. Insofar as property law recognises distinctions between legal and equitable interests, the ownership of a legal interest is a real and substantial interest in the land in question.
29. The trial judge in construing s. 107 was entitled to have regard to the nature of the charges to which s. 99(1) applies pursuant to s. 99(2), both being in Part IV of the 1963 Act and part of same legislative scheme. This includes at subpara. (d) “a charge on land, wherever situate, or any interest therein . . .”.
30. It follows that even if the appellant in the deed of charge of 16th April, 2008, only charged the legal interest in the property it would have been a charge to which s. 99(1) applied. However, as recorded in the agreed statement of facts, the deed of charge is not so limited. It is agreed that by the deed a fixed charge was created over the legal and beneficial interest in the property. The appellant as the legal owner of the property under clause 1 of the deed charged “with full title guarantee in favour of the lender, with the payment and discharge of the Loan Obligations, by way of first legal mortgage, the property specified in the schedule”. No other person was required to join in the deed to create the first legal mortgage over the property described by its address in the schedule.
31. The appellant submitted that s. 107(1), notwithstanding the words used, should be construed as applying only to the appointment of a receiver of property of a company where it owns the beneficial interest in such property relied upon the well established principle that, normally, only property beneficially owned by a company will be available for distribution on insolvency to its creditors. That principle, in my view, does not alter the construction of s. 107 in accordance with the plain meaning of the words used. Further I agree with the trial judge that in relation to a company, such as the appellant which, as part of its pension provider business, is the legal owner of multiple properties and other assets held in trust for many thousands of unit holders of funds or sub-funds, it may be of relevance for persons dealing with it to know that receivers have been appointed to properties owned by them as part of that business albeit as trustee. It must be recalled that the appellant was the person which in accordance with the trust was on its own able to charge the legal and beneficial interest in the property to the lender. In no sense can it be considered that a construction of s.107 in accordance with the words used leads to an absurd result.
32. It follows from the above that the lender was obliged pursuant to s.107 of the 1963 Act to file the disputed form E8 and the respondent is entitled to register same.
33. Section 317(1) provides:-
“Where a receiver of the property of a company has been appointed, every invoice, order for goods or business letter issued by or on behalf of the company or the receiver or the liquidator of the company, being a document on or in which the name of the company appears, shall contain a statement that a receiver has been appointed.”
34. Whilst the above section is not directly relevant to any obligations of the respondent in issue in the proceedings it did arise for consideration and for the same reasons I consider it also requires the appellant on the documents referred to in s.317 to include a statement that “a receiver has been appointed” where a receiver has been appointed to property of which it is the legal owner. I would add that whilst I am aware that it is common practice to comply with the obligation imposed by this section by including the phrase “in receivership”, I would observe that such an appellation is not necessarily required by the section and for the reasons set out below could well give rise to a misunderstanding in a case such as the present one. The obligation is to include a statement that “a receiver has been appointed”. This does not appear to prohibit any statement which, for example, identified the property over which the receiver is appointed or any other statement considered necessary to present the true facts.
Designation of status
35. The respondent has since 1991 in the electronic Register created an entry entitled “status” which records that a company’s status is either “normal”, “strike off listed”, “liquidation”, “receivership”, “ceased following cross border merger” or “dissolved” as the case may be.
36. There is no express provision in the Companies Act which authorises such a description or classification of companies. The public Register was maintained by the registrar pursuant to ss. 368 and 370 of the 1963 Act. Section 247 of the Companies Act 1990 also provided:-
“(1) Where, under the Companies Acts, any information relating to any person is required to be delivered to the registrar of companies and is so received by him, the registrar may apply such system of classification as he considers appropriate to such information and may assign symbols of identification to persons or classes of persons to whom any such information relates.”
37. A person includes a company pursuant to the Interpretation Act 2005.
38. The respondent submits that this empowers her to make information available to the public in a clear, organised and accessible manner and that she is given some administrative discretion in the manner in which that is undertaken. In making this submission she relies upon the judgment of Geoghegan J. in the Supreme Court in Kincaid v. Aer Lingus Teoranta [2003] 2 IR 314, where at p. 318 he stated (in relation to the construction of O.39,r.46 of the Rules of the Superior Courts) :-
“The fact that there may be no express provision dealing with the point which has arisen in this case does not mean that the rules cannot be interpreted as implicitly covering the problem.”
39. She also relies upon the comment on that judgment in Dodd “Statutory Interpretation in Ireland” (Dublin, 2008), where he states:-
“Legislation is not expected to cater for every single matter or every single scenario and ascertaining the intention of the legislature is an essential aspect of interpretation.”
40. Both the above were cited with approval by Hardiman J. in McCauley v. Governor of Mountjoy Prison [2012] IESC 57.
41. It was submitted on behalf of the respondent that she is entitled to use the status description which in her submission simply summarises the fact of statutorily mandated notifications which are, in any case, the subject of other publication.
42. I accept that submission subject to one point. It is necessarily implicit in the powers conferred on the Registrar by s. 247 of the Act of 1990 (and its replacement s. 895(1) of the 2014 Act), that she is authorised to organise the information on the Register in a clear, organised and accessible manner. The express statutory power to classify includes the power to create a summary of statutorily mandated notifications. By the same token, however, it is also necessarily implicit in this statutory scheme that any such summary must be clear and must not be misleading.
43. The use of the term “receivership” under a heading of “Status” appears to me misleading. I do not share the view expressed by the trial judge that the explanatory note applied since 2012 coupled with the invitation to inspect the individual form E8 for applicable details is sufficient to meet what he considered to be the well founded criticism (which I share) of the use of the single “receivership” label as part of the status description of the appellant. My reasons for this disagreement are as follows. The respondent has chosen the generic description “Status” to create this summary or classification. “Status” in relation to a company may be used in different ways. It sometimes means the corporate status and in other instances – as was referred to by the trial judge – it may mean the financial status of the company. When, however, the term is used by the respondent in respect of the Register, it appears to me objectively to connote the corporate status.
44. This is emphasised by the other descriptions used for Status which include “strike off list”, “liquidation”, “ceased following cross border merger” or “dissolved” as well as “normal”. Each of the first four relate to a change or pending change in the normal corporate status of a company. Liquidation is the term applied following a notification of appointment of a liquidator. A liquidator is appointed where either a court order has been made or a resolution passed for the winding up of the company. Following the commencement of a winding up the corporate status changes and there is a pending inevitable dissolution. In Re Greendale Developments Ltd. [1997] 3 IR 540, Laffoy J. stated at p.547:-
“Once a winding up order is made, the company is doomed to extinction”.
Similarly the other terms used connote the actual or potential extinction of the company.
45. However, I accept as correct the appellant’s submission that the appointment of a receiver to property of a company, and in particular to part of the property of a company does not necessarily bring about a change or a pending inevitable change in the corporate status of the company. Furthermore, it is clear that the use of the label “receivership” when applied to the field “Status” on the electronic Register does imply a change or pending inevitable change in the corporate status of a company which, in the circumstances, would be misleading. The explanatory note is not sufficient to correct the inaccurate impression given to the public by the use of the label “receivership” that there has been or will inevitably shortly be a change in the corporate status of the appellant.
46. The reason is that unlike the commencement of a winding up of a company and the appointment of a liquidator, the appointment of a receiver to property of a company may, depending upon the property over which the receiver is appointed, have significantly different consequences for the company. At one end of the scale a company may have charged all of its property, assets and undertakings by way of fixed and floating charges to a lender. Where that lender appoints a receiver (very often as a receiver and manager) such a person will then be in control of the entire undertaking and business of the company and if all are sold may ultimately lead to the demise of the company. However, at the other end of the scale is an appointment such as that which gave rise to these proceedings; a company which is the owner or legal owner of multiple properties and a receiver is appointed only over one isolated property and the remainder of the properties and business of the company remain unaffected. Accordingly, in such circumstances the sale by a receiver of an individual property would not interfere with the continuation of the company as a corporate entity.
47. Section 319 of the 1963 Act provides limited recognition of such potential difference by imposing greater reporting obligations on a receiver appointed over the “whole or substantially the whole” of the property of a company pursuant to debentures secured by a floating charge.
48. In summary, it appears to me that the use by the respondent of the designation “receivership” – even with the explanatory note in a classification identified as the “status” of a company – is ultra vires her powers under the Companies Acts. For the reasons already stated, such a designation is unclear and is apt to mislead in that it implies incorrectly that there has been a change in the corporate status of a company by reason of the appointment of a receiver to part of the property of the company when, in fact, no such change in corporate status has taken place or will inevitably take place.
49. It follows from this analysis that I accept that the respondent has the statutory power and duty to organise the information on the electronic Register (and the paper Register if that is applicable) in a clear, organised and accessible manner and is given some administrative discretion in the manner in which that is undertaken. The submission made was that the intention is to summarise the fact of statutorily mandated notifications. This is something the respondent is clearly authorised to do. The respondent is authorised to summarise in a clear way the fact of notifications including that of the appointment of a receiver to all or part of the property of a company (including that of which it is the legal owner and holds on trust) and in the summary to direct a person to the form of notification for the relevant details. It is, however, impermissible to do so in a manner which implies that an appointment of a receiver to property of a company causes a change or a pending inevitable change in the status of the company.
Relief
50. I accordingly consider that the appeal should be allowed in part. The respondent remains entitled to file the E8 received in respect of the receivers appointed over the property of the plaintiff, but is not permitted to change the “status” of the appellant from “normal” to “receivership”. I would propose that the Court should hear the parties as to the precise form of relief in accordance with this judgment.
Peleton Ltd (in recievership) -v- Companies Acts
[2011] IEHC 479 (19 December 2011)
Judgment of Miss Justice Laffoy delivered on 19th day of December, 2011.
1. The application
1.1 Although this is not disclosed on the originating notice of motion dated the 11th October, 2011 which initiated this application, the applicant is the National Asset Management Agency (the Applicant).
1.2 By a Deed of Appointment of Statutory Receiver dated 16th June, 2011, the Applicant, in pursuance of the powers contained in s. 147 of the National Asset Management Agency Act 2009 (the Act of 2009) appointed Declan Taite (the Receiver) to be Statutory Receiver of all the assets referred to and comprised in and charged by the security documents listed in the schedule thereto. The schedule referred to “Mortgage Debentures dated 15 March 2004 and 20 October 2004 between Peleton Limited of the one part and Allied Irish Banks Plc of the other part”. On 15th July, 2011 the Companies Registration Office (CRO) received a form E8 (notice of appointment of a receiver) in relation to the appointment of the Receiver. By letter dated 29th September, 2011 the CRO returned the form E8 because there was no record of a mortgage dated 20th October, 2004 in the CRO and sought clarification.
1.3 On this application the Applicant seeks an order pursuant to s. 106 of the Companies Act 1963 (the Act of 1963) extending the time for registration in the CRO of a “Deed of Charge” dated 20th October, 2004 entered into between Peleton Limited (the Company) of the one part and Allied Irish Bank Plc (the Bank) of the other part.
2. Section 106
2.1 Sub-section (1) of s. 106, insofar as it is material to this application, provides as follows:
“The court, on being satisfied that the omission to register a charge within the time required by this Act . . . was accidental, or due to inadvertence or to some other sufficient cause, or is not of a nature to prejudice the position of creditors or shareholders of the company, or that on other grounds it is just and equitable to grant relief, may, on the application of the company or any person interested, and on such terms and conditions as seem to the court just and expedient, order that the time for registration shall be extended, . . ..”
The notes on the Court’s jurisdiction under s. 106 and on the effect of an order under that section contained in MacCann and Courtney Companies Acts 1963 – 2009 (2010 Ed.) outline the current state of the law accurately.
3. The evidence to support the application
3.1 The Applicant’s application was grounded on an affidavit sworn on 11th October, 2011 by a solicitor in the firm of solicitors acting for the Applicant. There was exhibited therein a plain photocopy of a deed described on the back sheet as “Mortgage/Charge” dated 20th October, 2004 made between the Company of the one part and the Bank of the other part, which appeared to be properly executed by the Company. I will refer to this deed as “the October 2004 Charge”. The October 2004 Charge created a mortgage by sub-demise over the property described in the schedule thereto as follows:
“. . . the premises demised and described in an Indenture of Lease dated the 24th day of June, 2004 made between John Fraher, Jack Ronan and Richard Pratt of the one part and [the Company] of the other part being the premises known as Unit 5 Clonmel Retail Park, The Poppyfield Centre at Clonmel in the county of Tipperary . . ..”
The photocopy exhibited did not contain any evidence that the appropriate stamp duty had been paid in respect of the deed. There was also exhibited a copy of Folio 3380L of the Register of Leaseholders, County Tipperary which related to the leasehold interest created by what was described as a Sub-Lease dated 25th June, 2004 from John Fraher, Jack Ronan and Richard Pratt to the Company for the term of twenty five years from 1st April, 2004 at the yearly rent specified in the instrument. From the description of the property on Folio 3380L that was obviously the lease intended to be referred to in the October 2004 Charge. I will refer to it as “the June 2004 Sub-Lease”. The Folio disclosed that on 6th April, 2009 the Company was registered as full owner with absolute title on Folio 3380L. Two charges were registered as burdens on the Folio in the following order of priority:
(1) On 6th April, 2009 a charge for present and future advances repayable with interest was registered and the Bank was registered as owner of the charge.
(2) On 9th March, 2006 a charge for present and future advances repayable with interest was registered and Musgrave Ltd. (Musgrave) was registered as owner of the charge.
I note that the entry on Folio 3380L suggests that stamp duty was paid on the charge registered at (1) above.
3.2 There was an averment in the grounding affidavit that, having made appropriate inquiries, it appeared that the delivery of the particulars in relation to the October 2004 Charge to the CRO in accordance with s. 99 of the Act of 1963 was, due to inadvertence, never attended to. However, the nature of the inquiries made by the solicitors for the Applicant was not outlined.
3.3 There was also exhibited in the grounding affidavit a CRO printout dated 10th October, 2011 in relation to the Company, which disclosed that particulars of the following charges created by the Company had been filed in the CRO:
(a) A Mortgage Debenture dated 15th March, 2004 (the March 2004 Debenture) in favour of the Bank, which was registered on 24th March, 2004.
(b) A Charge on land created on 21st December, 2004 (the December 2004 Charge) in favour of the Bank. The particulars of the property charged disclosed that the property charged was the property the subject of the October 2004 Charge. In other words, the December 2004 Charge appeared to be a replica of the October 2004 Charge. The December 2004 Charge was registered on 23rd December, 2004.
(c) A charge in favour of Musgrave, which was created on 23rd February, 2006 and registered on 7th March, 2006.
3.4 When the application first came before the Court on 7th November, 2011 there was proof of service of the application on the Receiver, the Bank, the Company and the CRO. The Court was furnished with a letter from the CRO dated 13th October, 2011 indicating that the Registrar had no objection to the application. A letter dated 27th October, 2011 directly to the Applicant from P. J. O’Driscoll & Sons, (solicitors for the Company) was also before the Court. The letter did not signify consent to the extension of time. It was commented that it appeared that the validity of the Receiver’s appointment was called into question and a meeting was requested.
3.5 When the matter was before the Court on 7th November, 2011, the Court sought an explanation as to the registration of the December 2004 Charge, which appeared to replicate the October 2004 Charge. There is now before the Court the following additional evidence:
(a) a supplemental affidavit sworn on 9th December, 2011 by the solicitor who swore the grounding affidavit exhibiting correspondence to and from the Bank and to and from the solicitors who acted for the Company in 2004 (the Company’s solicitors); and
(b) an affidavit sworn on 15th December, 2011 by Neil Campbell, a solicitor of the Bank. Mr. Campbell was not personally involved in the original security process and his explanation of what happened is based on his examination of the Bank’s records and correspondence with the Company’s solicitors. However, he has acknowledged in his affidavit that, while the Company’s solicitors were responsible for registration in the Land Registry, he could find no undertaking from them, which “left the Bank with the obligation to ensure compliance with the provisions of the Companies Acts governing the registration of charges”.
(c) A certified copy of the dealing which was lodged in the Land Registry to register the June 2004 Lease and the incumbrances in favour of the Bank obtained from the Property Registration Property (PRA).
One document which has not been exhibited, which might cast some light on the unusual facts disclosed in the printout, is a copy of the form (Form C1) on foot of which the particulars of the December 2004 Charge were registered in the CRO. However, notwithstanding that omission, I think the full story emerges from the documentation before the Court.
4. The full story
4.1 The Company’s solicitors lodged the original dealing which led to the opening of Folio 3380L and the registration of the Company and the Bank’s charge thereon on 15th November, 2004, that is to say, after the creation of the October 2004 Charge, but before the creation of the December 2004 Charge. The papers lodged included the June 2004 Lease and what was described in the schedule of documents lodged as “AIB Debenture 15th March, 2004”. There was also lodged in the Land Registry a letter from the Bank dated 20th October, 2004, addressed to the Registrar, wherein the Bank consented to the use of the “enclosed Mortgage/Debenture dated 15th March, 2004 for the purposes of registration”. From the documents obtained from the PRA, it appears that the March 2004 Debenture was registered in the Registry of Deeds on 2nd April, 2004. The first part of the first schedule, the purpose of which was to set out the details of the property thereby specifically mortgaged by demise, was left blank.
4.2 The application to the PRA was, in effect, an application for first registration of the leasehold interest created by the June 2004 Lease. It took some time to process and, as Folio 3380L discloses, registration was not complete until April, 2009.
4.3 By letter of 7th October, 2008 the PRA informed the Company’s solicitors that the documents presented could not be registered until the defect outlined therein had been remedied. The defect was set out as follows:
“The first part of the first schedule of the Deed of Charge has not been completed. Please attend to the same.”
That defect obviously related to the March 2004 Debenture, the original of which was obviously returned to the Company’s solicitors at that stage, as is noted on the copy thereof retained. It was also noted on the copy retained that €630 stamp duty had been paid.
4.4 By letter dated 5th December, 2008 the Company’s solicitors responded to the PRA query. The letter stated that the writer was returning “the Deed of Charge dated 20th October, 2004 referring to the Charged Property in the schedule thereto”. It is clear that it was the March 2004 Debenture which was returned by the PRA and that the October 2004 Charge had not been previously lodged in the Land Registry. The copy of the October 2004 Charge held by the PRA was exactly the same as the copy exhibited in the grounding affidavit on this application. It showed no particulars of stamping. I surmise that it was assumed by the PRA official that the copy document it received with the letter of 5th December, 2008 was a copy of the original charge (the March 2004 Debenture), which it had returned to the Company’s solicitors on 7th October, 2008. While that was not the case, it explains why the PRA registered, as a burden on Folio 3380L, a charge which had not been stamped. However, that deficiency has been corrected, because on 7th December, 2011 the Revenue issued a stamp certificate establishing that the stamp duty and penalties have been paid in relation to the October 2004 Charge.
4.5 To summarise the title position, the October 2004 Charge has been registered as a burden on Folio 3380L, having been lodged with the PRA in December 2008. However, as I have pointed out, the date of the lease under which the property is held by the Company is incorrectly stated in the schedule to the October 2004 Charge.
4.6 Returning to how the December 2004 Charge came into existence and how particulars thereof came to be filed in the CRO, I assume that Mr. Campbell did not have the benefit of seeing the certified copy of the documents lodged originally in the Land Registry and now held by the PRA. In my view, it is absolutely clear that the October 2004 Charge was not lodged in the Land Registry with the dealing on 15th November, 2004. Therefore, I believe the Company’s solicitors retained the original of the October 2004 Charge. The original has not been produced on this application. However, it seems from Mr. Campbell’s inquiries and investigations that the error in failing to have particulars of the October 2004 Charge delivered to the CRO, within the time limited by, and in accordance with, s. 99 of the Act of 1963, was identified at some point and that that led to the execution of the December 2004 Charge. What appears to have happened was that although the October 2004 Charge had been executed by the Company, that fact was ignored and a replica was executed by the Company and the date 21st December, 2004 was inserted in it. The original of the December 2004 Charge has been put before the Court, as I understand it, it having been received from the Company’s solicitors. The December 2004 Charge was never stamped, and, it would appear, was never intended to be acted upon by the Bank, although particulars of it were delivered to the CRO for registration as if it were an effective charge. Clearly this should not have happened. The Bank had the benefit of the October 2004 Charge and it apparently intended to rely on it. Accordingly, an application should have been made at that stage under s. 106 to extend the time to register the October 2004 Charge.
4.7 There is exhibited in the affidavit of 9th December, 2011 a letter dated 28th November, 2011 from AIB, NAMA Case Management section, in Cork, signed by Gearoid Reddington, Manager, referring to this application and stating:
“We are writing to confirm that Allied Irish Banks Plc is not relying upon the charge dated 21st December, 2004 registered in the Companies Registration Office. We also confirm that we will take all necessary steps to vacate this charge and clear it from Companies Registration Office details.”
5. Conclusions and order
5.1 I am satisfied that the Applicant is a “person interested” who may seek relief under s. 106, having taken over the security of the Bank under the October 2004 Charge. I am also satisfied, on the basis of the evidence now before the Court in the form of Mr. Campbell’s affidavit, that the failure to deliver particulars of the October 2004 Charge to the CRO in accordance with s. 99 of the Act of 1963 was due to inadvertence on the part of the Bank, which has accepted that the delivery of the particulars was its responsibility. However, the manner in which the Bank set about rectifying the omission to register the particulars in accordance with s. 99 in December 2004 was wholly inappropriate. Therefore, as a condition to granting the relief sought on this application, I intend requiring the Bank to –
(a) give an undertaking to stamp the December 2004 Charge, and
(b) in accordance with the letter of 28th November, 2011, to give an undertaking to the Court confirming that it will not rely on the December 2004 Charge and will take all steps necessary to ensure that it cannot be relied on by executing a Deed of Release in favour of the Company and having a memorandum of satisfaction registered in the CRO.
I propose joining the Bank as a notice party to this application to procure such undertaking.
5.2 That leaves the issue of priority between the Bank and Musgrave. The Applicant has exhibited a number of letters in its original grounding affidavit relevant to that issue. The first, chronologically, is dated 17th February, 2004 and is from Ronan Daly Jermyn, Solicitors for Musgrave, to the Bank in which it is stated that Musgrave proposed to take “a charge over a Supervalu at Clonmel, County Tipperary which is leased to [the Company]”. I assume that that is the property now registered in Folio 3380L County Tipperary. The letter stated the understanding that the Bank had a first charge over the property, stating that Musgrave wished to take a second charge to be stamped to cover €750,000 and consent to that was sought. The response was a letter of 8th March, 2004 from the Bank, which was copied to the directors of the Company. In it the Bank confirmed that it was agreeable to Musgrave taking a second charge over the property “subject however to your agreement that AIB Security shall rank first in order of priority for all indebtedness of [the Company] up to a limit of €2,500,000 together with interest costs and other charges”. It was stated that the Musgrave security would rank second in order of priority “for all indebtedness of [the Company] up to a limit of €750,000 together with interest costs and other charges” and that the Bank’s security would “rank third in order of priority for all sums thereafter”. Over a year later, by letter dated 22nd April, 2005, Ronan Daly Jermyn confirmed that their client was happy with the order of priorities set out in the letter of 8th March, 2004. Broadly speaking, that agreement is reflected in the manner in which the Bank’s charge and the Musgrave charge were registered as burdens on Folio 3380L.
5.3 The usual form of order made on an application under s. 106 contains a proviso that the order is without prejudice to the rights (if any) of parties acquired between the date of creation of the charge and the date of its actual registration in the CRO. While the general rule is that a subsequent chargee will have priority over a chargee who has failed to register in time, even though he had notice of the unregistered charge at the time he obtained his own charge, it is well settled that, if the subsequent charge is expressly subordinated to the earlier charge, the earlier charge will gain priority after late registration has been effected (Re Clarets Limited; Spain v. McCann [1978] ILRM 215).
5.4 Notice of this application was not given to Musgrave. It was averred in the Applicant’s grounding affidavit that it was at all times accepted by all parties that the Bank’s charge would rank in priority to the charge of Musgrave. However, that is not entirely accurate on the basis of what is contained in the letters to which I have referred above, and, in particular, the letter of 8th March, 2004. It is also averred that acceding to the application would not prejudice Musgrave or any third party. I simply do not know what the position is as regards “any third party”. As regards Musgrave, it would appear that there was an agreement between Musgrave and the Bank. It is open to the Applicant, as successor in title to the Bank, to rely on that agreement, if a dispute arises with Musgrave. I propose including in the order the usual proviso which will not prejudice the Applicant because it will only save rights of third parties, including Musgrave, which can be established.
5.5 Accordingly, subject to the Bank giving the undertaking referred to at para. 5.1 above, there will be an order extending the time for registration of the particulars of the October 2004 Charge for twenty one days from the date of perfection of the order, but the order will be expressly without prejudice to the rights, if any, of parties acquired between the date of the creation of the said charge and the date of actual registration. Finally, the order will amend the originating notice of motion to show that the application is brought by the Applicant.
5.6 Counsel for the Applicant referred the Court to s. 218 of the Act of 2009, which provides that an acquired bank asset is not invalidated or rendered void or voidable as against the Applicant by, inter alia, s. 99 of the Act of 1963. The conclusions set out above were not influenced by that provision.
Frank Bell & Sons Ltd -v- Shaw & ors
[2015] IEHC 108 (18 February 2015)
JUDGMENT delivered the 18th February, 2015 by Mr. Justice Michael White
1. J.A. Shaw & Co., Solicitors (the Applicants) have applied by way of originating notice of motion for an order pursuant to Section 106 of the Companies Act 1963 extending the time for the registration of a charge created by deed of mortgage and charge dated the 25th April, 2003 between Frank Bell & Son Limited as mortgagor and Bank of Scotland (Ireland) Limited as mortgagee. The mortgage and charge relates to an industrial unit at Number 12 Mullingar Business Park, Mullingar, Co. Westmeath registered on Folio 11661F of the Register County Westmeath.
History
2. By facility letter of the 9th December, 2002 Frank Bell & Son Limited (the Company) was offered a loan of up to €750,000 for a term of 21 years, to refinance borrowings from ACC Bank and Anglo Irish Bank. The offer was accepted by the directors of the Company on the 7th January, 2003. The security covered the borrowers general liabilities to Bank of Scotland (Ireland) Limited. The legal charge to be taken was on the industrial unit at Number 12 Mullingar Business Park, Co. Westmeath and another property the Gaelscoil Grange, Mullingar, Co. Westmeath.
3. The Applicants gave a Solicitor’s undertaking in the standard Law Society form on the 26th February, 2003.
4. Mr. Seamus Tunney on behalf of the Applicants in his affidavit sworn on the 12th February, 2014 stated that due to inadvertence the deed of mortgage and charge was not registered, and there was a failure to deliver particulars of the charge to the Registrar of Companies within 21 days, in compliance with Section 99 of the Companies Act 1963. The charge was registered on the folio on the 27th August, 2013.
5. The Company received a further loan facility on the 26th January, 2005 from Bank of Scotland (Ireland) Limited for €500,000. The amount advanced to the Company on the original facility of 9th December, 2002 was discharged in full by the Company by the 10th October, 2005. The loan facility of the 26th January, 2005 had also been repaid by July 2005.
6. A subsequent facility letter of the 22nd June, 2006 was offered by Bank of Scotland (Ireland) Limited to the Company for an amount up to €400,000 over a term of five years. The security was an extension of the Charge on No. 12 Mullingar Business Park, Mullingar, Co. Westmeath. This facility offer was accepted by the directors of the Company and signed on 26th June, 2006. There is still an outstanding sum due to Bank of Scotland (Ireland) Limited on amounts advanced by this facility.
7. An original charge registered on Folio 11661F in favour of ACC Bank was cancelled on the 8th July, 2013.
8. Frank Bell a director of the Company registered a charge in the Companies Office on the 9th September, 2013 which had been created on the 28th August, 2013 for an amount of €842,925 in his favour. Subsequently a charge in his favour was registered on Folio 11661F on the 11th September, 2013.
9. The Applicants had acted for the company over many years and had been involved in many transactions. Their professional relationship broke down, as evidenced by a letter of the 9th July, 2013 from Denis F. Shaw of the Applicant’s firm to Mr. Frank Bell.
10. It is acknowledged by the Applicants that in order to register the original deed of mortgage and charge, the reference to the Gaelscoil property at Grange, Mullingar was deleted, as Bank of Scotland (Ireland) Limited by letter of the 8th November, 2005 to the Applicants had released their charge over this property.
Jurisdiction to Permit Late Registration.
Section 106(1) of the Companies Act 1963 provides that:- The court, on being satisfied that the omission to register a charge within the time required by this Act or that the omission or mis-statement of any particular with respect to any such charge or in a memorandum of satisfaction was accidental, or due to inadvertence or to some other sufficient cause, or is not of a nature to prejudice the position of creditors or shareholders of the company, or that on other grounds it is just and equitable to grant relief, may, on the application of the company or any person interested, and on such terms and conditions as seem to the court just and expedient, order that the time for registration shall be extended, or, as the case may be, that the omission or mis-statement shall be rectified.
“
11. The relief is discretionary on the court being satisfied:-
• That the omission was accidental or due to inadvertence or to some other sufficient case.
• It will not prejudice the position of creditors or shareholders of the Company or
• That it is otherwise just and equitable to grant relief.
12. The Applicants have submitted that the court if it extends time should direct the Registrar of Companies to register the charge in priority to the charge registered in the Companies Office on the 9th September, 2013 by Frank Bell, the director of the Company.
13. Section 99 (1) provides that any charge created by the Company shall insofar as any security on the Company’s property undertaking is conferred thereby could be void against the Liquidator and any Creditor of the Company….. “unless the prescribed particulars are registered within 21 days after the date of its creation.
14. Courtney the Law of Companies 3rd Edition 2012 at 19.08 states:-
“A registerable charge that is not registered will be void against a subsequent creditor even where that creditor is aware of the prior charge. Authority for this is again in a case of Re Monolithic Building Co where the subsequent encumbrancer, who registered his charge notwithstanding his knowledge of the existence of a prior unregistered mortgage, was held by the Court of Appeal, to have priority. His knowledge of the prior charge did not preclude him from insisting on his rights as a registered debenture holder. ”
15. In Re Monolithic Building Company [1915] 1 Ch. 643, the Court of Appeal confirmed that a subsequent chargeholder (who was also director) with notice of the prior unregistered charge was nevertheless entitled to take advantage of legal rights which flowed from the statutory provision, and the unregistered charge remained void against him. Phillmore L.J. described the consequences of non registration in the following terms:- at p667
“It makes void a security; not the debt, not the cause of action, but the security, and not as against everybody, but not as against the company grantor, but against the liquidator, and against any creditor, and it leaves the security to stand as against the company while it is a going concern. It does not make the security binding on the liquidator as successor of the company.”
16. If the court accedes to the application to admit the charge to be registered out of time, the issue arises as to the priority of the charge.
17. Courtney the Law of Companies 3rd Edition 2012 at 19.094 states:-
“It is usual for the court to insist the late registration is to be without prejudice to rights acquired by others”.
This principle is commonly referred to as the Joplin proviso from the early 20th century English case Re Joplin Brewery Co [1902] 1 Ch. 79.
The Allegation of Mala Fides against Frank Bell
18. In his supplemental affidavit of the 24th March, 2014, Mr. Seamus Tunney, Solicitor, challenges the bona fides of Frank Bell as to his state of knowledge about the deed of mortgage and charge and also his bona fides in registering the charge on the folio and in the Companies Office in respect of the personal debt due to him from the Company. This affidavit was sworn in response to the original affidavit of Frank Bell sworn on the 10th March, 2014.
19. In particular at paragraph 12 of his Affidavit of the 24th March, 2014 Mr. Tunney views with considerable scepticism the assertion by Mr. Bell that he had been engaged in financial planning in 2012 and had taken advice as to how his loan to the Company could be protected.
20. There is also considerable controversy between the Applicants and Frank Bell, as to the continued existence of a charge on Folio 11661F. Mr. Bell has stated in his affidavits that on a number of occasions he had discussions with Bank of Scotland (Ireland) Limited and with the Applicants about security held over various company properties. He states in his affidavits that his understanding was that the industrial unit 12 was no longer the subject of a charge from Bank of Scotland (Ireland) Limited, as he had sought to engage the bank with providing alternative security by way of other property development sites.
21. In his affidavits Frank Bell has exhibited a number of documents to support his bona fides in registering the charge on the Folio and in the Companies Office.
22. The documents are:-
(1) Pre Lease enquiries in respect of Unit 12 Mullingar Business Park arising from a proposed Lease to Gosseraft Kitchens and Clear Electrical, where he refers to Requisition 6.1 which asks the question if the property is subject to any Mortgage in Charge. The answer given by the Applicants was “No. Prior ACC Charge registered at Entry No. 2 Part 2 of Folio is discharged.” The Company contends that this reflects the information given to him that the relevant Folio 11661F was free of charge.
(2) A letter of the 6th May, 2011 from the Applicants to the Company, when at sub paragraph 8 to the letter states “Folio 11661F Co. Westmeath registered to Frank Bell & Son Limited, this comprises Unit 12 Mullingar Business Park.
This property is subject to a mortgage with ACC from 2001 and it is to be clarified if this mortgage has been fully cleared and if so we can take up a discharge as referred to in respect of the previous charges”.
(3) An extract from his own diary of the 28th November 2011, wherein he notes “Denis, what undertaking has he on €400,000 with BOS and how long, it was six sites in Ardmore and they had an undertaking with Shaws”. The Company contends, that reflects the position as Mr. Bell understood it, that the security held by Bank of Scotland (Ireland) Limited was over six sites in Ardmore rather than Unit 12 Industrial Estate, Mullingar.
(4) Counsel’s Opinion of the 5th December, 2012 where advice was tendered to Frank Bell about securing loans advanced to the Company of €500,000 to €600,000, when he was advised that it was appropriate to register a charge.
23. Mr. Bell also relies on the affidavit of Jim Stafford, accountant sworn on the 24th April, 2014 stating that on the 5th January, 2012 he gave financial advice to Frank Bell in the context of monies owing to him by the Company and outlined the options opened to Frank Bell including taking a charge over the assets of the Company.
Conclusion
24. The Applicants made serious errors over a number of years in failing to register the Bank of Scotland (Ireland) Limited charge on the Folio and failure to address the issue of notifying the Companies Office of the charge.
25. However the facility letter of the 22nd June, 2006 sets out at Paragraph 3 (i) “an extension of Bank of Scotland (Ireland) Limited’s first specific Charge over the freehold land and premises of the Borrower consisting of an industrial unit at No. 12 Mullingar Business Park, Mullingar, Co. Westmeath”. That facility letter was signed by Frank Bell on the 26th June, 2006. The Company’s opposition to the extension of time to register the charge is thus unreasonable.
26. The Applicants have not established mala fides against Frank Bell. He took financial advice in early 2012 about his loans to the Company and sought legal and Counsel’s advice. He could well have been confused as to what security was held against Unit 12 Industrial Estate, Mullingar, even though he had signed the facility letter of the 22nd June, 2006.
27. It is appropriate to extend the time to register the charge in the Companies Office without prejudice to the rights of Frank Bell. The charge should have priority in the Companies Office from the date of the application to this Court, the 13th February, 2014. It is appropriate that time be extended for a period of 21 days from the date of perfection of the order to allow the charge to be registered in the Companies Office.
Bank of Ireland Finance v. Daly Ltd.
[1978] IR 80
McMahon J. McMahon J.
12th December 1977
This action has been discontinued against all the defendants except D. J. Daly Ltd. (the company). The only issue in the case now is the claim of the plaintiff bank to be entitled to an equitable charge of £54,000 on certain lands at Mountfieldstown in the county of Cork by subrogation to the vendor’s lien of the Borrowdale Property Co. Ltd.
The claim arises in the following manner. In September, 1969, the bank agreed to make a loan of £60,000 to the company to enable it to purchase 42 acres of land at Mountfieldstown in the county of Cork and it was agreed that, in consideration of the advance, the company’s solicitors would lodge the title deeds of the property with the bank on the completion of the transaction and that they would hold the title deeds in trust for the bank pending such completion. In implementation of the agreement the company’s solicitors (P. J. O’Driscoll and Son) wrote a letter dated the 10th October, 1969, to the bank in the following terms:
“Re D. J. Daly Limited. Lands at Mountfieldstown. Further to our recent telephone conversation with you in accordance with our client’s instructions we hereby undertake that in consideration of an advance of £60,000 we will lodge the title deeds of the above property containing approximately 42 acres with you on the completion of this transaction and pending its completion we will hold the title documents in trust for you. We further undertake to lodge with you the amount of your advance on the completion of the re-sale of this property which we anticipate to be within six months.”
The bank advanced the sum of £60,000 to the company by cheque dated the 10th October, 1969. The unpaid balance of the purchase money amounting to £54,000 was paid by the company out of the sum of £60,000 advanced by the bank.
The vendors were the Borrowdale Property Co. Ltd. and they duly conveyed the lands to the companybut the title deeds were not lodged with the bank on the completion of the purchase. The title deeds subsequently came into the possession of the bank about the month of February, 1974, in circumstances which were the subject matter of oral evidence by the only two witnesses called in the action, namely, Mr. James Pile who is a bank official and Mr. Barry O’Driscoll, the solicitor for the company. The remaining facts in the case were admitted in an agreed statement of facts.
The issue between the bank and the company arose because an equitable mortgage by deposit of title deeds created by the company would have been void for want of registration under s. 99 of the Companies Act, 1963.
The company was in liquidation and the liquidator, on behalf of the creditors, contested the bank’s claim on two grounds:
(1) Having stipulated in the contract for the loan to the company for security by way of an equitable charge, the bank was precluded from claiming to be subrogated to the vendor’s lien, and
(2) If the bank was entitled to be subrogated to the vendor’s lien, that lien constituted a charge created by the company and was void for want of registration under s. 99 of the Companies Act, 1963.
So far as concerns the matters which were in controversy on the oral evidence given in this action, it is sufficient to say that I am not satisfied that Mr. O’Driscoll gave the title deeds to Mr. Pile with the intention of depositing them as security for the advance. It is not sufficient that, after an agreement to give security, title deeds come into the hands of the creditor for another purpose: Ex parte Broderick.5
The deposit of title deeds by a debtor is prima facie evidence of an agreement for a mortgage of the estate. The company submitted that the solicitor’s letter of the 10th October, 1969, was a written memorandum of an agreement by the company to lodge the title deeds with the bank on the completion of the sale so as to create an equitable mortgage, and that that agreement was sufficient in itself, without an actual deposit of the title deeds, to create an equitable charge on the principle that an agreement in writing, however informal, by which any property is to be security for a debt creates an equitable charge: Ex parte Crossfield.8 In my view this submission is correct and is supported by the decision in Simmons v. Montague .10 In that case the debtor deposited the title deeds of his hotel with a map of the property, but he had a possessory title only to part of the hotel. The deposit was held to be sufficient evidence of an agreement to charge all his interest in the hotel, including that part held under a possessory title and in respect of which no deeds were deposited.
In my opinion the bank was entitled to an unpaid vendor’s lien by subrogation up to the completion of the sale to the company and, thereafter, the bank was entitled to an equitable charge by virtue of the agreement evidenced by Mr. O’Driscoll’s letter of the 10th October, 1969.
The company contends that the bank, having obtained that equitable charge, is precluded from claiming to be subrogated to an unpaid vendor’s lien after the completion. The authorities show that where the vendor has stipulated for and has obtained a legal charge on the property there is no vendor’s lien: Capital Finance Co. Ltd. v. Stokes .11 Where a creditor has provided the purchase money he cannot claim to be subrogated to an unpaid vendor’s lien where he has stipulated for and obtained a legal charge: Burston Finance Ltd. v. Speirway Ltd .12 In these cases the claim to an unpaid vendor’s lien, or to subrogation to such a lien, fails because the party who would otherwise be entitled to a debt presently due has taken a legal charge instead and has thereby obtained all that he is entitled to under the contract of sale or contract of loan.
The question of subrogation was an issue considered in the recent decision of the House of Lords in Orakpo v. Manson Investments Ltd .2 In that case money had been advanced by a moneylender for the purchase of specific properties and the loan was to be secured by a first legal charge on the property in favour of the lenders. The contracts for the repayment of the loans and the legal charges given as security were unenforceable under the Moneylenders Act, 1927. It was claimed that the moneylenders were entitled by subrogation to an unpaid vendor’s lien.
At p. 235 of the report Lord Diplock said:”The mere fact that money lent has been expended upon discharging a secured liability of the borrower does not give rise to any implication of subrogation unless the contract under which the money was borrowed provides that the money is to be applied for this purpose: Wylie v. Carlyon .13 Furthermore, even where the contract does so provide, the implication may be displaced by the presence in the contract of express terms which are inconsistent with the acquisition or retention by the lender of a right of subrogation. An express provision that the borrower shall create a legal charge upon the property in favour of the lender as security for the money lent does not necessarily displace the implication that pending the execution of the legal charge the lender is to be subrogated to any equitable security on the property in discharge of which his loan is to be applied. On the execution of the legal charge, however, the equitable charge-by-subrogation will merge in the higher ranking legal charge in favour of the same chargee.”
At p. 241 of the report Lord Salmon said: “Moreover there could be no reasonable case for applying the equitable doctrine of subrogation since in each transaction the lender took a legal charge over the property concerned and any equitable charge by subrogation would merge in this higher ranking legal charge.” Lord Edmund-Davies also held (p. 245) that the vendor’s lien must be taken to have been abandoned when the charges by way of legal mortgages were duly executed and delivered to the lenders.
In my opinion the bank’s claim to subrogation after completion of the sale depends on whether the express term of the contract of loan (that the title deeds were to be deposited with the bank on completion of the sale) is inconsistent with the retention of a right of subrogation by the bank after completion. The security by subrogation is not inconsistent with the security by deposit of title deeds. Each is an equitable security of the same rank, but the deposit of title deeds, if implemented, would enable the bank to impede or prevent any dealing with the legal estate in the property without the bank’s consent. I think that the security by deposit of title deeds can be regarded as a security which is additional to the security by subrogation rather than as a substitute for it.
For these reasons I have come to the conclusion that the right of subrogation after completion of the sale was not excluded by the agreement for a deposit of the title deeds.
The remaining issue is a question of company law. The company contends that the unpaid vendor’s lien is void against the liquidator because it is a security given by the company which was not registered in accordance with s. 99 of the Companies Act, 1963. That section is practically identical with the corresponding English provision in s. 95 of the Companies Act, 1948, which was considered by Brightman J. in London Cheshire Co. v. Laplagrene Co. 3 Brightman J. held that an unpaid vendor’s lien was the creature of the law; that it did not depend on contract but on the fact that the vendor had a right to a specific performance of his contract and that, accordingly, it was not registrable under s. 95 of the Act of 1948. The learned judge pointed out that the provision in question had been in force since the Companies Act, 1908, but no one had suggested that it was the practice for a vendor to register an unpaid vendor’s lien when selling to a company. The lien is created on the formation of the contract of sale and the time for registration would expire 21 days thereafter. The lien is not discharged until the purchase money is paid on completion. If registration were necessary, every vendor selling to a company would be put to the inconvenience of having to register the unpaid vendor’s lien as a matter of course on the off chance that circumstances might arise which would render it necessary for the vendor to rely on the unpaid vendor’s lien. For the reasons given by Brightman J. I am satisfied that s. 99 of the Companies Act, 1963, does not require registration of an unpaid vendor’s lien arising on the purchase of property by a company.
In this case the unpaid balance of the purchase money amounted to £54,000 and I declare that the bank is entitled to an equitable charge on the lands at Mountfieldstown in the county of Cork to secure that sum.
Unitherm Heating Systems Ltd -v- Wallace as official liquidator of BHT Group Ltd (In Liquidation)
[2015] IECA 191 (29 July 2015)
THE COURT OF APPEAL
Appeal No. 2014/1329
Ryan P.
Irvine J.
Hogan J.
In the Matter of
BHT Group Limited (in liquidation)
– and –
In the Matter of Sections 99 and 231 of the Companies Act 1963
Between/
Unitherm Heating Systems Limited
Applicant/Respondent
– and –
Kieran Wallace as official liquidator of BHT Group Limited (in liquidation)
Respondent/Appellant
JUDGMENT of Ms. Justice Irvine delivered on the 29th day of July 2015
1. This is an appeal against the judgment of the High Court (Peart J.) delivered on 2nd April, 2014, and is one which concerns the legal effect of what is commonly described as a “proceeds of sale clause” that formed part of the standard conditions of sale of the respondent, Unitherm Heating Systems Ltd. (“Unitherm”). The appeal is brought by the official liquidator of BHT Group Ltd. (“BHT”), with whom Unitherm had traded for many years. While the background to the relationship between Unitherm and BHT is not disputed and is set out in the judgment of Peart J., I will nonetheless summarise it here for ease of reference.
Background
2. Unitherm has been involved in the design and supply of heating systems in Ireland since 2004. In the course of its business, it supplied goods to BHT, which in turn sold these on to third parties. BHT carried on a retail business supplying heating and plumbing products to both trade and end user customers from approximately 40 locations throughout Ireland under various business names and various legal entities, including Brooks, Heat Merchants, and Tubs and Tiles.
3. It is not disputed that prior to the commencement of that relationship in March 2007, Unitherm set out in writing, for the benefit of BHT, its standard conditions of sale. These are referred to in some detail later in the judgment.
4. The manner in which business was conducted was that the customer would engage with BHT regarding their plans and possible requirements. These would later be forwarded by BHT to Unitherm, which would prepare a quotation. That might or might not involve Unitherm making a site visit. Unitherm would then prepare a quotation on the headed notepaper of BHT, or on joint headed notepaper, and this would then be presented by BHT to the customer. BHT was obliged to offer the goods to the customer at the price quoted by Unitherm. If the customer accepted the quotation, BHT would then raise a purchase order for the goods from Unitherm, and this would specify the address to which the goods were to be delivered. Unitherm would then invoice BHT for the amount that had been set out in the original quotation less an agreed discount, the size whereof was dependent upon the nature of the goods supplied. That discount represented BHT’s profit on the transaction. It is accepted that such goods as were delivered to BHT were stored in a manner that allowed them to be clearly identified as those of Unitherm.
5. The price quoted by Unitherm for what are described as “Commissioning Goods” included a commissioning service to be supplied by Unitherm. This involved an attendance at the customer’s site by a servant or agent of Unitherm, who would carry out an inspection to ensure that the goods had been correctly installed and were functioning appropriately. This service, which was only provided in respect of “Commissioning Goods” that had been paid for in full, entitled the customer to the benefit of an extended warranty in respect of those goods.
6. Unitherm went into examinership on 16th February, 2012, and on 20th April, 2012, Mr. Kieran Wallace was appointed as liquidator. On the 20th April, 2012, with court approval, the liquidator sold certain assets of BHT to a company by the name of Washglade Limited (“Washglade”). At that time, Unitherm was owed €107,761.14 in respect of goods which had been supplied and invoiced to BHT. €13,853.49 of the aforementioned sum was in respect of goods which had been delivered to BHT and which were still physically present on its premises at the time of the asset sale. The liquidator accepted that these goods were the subject matter of a valid retention of title clause, and Washglade accordingly discharged that sum to Unitherm. That left a balance of €93,907.65 remaining due in respect of goods that had been supplied by Unitherm to BHT but which had later been sold on to third parties before the appointment of the liquidator. In each instance the customer had paid BHT for the goods.
7. By letter dated 28th September, 2012, Unitherm, through its solicitors, Denis McSweeney, sought confirmation that the said sum of €93,907.65 had been received by BHT from its customers and called upon the liquidator to discharge the same within 14 days.
8. In a series of letters commencing in October 2012, Messrs A & L Goodbody, on behalf of the liquidator, expressed themselves satisfied that Unitherm’s standard conditions of sale had created a charge in favour of Unitherm over funds received by BHT in respect of goods which it had supplied and which had been paid for by its customers. Given that this charge had not been registered in the Companies Registration Office in accordance with s. 99 of the Companies Act 1963, they maintained that the charge was void as against the official liquidator.
9. By letter dated the 29th January, 2013, Denis McSweeney wrote to Messrs A & L Goodbody maintaining that Unitherm was entitled to payment of the aforementioned sums on the grounds that Unitherm had, allegedly by agreement, entered into a fiduciary relationship with BHT. As to the effect of Unitherm’s standard terms and conditions of sale, the following was asserted:
“In respect of our clients clause, we dispute entirely your view that this is a charge and you will note in particular that the parties expressly agreed the existence of a fiduciary relationship between the buyer and our client, that goods are held by the Buyer as trustee for our client and that although the buyer is entitled to sell the goods to third parties, in the normal course of its business, the proceeds of any such sale shall be held in trust for our client. Further the Buyer assigned the benefit of any claim it had against a third party arising from such sale to our client absolutely. It is clear that the clear terms agreed by our client and BHT Group Limited are such that a charge was not created by these clauses and as such it is wrong and unlawful for your client to simply dismiss our client’s claim as void on the basis set out in your correspondence.”
10. As a result of the impasse between the parties, Unitherm, by motion returnable before the Court on 15th July, 2013, sought the Court’s directions on a number of matters. In essence, the Court was asked to conclude that the proceeds of sale clause created a trust over the said monies in favour of Unitherm, such that it was entitled to trace those proceeds of sale into the accounts of the BHT. The relief sought was destined to establish the entitlement of Unitherm to be paid in priority to any other unsecured creditor.
11. In his judgment in the High Court, Peart J. stated that the resolution of the controversy at hand depended upon whether or not the parties were fiduciaries by reason of the relationship of principal and agent. If they were not, then the proceeds of sale clause created a registrable charge.
12. Having considered the evidence and the submissions of the parties, he proceeded to reject the liquidator’s arguments and concluded that BHT owed a fiduciary duty to Unitherm arising out of the relationship of principal and agent which, he was satisfied, existed between the parties. At paragraph 50 of his judgment he said:-
“I am therefore satisfied that the proceeds of sale clause in this case is not a charge requiring registration under s. 99 of the Act of 1963, and that in relation to the proceeds of any re-sale of the applicant’s goods to third parties, which have been received by the respondent either as examiner or liquidator, he is obliged to hold in trust for the applicant the amount of such proceeds of re-sale less the amount of the discount to which the company was entitled under the agreed terms, and to pay same to the applicant, in priority to ordinary creditors. Under equitable principles the applicant is entitled to trace such proceeds, since it appears that such proceeds received have not been kept in a separate bank account as required.”
13. Subsequently, by order dated 30th April, 2014, the Court went on to declare that the official liquidator held the proceeds of sale of the goods on trust for Unitherm and that it was entitled to a full account and inquiry in order to enable it to trace the €93,907.65 that had been received by BHT from the sale of the goods.
14. By notice of appeal dated 23rd July, 2014, the liquidator sought an order reversing and setting aside the order of the High Court and, in its place, a declaration that Unitherm stands as an unsecured creditor of BHT in the sum of €93,907.65.
15. The grounds of appeal may conveniently be summarised as follows:-
(i) that the High Court judge erred in law and in fact in concluding that BHT, as agent on behalf of its principal Unitherm, was acting in a fiduciary capacity when it sold Unitherm’s goods such that Unitherm was entitled to seek to trace into the account of BHT the sum of €93,907.65 received in respect of the sale of such goods; and
(ii) that the High Court judge erred in law and in fact in failing to conclude that the proceeds of sale clause, on the facts of the present case, created a charge in favour of Unitherm over the book debts of BHT and, as such, required registration under s.99 of the Companies Act 1963.
16. Because the judgment of the High Court is concerned with the contractual as well as the trading arrangements between Unitherm and BHT, prior to summarising the submissions of the parties I will set out the relevant clauses in Unitherm’s standard conditions of sale:
“STANDARD CONDITIONS OF SALE
In these conditions, “the Company” means; Unitherm Heating Systems Ltd and Alpha Therm Ireland Ltd.
“The Buyer” means the person or persons seeking a quotation, or entering into, or offering to enter into any contract for the purchase of goods and services from the Company.
“11(a) The property in the goods shall not pass to the Buyer until the price of the goods shall have been wholly paid and until all other sums whatsoever which are due from the Buyer to the company whether under this contract or howsoever otherwise shall have been paid in full without any reduction or deferment on account of any dispute or cross claim whatsoever.
11(b) Pending the payment of all sums aforesaid and the passing of property in the said goods:
(i) A fiduciary relationship shall exist between the Buyer and the Company and the Buyer shall hold the said goods as trustee for and on behalf of the Company and shall return the same to the Company on demand.
(ii) The Buyer hereby licenses the company and its agents to enter into any premises on which the goods or any of them may be situate for the purpose of inspecting and taking an inventory of the said goods and/or repossessing the said goods.
(iii) If the buyer (being an individual) commits an act of bankruptcy or (being a company) has a Receiver appointed to all or part of its assets or a petition presented or a resolution passed for the winding up of the Buyer, the right of the Buyer to retain possession of the goods shall automatically cease and the goods shall be returned to the Company immediately.
(iv) The Buyer shall store the goods separately from goods belonging to the buyer or third parties so as to be clearly identifiable as being the goods of the Company.
(v) The buyer shall be entitled to sell the goods to third parties (other than to a subsidiary or holding company of the Buyer within the meaning of section 155 of the Companies Act 1963 or to an associated company within the meaning of section 102 of the Corporation Tax Act 1976) in the normal course of the Buyer’s business (but not otherwise) but the proceeds of any such sale shall be held by the buyer on trust for the Company (to be lodged in a separate account by the Buyer) and the Buyer is hereby deemed to have assigned to the Company absolutely the benefit of any claim (including the right to trace the said goods or the proceeds thereof) which the Buyer has against any such third party arising from such sale.
(vi) If the Buyer mixes or incorporates the goods with any other goods then if the goods used in such mixture or incorporation are capable of being identified the Company shall be entitled to dismantle or separate its goods from any other goods comprised in such mixture or incorporation notwithstanding that such dismantling or separation may cause damage to or destruction of those other goods. Where the Company’s goods mixed or incorporated as aforesaid are no longer capable of being identified the ownership of the product of such mixing incorporation shall be and remain in the Company subject to a charge in favour of the Buyer in respect of the value of the other goods comprised in the product of such mixing or incorporation.
(vii) Where goods are worked or cut without the addition of any other goods the property in such goods shall remain in the Company. “
17. To complete the picture as to the contractual relationship between the parties, it is important to note that, whilst not so stated in the standard conditions of sale, the agreed credit terms, as per the letter of Mr. Declan Kissane of the 23rd February, 2006, gave BHT 60 days within which to pay Unitherm for the goods which it supplied.
18. Also of some factual significance is that BHT never created the separate account, envisaged by clause 11(b)(v) of the Standard Conditions, for monies received following the onward sale of Unitherm’s goods to its customers. However, it is to be noted that in the course of the examinership, a period during which Unitherm continued to commission and provide warranties in respect of Commissioned Goods sold by BHT, Mr. Kissane, by letter dated 7th March, 2012, wrote to BHT/ Heat merchants as follows: –
“We appreciate the future in relation to Heat Merchants is currently unclear but it is important you understand any monies collected for goods, supplied by us, should be set aside in accordance with the terms of our Standard Terms and Conditions of Sale. We cannot be expected to cover warranty from material we have not been paid for.”
19. It is not disputed that this was the first occasion on which Unitherm had made reference to this term of the agreement.
Submissions on behalf of the liquidator
20. The submissions of the liquidator commenced with a statement of concern as to the difficulties that would be faced by liquidators in general in distributing the assets of an insolvent company if the judgement of the High Court and Unitherm’s right to trace the funds in question was to be upheld by this Court. Mr. Fanning B.L., counsel for the appellant, also laid some emphasis on the adverse consequences that such a result would have on other creditors in the liquidation.
21. Counsel submitted that the High Court judge was wrong to conclude that Unitherm and BHT were fiduciaries based on the existence of a principal and agent relationship. Firstly, there was nothing in the contract that referred to either party as being a “principal” or “agent”. Secondly, the contract permitted the onward sale of the goods by BHT in the “normal course of its business”. BHT was selling on its own account and was not stated to be selling on Unitherm’s behalf. It was to be inferred from this provision that BHT, when selling on, was doing so for its own account and not as a fiduciary on behalf of Unitherm. Further, this was the commercial reality of the situation as was evidenced by the contractual documentation. Thirdly, BHT had passed title in the goods to the customer, a fact belatedly accepted by counsel for Unitherm in the course of the appeal. Hence, BHT and the customer had contracted with each other and each accordingly enjoyed rights deriving from that contract. The existence of such a contract was evident from the fact that, under clause 11(b)(v), BHT had assigned to Unitherm the benefit of any rights it had against the customer arising from that contract for sale.
22. Not only was there nothing in the contract upon which to hinge a principal and agent relationship, there was nothing, counsel submitted, in the business dealings between Unitherm and BHT to counter the fact that the relationship between them had all of the hallmarks of a normal seller buyer relationship. The true relationship had to be ascertained from the contractual terms and the manner in which the parties conducted their business. The true nature of that relationship could not be changed by the use of labels such as “fiduciary” and “trustee”.
23. Insofar as counsel for the respondent had asserted that BHT might equally be considered to be a fiduciary on the basis that it was selling Unitherm’s goods as trustee in possession under a power of sale, counsel for the appellant made four principal submissions: firstly, that this was not consistent with counsel for the respondent’s acceptance in the course of his submissions that BHT had good title when selling on the goods to its customer in the normal course of its own business; secondly, that the contractual terms do not state that BHT was selling as a trustee in possession; thirdly, that clause 11(b)(v) of the standard conditions of sale did not support such a proposition; and, fourthly, that the contractual documentation was inconsistent with the sale by BHT as trustee on behalf of Unitherm.
24. Counsel for the appellant accepted that Unitherm retained title to its goods under a valid retention of title clause while they remained in BHT’S possession and payment had not been received. That was why Unitherm was paid €13,853.49 in the course of the liquidation for goods still in BHT’s possession and for which Unitherm had not received payment. However, once it was accepted that BHT had sold on those goods in the course of its business and that the customer had paid BHT, the only question the Court had to decide was on what basis those monies were held by BHT. Were the funds received impressed with a trust such that they should be considered to be the property of Unitherm or had Unitherm’s interest in the goods been replaced by a charge in their favour over the monies received for those or any other goods?
25. On the facts of this case, counsel submitted that the evidence was against a finding that the monies were held on trust for Unitherm. No separate account had been set up over the six years of the business relationship. No inquiry had ever been made by Unitherm as to the existence of such an account, not to mind the manner of its management. The first inquiry concerning the existence of such an account had been made in the course of the receivership. Neither was there anything in Unitherm’s standard conditions of sale which specified the rights that it might have as trustee in respect of the funds in any such designated bank account.
26. Even if there had been such an account and it had been operated as per the standard terms and conditions of sale, it would, counsel submitted, have contained within it BHT’s profit margin on the sale of the goods to which Unitherm had no entitlement. That being so it was impossible for Unitherm to argue that those monies were held for it on trust by BHT. Further, insofar as the Court, in order to circumvent this legal obstacle, had implied a term into the contract to provide that the monies which were to be paid into that bank account were to be the proceeds of the sale of the goods less BHT’s profit thereon, counsel submitted that there was no legal basis upon which the High Court judge was entitled to imply such a term.
27. Counsel submitted that most of the recent decisions concerning proceeds of sale clauses, even where the proceeds of the sub-sale were to be kept in a separate account on an alleged “trust” for the seller, had concluded that such clauses created a charge over the account in favour of the seller to the extent of the amount outstanding because the buyer’s profit margin was included therein and the buyer was not obliged to account to the seller for this sum. He relied principally upon the decision of Murphy J. in Carroll v. Bourke [1990] 1 IR 481 to argue that clause 11 created a charge in favour of Unitherm over the book debts of BHT which required registration under s. 99 of the Companies Act 1963, in default whereof the charge was void against the liquidator.
28. Counsel further submitted that the 60 day credit period which was afforded to BHT was not compatible with Unitherm having an interest in the actual proceeds of sale. It had to be inferred that the monies received by BHT from the onward sale of the goods could be used as BHT liked during that period.
Submissions on behalf of Unitherm
29. Mr. Hussy S.C., counsel on behalf of the respondent, submitted that the result of the appeal was dependent upon the nature of the relationship between Unitherm and BHT prior to liquidation. Resolution of that issue would determine the nature and extent of Unitherm’s rights in respect of the monies received by BHT from the onward sale of its goods. In that regard, he maintained that any difficulties that the liquidator might have as a result of this Court upholding the decision of the High Court were immaterial. What the Court had to decide was the rights of the parties as they existed immediately prior to liquidation. In this regard, he relied on the decision of Lord Herschell L.C. in McEntire v. Crossley Brothers [1895] A.C. 457.
30. Counsel submitted that the High Court judge was correct in concluding that the relationship between Unitherm and BHT was that of principal and agent. He had correctly found that BHT was under a fiduciary duty to Unitherm in respect of the monies received from the onward sale of its products and that, until such time as Unitherm had been paid, the goods remained its property. Insofar as they had been sold on to third party customers, BHT was acting only as an agent on its behalf. That status, he maintained, was consistent with the standard conditions of sale which required the proceeds received to be held on trust and lodged to Unitherm’s separate account. He placed reliance upon, inter alia, the decision of the English Court of Appeal in Aluminium Industrie Vaasen B.V. v. Romalpa Aluminium Limited [1976] 1 W.L.R. 676, (“Romalpa”), as well as the decisions in Re Hallett’s Estate (1880) 13 Ch. D. 696 and Re WJ Hickey Ltd [1988] I.R.126 (“Hickey”).
31. In discussion with the Court, counsel for the respondent accepted that, if this was the true nature of the relationship between Unitherm and BHT, it followed that the customer, once he or she had paid for the goods, had a contractual relationship with Unitherm. While this, he agreed, was not obvious from the standard conditions of sale, he submitted that the description of “Buyer” in the definition section could encompass not only BHT but also the ultimate customer. The fact that clause 11(b)(v) provides that BHT, following the onward sale of Unitherm’s goods, is stated to have assigned to Unitherm any rights which it had against “such third party arising from such sale” was not, he submitted, fatal to the existence of a relationship of principal and agent.
32. In supporting the conclusions of the High Court judge as to the existence of a principal and agent relationship between the parties, counsel relied strongly upon what he urged the Court to be the relatively unique manner in which the parties conducted their business, details whereof referred to earlier in this judgment.
33. Having heard the submissions made by the liquidator and cognisant, perhaps, of some concerns expressed by members of the Court as to whether the relationship between Unitherm and BHT could in truth have been one of principal and agent, counsel went on to submit that Unitherm’s claim to a fiduciary relationship with BHT was not dependent on the existence of an agency relationship between the parties. That was the hole into which the relationship had been “pegged” by Peart J. He submitted that BHT was in fact selling Unitherm’s goods as trustee in possession in pursuance of a power of sale and that this was an argument which had been made by him in the High Court. That being so, the relationship fell within one of the categories which, as Murphy J. had stated in Carroll, would point to the existence of a fiduciary duty.
34. As to how that argument fitted with the fact that clause 11(b)(v) permitted BHT to sell the goods to third parties “in the normal course of the buyer’s business”, counsel submitted that these words did not refer to BHT’s general manner of selling as a distributor. The words “normal course of the buyer’s business” in the present context, counsel submitted, related to its normal manner of doing business with customers concerning Unitherm’s products, and this was unique in that Unitherm fixed both the price at which the goods would be sold to customers as well as BHT’s profit margin thereon.
35. Accordingly, counsel submitted that the bundle of rights that Unitherm had enjoyed and which had previously been attached to the goods prior to their onward sale by BHT then attached to the funds received. The monies were impressed, to the extent of BHT’s liability to Unitherm, with a trust in its favour. This was clear, he submitted, from clause 11(b)(v), which states that the “proceeds of any such sale shall be held by the Buyer on trust for the Company”. The contractual terms did not, he submitted, evince an agreement that BHT, in return for the right to sell the goods to its customers, had granted Unitherm a charge over the funds received to the extent of the monies outstanding in respect of the supply of the said goods. He did however agree that, as had been held by the High Court judge, it was implicit from the agreement that Unitherm’s right to the monies received by BHT was limited to the sum received less the profit margin due to BHT.
36. Finally, counsel submitted that there was nothing in the wording of the standard conditions of sale from which it could be inferred that Unitherm, following the onward sale of the goods by BHT, was to be granted a charge over the sums received to the extent of BHT’s liability in respect of the purchase of such goods.
Discussion
37. It is beyond doubt that the leading authority on proceeds of sale clauses at the time of the High Court judgment was that of Murphy J. in Carroll, a case in which the Court concluded that the relevant proceeds of sale clause did not create a fiduciary relationship between the buyer and seller but rather confined the seller to a charge over the funds received in respect of the resale of its goods, which required registration.
38. In reaching a contrary conclusion in the present case, the High Court judge distinguished not only the contractual provisions in both cases but also the manner in which the respective parties had conducted their business and, on that basis, found that the relationship of principal and agent existed.
39. For the purposes of considering the distinction drawn by the High Court judge between the two cases, I will briefly summarise the facts in Carroll.
40. In Carroll, the plaintiff, a well-known tobacco company, had supplied goods to the defendants (“Bourkes”) as retailers. Those companies had gone into liquidation. The contract between the parties contained a reservation of title clause which provided that no property in the goods would pass until all sums due to the plaintiff had been discharged. It also gave the defendants the right to resell the goods to a third party on their own account, but not as agents for the plaintiff. Further, the contract included a proceeds of sale clause which required the defendants to “hold all monies received from such sale or other disposition in trust for the company (“Carrolls”) and undertake to maintain an independent account of all sums so received and on request [to] provide all details of such sums and accounts”. No such account was ever established, a fact that the High Court judge concluded was probably known to Carrolls.
41. In the course of the liquidation an issue arose as to the plaintiff’s rights in respect of the proceeds of sale of the goods sold on by the defendants to third parties. The plaintiff argued that these were impressed with a trust in its favour, thus entitling it as a beneficiary standing in a fiduciary relationship with the defendants to trace such proceeds into any other property acquired therewith by the trustees.
42. Murphy J. set out the basic legal principles as follow ([1990] 1 IR 481, 483):-
“The issue in the present case relates to the right of Carrolls in respect of the proceeds of sale of the goods supplied by it. In this context too the basic legal principles are well established. Where a trustee or other person in a fiduciary position disposes of property the proceeds of sale are impressed with a trust which entitles the beneficiary or other person standing in the fiduciary relationship to trace such proceeds into any other property acquired therewith by the trustee … Whether fiduciary obligations are imposed on one party or another depends in part upon the character in which they contract and partly on the nature of the dealings in which they engage. Obviously one would be slow to infer that a vendor and purchaser engaged in an arms length commercial transaction undertook obligations of a fiduciary nature one to the other. On the other hand if one postulates that in any context one person is selling the goods of another the assumption of fiduciary obligations in relation to the sale and in particular the proceeds thereof might well be appropriate. It seems to me that the question must be asked: how does a party come to sell property of which he is not the owner? Is he selling as a trustee in pursuance of a power of sale? Is he selling as the agent of the true owner? Does the sale constitute a wrongful conversion? If any of those questions were answered in the affirmative it seems to me that the law would impose a trust on the proceeds of sale which would confer on the true owner the right to recover those proceeds from the actual seller or, if the proceeds were no longer in the seller’s hands, to trace them into any other property acquired with them.”
43. Murphy J. concluded that it was clear from the terms of the contract that it was envisaged that the defendants would sell on the goods on their own account and not as an agent for Carrolls. Accordingly, he could see no basis upon which to find a fiduciary duty. If such an obligation was to be found, it had to be established by reference to the actual bargain or in the conditions of sale. He was satisfied that the parties intended that the property would pass to the sub-purchaser who would become the full owner.
44. In coming to that conclusion, Murphy J. considered the following facts to be material. Firstly, the contract anticipated that, on the onward sale, the sub-purchaser would become full owner. Secondly, the clause specifically provided that Bourkes were not selling on as an agent of Carrolls, and this being so, they could not be considered a fiduciary. Thirdly, Bourkes could set their own price for the onward sale of the goods. This meant that, following their sub-sale, they were not necessarily going to be replaced by assets of equal value. Fourthly, while Bourkes were contractually obliged to place the monies received in respect of the onward sale of the goods into a separate account, no such account had been established, a fact which Murphy J. inferred was known to Carrolls. Fifthly, the contract provided for a four week credit period, a facility the purpose of which Murphy J. stated was uncertain if Bourkes were not free to use the proceeds during that period. Murphy J. analysed how that arrangement “properly implemented” would work given that the sums of money credited thereto, assuming that the goods were resold at a marked-up price, would be in excess of the amounts due by Bourkes to Carrolls. That being so, Carrolls, if entitled to have recourse to that account for the purposes of discharging monies due to them, would not be entitled to the entire fund which suggested to Murphy J. that the rights of the seller bore all of the characteristics of a mortgage or charge. The charge so created required registration under s. 99 of the Companies Act 1963 and in the absence of such registration was invalid.
45. In the course of his judgment, Murphy J. stressed the importance of looking beyond the contractual terms themselves and warned that the attachment of labels to the dealings of the parties was not determinative of their legal status. The rights of the parties and the nature of the transaction which they were engaged in had to be determined by reference to a consideration of the document as a whole as well as the obligations and rights which it imposed on the parties. Murphy J. expressed himself satisfied that the true nature of the relationship between the Carrolls and Bourkes was one of debtor/creditor and the fact that the proceeds of sale were dealt with by Bourkes in the ordinary course of their business supported that conclusion.
Judgment of the High Court
46. In the High Court, Peart J. found that the relationship between Unitherm and BHT was that of principal and agent rather than that of creditor and debtor. He did so by distinguishing the facts of the present case from those in Carroll. The factors he relied upon may be summarised as follows: –
(i) The contractual terms were different. In Carroll, the contract expressly provided that in the event of the sale of goods by Bourkes that they should “act on their own account and not as agent for Carrolls”. The clause in Unitherm’s standard conditions of sale, whilst providing that BHT was entitled to sell the goods to third parties “in the normal course of the buyer’s business”, also provided in an earlier clause that, pending the payment of all sums and the passing of property in the said goods, “a fiduciary relationship shall exist between the buyer and the company and the buyer shall hold the said goods as trustee for and on behalf of the company and shall return the same to the company on demand”. The monies so received were also to be placed in a separate account.
(ii) The manner in which Unitherm and BHT traded was very different to the manner in which Carrolls traded with Bourkes. The High Court judge placed emphasis on the following aspects of the dealings between Unitherm and BHT which he felt were indicative of the existence of a principal/agent relationship: –
(a) That the customer’s plans were sent by BHT to Unitherm so that it might provide a quotation.
(b) That Unitherm prepared a quotation for the customer/third party on BHT headed notepaper or alternatively on jointly headed notepaper.
(c) That the price of the goods when sold to the customer was fixed by Unitherm rather than BHT. In Carroll, Bourkes were free to sell on to the customer at whatever price they wished.
(d) That Unitherm’s profit on the onward sale to the customer was fixed by Unitherm at a percentage of the price which it had quoted for the goods.
(e) That in respect of certain categories of goods, Unitherm provided a commissioning service to the customer.
47. Two matters caused the High Court judge some difficulty when considering whether or not the relationship of principal and agent existed. Firstly, BHT had been granted a credit facility of 60 days, a term considered to be a strong indicator against the existence of a trust over the monies received from the onward sale of the goods given that it implies that the buyer is free to use those monies during the currency of that period. However, the High Court judge concluded that such a clause could be equally consistent with an opportunity being afforded to the buyer to obtain a purchaser for the goods before having to pay the seller, and thus the existence of such a term did not necessarily exclude the possibility of a principal and agent relationship. Secondly, there was the fact that the monies that were to be placed in a separate bank account would be in excess of what was due to the seller because of the mark-up on the onward sale. Such circumstances were normally indicative of the seller having a charge over the monies in that account to the extent only of its outstanding liabilities. To overcome such an inference, the High Court judge concluded that it was open to him to imply into the contract a term that the trust would only apply to that portion of the monies received which were due to the seller.
Decision
48. As was stated by Mummery J. in Compaq Computer Ltd v. Abercorn Group Ltd. [1993] B.C.L.C. 602, the seller’s aim in insisting on a retention of title clause or a proceeds of sale clause is to prevent the goods and the proceeds of sale of its goods from becoming part of the assets of an insolvent buyer, available to satisfy the claims of the general body of creditors.
49. However, as was made clear by Murphy J. in Carroll, it does not follow that, just because the seller has such an objective in mind, the protection which it seeks will be achieved. The court must consider the character in which the parties contracted and the nature of the dealings in which they engaged, apart from the contractual provisions themselves, in order to ascertain how the position of the seller was secured. It must also ensure that the substance of the scheme of registration prescribed by s. 99 of the 1963 Act is preserved and that this scheme is not circumvented or manipulated by artificial characterisations of the buyer/seller relationship.
50. What is not in dispute is that Unitherm, as the unpaid seller, must establish a fiduciary relationship between itself and BHT affecting the proceeds of sale by BHT of the goods in question in order to enjoy an equitable right to trace the monies received in respect of the onward sale into a mixed fund.
51. That being so, it is necessary to consider, firstly, whether the High Court judge was correct in finding that Unitherm and BHT traded as principal and agent such as to create such a fiduciary obligation on the part of BHT in respect of the monies received for the said goods from its customers. If not, it is necessary then to consider the alternative submission made in the course of this appeal which is that BHT sold Unitherm’s goods as trustee in possession, thus impressing the monies received in respect of their onward sale with a trust in favour of Unitherm. These questions must be answered in response to the liquidator’s submissions that the extent of Unitherm’s security is a charge on the book debts of BHT which is void for want of registration.
52. Given that the proceedings in the High Court were decided upon the basis of agency, I will firstly consider whether the High Court judge was correct in reaching that conclusion which he did as to the existence of a fiduciary duty arising from a relationship of principal and agent.
Principal and agent
53. Having considered carefully the evidence available on affidavit as to nature of the relationship between Unitherm and BHT, including the contractual obligations deriving from Unitherm’s standard conditions of sale and the 60 day credit agreement with BHT, I regret to say that I am not satisfied that the relationship between Unitherm and BHT was that of principal and agent.
54. Looking firstly to Unitherm’s standard conditions of sale in support of the existence of such a relationship, the language and wording of those conditions, presumably prepared by Unitherm’s legal advisors, is not demonstrative of an intention on the part of Unitherm to trade with BHT as its agent. The words “principal” and “agent” are not to be found anywhere in the document. Unitherm is described as the “seller” and BHT the “buyer”. An agent does not buy goods from its principal but makes a contract for sale which contractually binds its principal and the customer. Further, clause 11(b)(v) of these Standard Conditions permits BHT to sell the goods to third parties “in the normal course of the buyer’s business”. That clause is not consistent with the conclusion that BHT was selling as agent on Unitherm’s behalf and is, in my view, consistent only with BHT selling on its own account.
55. The same clause also provides that BHT, on the sale of Unitherm’s goods to its own customers, is deemed to have assigned to Unitherm the benefit of any claim which it had against a customer. In my view, such a provision is incompatible with BHT selling as an agent on Unitherm’s behalf. If BHT was selling as an agent, it could have no contractual rights against the customer which it might assign to Unitherm. Further, if BHT had sold as agent for Unitherm, Unitherm would be the contracting party and could sue the customer on its own behalf without the need for any such assignment.
56. Not only are the standard conditions of sale inconsistent with the existence of a fiduciary duty based upon a relationship of principal and agent but the conditions are devoid of the type of obligations that a court might expect to see if an agency relationship had existed between the parties. For example, there is no term which prohibits BHT competing with its principal, Unitherm, or one requiring BHT to comply fully with its directions.
57. Given that an agent acts as an intermediary to conclude a contract between the principal and the customer, if such an agency relationship existed, that should have been apparent from the documentation referable to the trading arrangement between Unitherm, BHT and the customer. Samples of the relevant documentation were exhibited in these proceedings. These demonstrate that BHT raised purchase orders from Unitherm and, consistent with that, Unitherm invoiced BHT/Heat Merchants as its customer. While quotations in respect of the price of goods required by customers were sent to the customer in the name of BHT, and sometimes on notepaper bearing the joint names of Unitherm and BHT, the fact of the matter is that it was BHT, solely, that invoiced the customer in respect of the supply of those goods, and it did so on its own behalf. None of the documentation exhibited is consistent with BHT and Unitherm being in anything other than an arms length vendor and purchaser or creditor and debtor relationship insofar as the onward sale of the goods by BHT was concerned.
58. Neither am I satisfied that the features identified by Peart J. concerning the manner in which Unitherm and BHT conducted their business were necessarily indicative of an agency relationship. For my part, all of those features which he identified in the course of his judgment are equally characteristic of ordinary commercial practice in the industry in question. For example, it does not necessarily follow that just because the supplier insists on fixing the retail price for the onward sale of its goods, and thereby fixes the retailer’s profit margin, the relationship between the parties should be considered to be one of principal and agent. That type of condition, I suspect, is likely based on market considerations such as the price at which the seller believes it will sell the maximum amount of product. If the mark-up is left to the discretion of the retailer, then that could adversely affect the supplier’s sales opportunities and is, in reality, simply a form of resale price maintenance. While clauses of this kind can sometimes give rise to legitimate competition law concerns, it has nonetheless been recognised that a seller has a legitimate interest in prescribing or controlling the price at which the product will ultimately be sold on to the consumer. It does not on that account make the buyer an agent of the seller.
59. Further, supplier warranties and/or commissioning or ongoing service agreements exist without the supplier necessarily becoming the contracting party with the customer.
60. BHT’s entitlement to a fixed credit period is also inconsistent with an agency relationship. In circumstances where the contract would be between Unitherm and the customer, there would be no reason why the monies received by the agent would not be passed on immediately to the principal. Any agreement whereby the buyer is expressly or impliedly empowered to use the proceeds of sale for its own use would be inconsistent with such a relationship. Why should BHT be entitled to use Unitherm’s monies for its own benefits within a specific period?
61. While the High Court judge concluded that credit facilities of this nature also serve the purpose of allowing the purchaser to find a buyer before they need to pay the seller, in this instance, according to the evidence, it was the existence of a customer that led BHT to order the goods from Unitherm in the first place. Further, it would have been open to Unitherm to agree that payment by its agent would be deferred until such time as BHT had received the price of the goods from the customer, but that was not the nature of the clause provided. Accordingly, to my mind, the existence of the fixed credit period in the present case is inconsistent with the existence of a fiduciary relationship based upon agency.
62. While there was an obligation on BHT to keep the monies received in respect of the onward sale of Unitherm’s goods in a separate bank account, it never did so and the monies concerned were lodged to its trading account and used in the normal course of its business. Had the standard conditions of sale included a clause that the net proceeds of sale received by BHT had to be placed in a separate bank account and no credit facilities afforded to BHT, then, in the absence of all of the other evidence which points in favour of a normal debtor/creditor relationship, one might perhaps consider the possibility that BHT was acting as agent on behalf of Unitherm. However, the fact of the matter is that Unitherm queried the existence of this account for the first time on 7th March, 2012, in the course of the receivership and over six years after the parties had commenced their trading relationship. Further, over all of that period Unitherm had afforded BHT a sixty day credit period. Taken together, when added to all of the other indicators in favour of a normal debtor/creditor relationship, these facts are, in my view, inconsistent with the existence of an agency agreement.
63. However, even if the bank account had been set up in accordance with the standard conditions of sale, the clause required BHT to put all of the monies received, including its own, – call it commission or profit – into that account. On the face of it, the clause gives Unitherm a right to funds which belong to BHT, and this is inconsistent with the clause being in furtherance of an agency agreement. In Carroll, Murphy J. considered that such an arrangement had the characteristics of a charge made in favour of the seller given that it would be a fund to which it might have recourse for the discharge of the monies outstanding to it, even though it would not be entitled to the entirety of the monies in that fund.
64. Faced with the difficulty, Peart J. stated that he could imply a term into the clause which would confine BHT to the obligation to lodge into a separate account only that portion of the resale proceeds due to Unitherm. Such a term could, however, only be implied into the contract where it was necessary to give effect to the presumed intention of the parties.
65. Clause 11(b)(v) provides that “the proceeds of any such sale shall be held by the buyer on trust for the company”. Would an officious bystander, with knowledge of the business dealings between the parties and sight of the aforementioned clause, if asked about the agreement between the parties, have stated “Oh, of course” it was clear that the parties intended that only that portion of the proceeds of sale as reflected BHT’s liability to Unitherm should be placed in that account. The answer, I believe, is a resounding no. Neither is the imposition of an implied term necessary to give business efficacy to a relationship which, on the standard conditions of sale and the documentation as a whole as well as the manner in which the parties did business, is fully consistent with one of debtor and creditor.
66. The clause which he sought to imply into the standard terms and conditions was one that was in direct conflict with the words of the clause, which specifically provides that all proceeds of sale be lodged into the account. Further, there was no evidence that such a term reflected the true intention the parties, and it was in conflict with Unitherm’s own letter of 7th March, 2012, requiring that any monies collected for goods sold to third parties ought to be set aside for its benefit.
Trustee in possession
67. Rather belatedly in the course of the appeal hearing, having argued in favour of an agency relationship, counsel for the respondent sought to disengage somewhat with that argument in favour of a fiduciary relationship based on an assertion that BHT had sold Unitherm’s goods as trustee in possession, thus allowing Unitherm to claim that the proceeds of sale were held by BHT in trust on its behalf.
68. Critical to an analysis as to whether BHT might be considered to have sold to customers as trustee in possession is the answer to the question as to when and in what manner the title to Unitherm’s goods passed to the ultimate customer.
69. Of course, a seller such as Unitherm may agree with a buyer that it will reserve title or suspend the passing of title until such time as it receives payment for its goods. Title will pass in such circumstances when the parties intended to pass, as is provided for in s.17 of the Sale of Goods Act 1893 which provides as follows:-
“(1) Where there is a contract for the sale of specific or ascertained goods the property in them is transferred to the buyer at such time as the parties to the contract intend it to be transferred.
(2) For the purpose of ascertaining the intention of the parties regard shall be had to the terms of the contract, the conduct of the parties, and the circumstances of the case.”
70. In this case, it is clear from clause 11 of the standard conditions of sale that it was agreed that, while Unitherm’s goods remained in BHT’s possession and at a time when they had not been paid for, the title to those goods remained with Unitherm. It was in these circumstances that Unitherm was paid €13,853.49 in the course of the liquidation as the goods concerned remained in BHT’s possession and for title to pass the purchase price had to be paid.
71. As to when and if title passes to the buyer, it becomes a more complicated question where the buyer is permitted to effect a sub-sale of the goods but the contractual terms maintain that title is nonetheless to remain with the seller. In this case, Unitherm permitted BHT to sell the goods. However, it sought to overcome the risk of non-payment by BHT by the inclusion of clause 11; whereby, it sought to retain title in respect of all goods supplied to BHT while any invoice remained un-discharged as well as a right to ownership of the proceeds of sale received by BHT in respect of the onward sale of the goods. In support of this provision, it also provided that the “proceeds of any such sale” would be held on trust for it by BHT. That it is possible to legally so provide is not in dispute. As Mc William J. stated in Frigoscandia (Contracting) Ltd. v. Continental Irish Meat Ltd. [1982] ILRM 396 at p.398:-
“The parties to a contract can agree to any terms they wish and, amongst others, they can agree that the property in the goods shall not pass to the purchaser until all the instalments of the purchase price have been paid. See McEntire v. Crossely Brothers, [1895)]AC 457 at 463; and s.17 of the Sale of Goods Act, 1893. The court has to decide what was the intention of the parties as shown by the provisions of the whole agreement.”
72. It has to be said that the intention of the parties is more easily determined in cases where, like in Frigoscandia, the Court was only concerned with ascertaining the true relationship between the seller and the buyer and where there has been no onward sale to a third party. However, there is now a significant body of case law in support of the proposition that, if the buyer, as was the position of BHT in the present case, is permitted to resell the goods, it is usual for it to do so on its own account unless there is very clear evidence to the contrary. If the buyer is truly selling on its own account, it has taken the legal and beneficial title in the goods from the seller by agreement. Accordingly, regardless of the use of words such as “trustee” or “fiduciary” in the conditions of sale, no fiduciary duty will be deemed to exist with the parties being considered to be in a relationship of debtor and creditor.
73. In general, most recent authorities have tended to treat “proceeds of sale” clauses as giving rise to charges which require registration and the courts have been reluctant to infer the existence of a fiduciary relationship between parties who, as Murphy J. described in Carroll, appear to be engaged in arms length commercial transactions as vendors and purchasers.
74. Counsel for Unitherm challenged the liquidator’s arguments that BHT had granted Unitherm a charge over the money it received from the sub-sale by reference to the decisions in Hickey, Romalpa and Armour and another v. Thyssen Edelstahlwerke A.G. [1991] B.C.L.C. 28 (“Armour”). I will deal with each of these in turn as I do not believe they provide adequate support sufficient to defeat the liquidator’s submissions.
75. In Hickey, the receiver of the company (the buyer) applied to the High Court for directions concerning the ownership of goods sold and delivered by the respondent to the company but for which it had not been paid. The contract contained a reservation of title clause stating that no property in the goods would pass until full payment had been received. Until then, the buyer was obliged to hold the goods on trust for the respondent in a manner which enabled them to be identified. The buyer was, as was the case with BHT, permitted in the normal course of business to sell the goods to a third party, in which case the proceeds of such sale were to be held by the buyer in trust for the respondent in a manner which enabled them to be identified as such. However, it is of vital significance to note that, at the time of the court application, the goods remained in the buyer’s possession and had not been the subject matter of resale to a third party.
76. The applicant maintained that the words “in trust” in the latter provision indicated that the legal estate in the goods had in fact passed to the buyer and that the only interest retained by the respondent was one by way of charge only.
77. Barron J. rejected that submission stating that he saw no reason why the seller could not impose a contractual term whereby the property in the goods sold would not pass until they had been paid for. In so doing, he referred to the judgment of McWilliam J. in Frigoscandia noted earlier in this judgment
78. He emphasised s.17 of the Sale of Goods Act 1893 and the right of the unpaid seller to protect himself, noting that there was nothing foreign to the law of the sale of goods in the seller seeking to postpone the date of the passing of the property in the goods agreed to be sold. He went on to conclude that there was nothing in the clause under consideration from which it could be inferred that the property had passed to the company and that it had assigned back an equitable interest in the goods by way of charge. The words “no property in any goods shall pass” had to be given their literal meaning.
79. In order for him to conclude that a charge had been created, the applicant would have to have been in a position to prove that all of the property had passed to the company and that it had assigned back to the respondent an equitable interest in the goods by way of charge so that, consequently, the respondent had no more than a charge in respect of the value of the goods supplied. However, this could not be established because the entirety of the property never passed by virtue of the retention of title clause. By way of contrast, in the present case this is what the liquidator alleges occurred, not in the course of the supply contract but at the time of the onward sale of Unitherms’s goods in the normal course of its business.
80. I view the decision in Hickey as of little value because, at the time of the application, the buyer still had the goods and had not sold them on to a third party, unlike in the present case were BHT has sold on the goods in the course of its own business. The Court did not have to concern itself with the nature of the relationship between the buyer and the seller in the context of the onward sale of the goods and the “proceeds of sale” clause. When Barron J. referred to the fact that no charge could be created where legal ownership never passed, he was doing so in the context of the retention of title clause and not the proceeds of sale clause. Accordingly, this judgment is entirely consistent with the position adopted by the liquidator in the present case. In respect of the retention of title clause, it has been accepted that Unitherm retained title over all goods for which it had not been paid whilst they remained in BHT’s possession. The liquidator never sought to make the case made by the receiver in Hickey, hence the payment to Unitherm of the sum of €13,853.49 in respect of such goods which remained in the possession of BHT, which had not been paid for as of the date of the liquidation.
81. As for Unitherm’s reliance upon the decision of the House of Lords in Armour, the same is misplaced as the decision is on all fours as that in Hickey. In that case, a German steel manufacturing company, the appellant, sold steel strips to a Scottish engineering company. The contract contained a standard reservation of title clause to the effect that title would not pass to the buyer until all debts had been paid. The Scottish company went into receivership while in possession of the appellant’s goods and for which goods payment had not been made. The receiver maintained that the company was the owner of the goods as it was entitled to take possession of them and sell them on. The receiver argued that the relevant clause had created a charge in favour of the seller but the property in the goods had passed to the Scottish company. The Court (Lord Keith disagreed on the basis that in order for the Scottish company to have created a security over the goods in favour of the appellant, it would have to have ownership and possession of the goods. However, the contract of sale said that property in goods was not to pass until all debts due had been paid. It was agreed that the company would receive possession but would not acquire the property until those debts were discharged. As the company had not paid for the goods and they were still in its possession, it had no interest of any kind to create a subordinate right in favour of the appellant.
82. This decision is of little import to the present case as at all times the liquidator has accepted that BHT had not acquired title to any of the goods which remained in its possession and which had not been paid for as of the date of liquidation, hence the payment of €13,853.49 discharged in respect of those goods. The decision does not in any way consider the consequences for the relationship between buyer and seller where the contract permits the buyer the right to sell on the goods to its own customers in the normal course of its business whilst providing that the proceeds of any such sale shall be held in trust by the buyer for the seller.
83. In Romalpa, a Dutch company sold aluminium foil to the defendant, an English company. Some of these goods were sold on to third parties. However, the terms and conditions of sale were different to those in the present case. There were two parts to the relevant clause in that case. The first was a straightforward retention of title clause which stated that title in the goods would only pass to the purchaser when it had met all of its outstanding liabilities to the plaintiff and that, until the date of payment, the purchaser would store its goods in such a way that they could be identified as being the property of the plaintiff. The second part of the clause was a complicated one which dealt only with the legal consequences for the parties in the event that the plaintiff’s goods became mixed with other goods and either remained upon the purchaser’s premises or were sold on to third parties. That clause specifically provided that, until the moment of full payment, the purchaser would remain the fiduciary owner of those goods notwithstanding its right to sell them on to third parties. The clause is indeed not unlike that contained at 11(b)(vi) of the standard conditions of sale in this case. Further, that second clause stated that until full payment was received the purchaser would keep the mixed goods in its capacity as fiduciary owner.
84. At the date of liquidation €35,000 was in the receiver’s possession referable to aluminium which had been sold on by the defendant to third parties. These were monies recovered by the receiver which he placed in a separate account. The defendant accepted that the effect of clause 13 was to make it bailee of the material supplied by the plaintiff until all debts were paid; but, once the goods had been resold, the receivers maintained that the relationship between the plaintiff and defendant was purely that of debtor and creditor and that, in the absence of an express constructive trust, the plaintiff was not entitled to avail of the equitable remedy of tracing.
85. Mocatta J., at first instance, held that the relevant clause showed an intention to create a fiduciary relationship between the parties and that the plaintiff was entitled to follow the proceeds of the sub-sale.
86. In dismissing the defendant’s appeal, the English Court of Appeal concluded that the purpose of the clause was to secure the plaintiff, in the event of insolvency, against the risk of non-payment after it had parted with the possession of, but not the legal title to, the material delivered. In order to give effect to that purpose, there had to be implied into the first part of the clause, in addition to the undoubted power to sell to a sub-purchaser, an obligation on the defendant to account in accordance with the normal fiduciary relationship of principal and agent, bailor and bailee, as expressly contemplated in the second part of the clause. Accordingly, the plaintiff was entitled to trace the proceeds of the sub-sales. The reason why such an implied term was introduced was that the clause in question made no mention of the rights of the parties in the event of the purchaser proceeding to resell the plaintiff’s goods in circumstances where they had not become mixed with other goods. Thus, it was decided to imply into the first part of the clause, which was no more than the standard retention of title clause which normally exists between seller and buyer, contractual obligations based upon the stated intention of the parties in the second half of the clause relating to the onward sale and/or control over mixed goods.
87. The decision in Romalpa clearly provides some support for Unitherm’s contention that clauses such as clause 11 of it’s standard conditions of sale can, depending upon the nature of the relationship between the buyer and the seller, contractually achieve a scenario whereby the equitable title to the goods at all times remains with the unpaid seller while the legal title passes to the buyer, who eventually holds the proceeds of onward sale in trust for the seller.
88. It is undoubtedly the case that the decision in Romalpa has not been favoured in recent times, and, certainly in this jurisdiction, it would appear to have been replaced by the remarkably clear and purposeful guidance giving by Murphy J. in Carroll as to how the nature of contractual relations should be determined. However, leaving that decision to one side for the moment, I am in any event convinced that Romalpa can be distinguished on its facts from the present case such that it should not be viewed as a relevant authority to guide the Court in this case.
89. The contractual arrangements between the parties in the two cases are significantly different. In Romalpa, the conditions of sale were entirely silent as to the purchaser’s right to resell goods which had not been mixed with other goods or otherwise engaged in a manufacturing process. There was no equivalent provision to that which is contained a clause 11(b)(v) of the present contract. The Court had to imply a term into the first part of the clause permitting the purchaser to sell the goods to third parties. The Court then had to decide upon the nature of the relationship between the parties at the time of the onward sale of the goods and the rights which flowed as a result of that conclusion. The Court determined the nature of the relationship between the seller and the purchaser at the time of the onward sale by reference to the expressed intention of the parties in relation to the onward sale of mixed goods. Given the ongoing fiduciary duty expressed to exist in respect of those goods in the second part of the clause, this duty was imported into the first part of the clause and as a result the Court concluded that the buyer and seller were in a fiduciary relationship for the purposes of the onward sale of the defendant’s goods. Roskill L.J. concluded that the buyer, when it sold on the plaintiff’s tinfoil, did so with its implied authority, as its agent, and remained fully accountable to it.
90. In stark contrast to those facts, clause 11(b)(v) of Unitherm’s standard conditions of sale specifically provide for the onward sale of non-mixed goods. There is nothing in that clause stating that ownership of the goods remains with the seller notwithstanding the right of BHT to sell them on to its own customers. Further, the clause states that BHT will sell the goods on in the normal course of its own business. Unlike in Romalpa, it does not state that BHT at that point holds the goods or sells them in its capacity as a fiduciary and, in my view, BHT cannot, on the facts of this case, be considered to have been acting as agent for Unitherm for the reasons already referred to earlier in this judgment. I am quite satisfied that this clause was never intended to provide a basis upon which Unitherm might maintain that BHT was selling in a fiduciary capacity either as trustee in possession or as agent on Unitherm’s behalf.
91. The cases are also different insofar as the receiver, in Romalpa, unlike the liquidator in the present case, did not argue in favour of the creation of a charge which was void for want of registration. In my view, it is likely that this argument was not advanced because there was no “proceeds of sale clause” covering the onward sale of non-mixed goods to the defendant’s customers. That being so, there was no clause to construe as one which might potentially be viewed as creating a charge requiring registration.
92. A third point of difference between the two cases is the fact that, in Romalpa, the receiver had placed the proceeds of sale in a separate account such that they had never been mixed with any other monies; whereas, in the present case, the monies received from the sub-sales had been mixed and used by BHT in the normal course of its business, a factor which the liquidator maintains is material to establishing the true nature of the relationship between the parties.
93. As was pointed out by counsel on behalf of the appellant, there have been a great number of decisions since Romalpa which have cast doubt upon the approach taken by the Court in that case, which paid little attention to the manner in which the parties actually conducted their business. The court must look carefully, as was advised by Murphy J. in Carroll, at the particular circumstances of the case to identify the rights intended to be given to the seller, and, when those are examined thoroughly, it is usually clear that the Buyer, in return for the right to sell the goods on to its own customers, has granted to the seller a charge over the monies received in respect of their onward sale.
94. McCann and Courtney, Companies Acts 1963-2009, (Dublin, 2010) in dealing with proceeds of sale clauses in the context of s.99 of the Companies Act 1963 provide the following helpful commentary:
“Proceeds of sale clause: In some cases it has been held that a clause which purports to retain the proceeds of a sub-sale of goods until the purchase price has been paid, will not be regarded as a registerable charge provided that it satisfies all or some of the following criteria:
(a) it expressly creates a fiduciary relationship between the seller and the buyer;
(b) it stipulates that in any sub-sale the buyer is to be regarded as acting for and on behalf of the seller;
(c) it imposes a duty on the buyer to keep the proceeds of any sub-sale separate from the buyer’s other moneys; and
(d) it requires the buyer to account for such proceeds to the seller.”
95. Most recent decisions, as is stated by the aforementioned authors, have leaned against the view that a clause in the above terms is successful in retaining title such as to entitle the seller to trace monies received by the purchaser following the resale of the goods. The greatest indicator in favour of title passing to the purchaser, regardless of the existence of a retention of title clause, is an agreement between the parties that the purchaser may sell on the goods in the course of its own business, an undisputed right of BHT in the present proceedings. If, on the one hand, Unitherm had retained full legal and beneficial title to the goods, the Court could not find that BHT had created a charge on the goods in favour of Unitherm as it is not legally possible for the buyer to charge in favour of the seller a title or interest which the buyer has not got. On the other hand, if on the true construction of the agreement the legal title to the goods has passed from the seller to the buyer, the Court may conclude that the legal consequences of the agreement is that the position of the seller is in fact secured by a charge created in his favour over the goods by the buyer.
96. Accordingly, the fact that BHT was specifically permitted to sell on the goods in the course of its own business is a strong indication that it was not acting as a fiduciary on Unitherm’s behalf.
97. Looking at clause 11(b)(v), can it realistically be argued that BHT sold Unitherm’s goods as trustee in possession? This is not what the clause states. To the contrary, clause 11(b)(v) specifically provides that the buyer is entitled to sell the goods to third parties in the normal course of the “buyer’s business”. These are standard terms and conditions imposed by Unitherm on all of its customers. The condition permits each such “buyer” to sell to its customers in the manner which is normal for it when dealing with its customers. Indeed, the use of the words “buyer” and the “sale of goods to third parties” would tend to support the liquidator’s submission that title to the goods passed to BHT with the seller’s agreement when it effected the sub-sale of those goods to its customers. That this is correct seems to be borne out by the final element of clause 11(b)(v); whereby, BHT, following the sale to the customer, was deemed to have assigned to Unitherm the benefit of any claim which it might have against the customer arising from such sale.
98. Another factor which tends to favour a conclusion that the buyer is providing security to the seller in respect of its unpaid account by way of a charge is a clause which provides that the totality of the monies received from the sub-sale of the goods should be kept in a separate account on an alleged “trust”. This is so because the purchaser is only obliged to account to the seller for the monies in that account to the extent of the sum remaining due to the seller. The only monies that could be held on trust are those that represent the seller’s interest in those goods. It is for this reason that clauses of this type and nature have been deemed to have the characteristics of a charge over the monies placed in such an account; the same having been granted by the buyer in return for the proprietary interest in the goods which, up to the point of re-sale, had remained with the seller. This is precisely the nature of the security which was afforded to Unitherm by BHT under clause 11(b)(v). In my view, the fact that Unitherm required BHT to hold the entirety of the sum received following the resale of the goods is consistent with the liquidator’s submission that the clause created a charge in favour of Unitherm over those monies in respect of the sums then outstanding.
99. A clause similar to that in the present case was considered by Mummery J. in Compaq Computer Ltd v. Abercorn Group Ltd [1993] B.C.L.C. 602. There, the seller required the buyer to account for the full proceeds of the resale of its goods. The Court took the view that the seller was not entitled to retain out of the proceeds more than what was sufficient to discharge the unpaid price of the goods. The seller’s right accordingly amounted to a limited interest in the proceeds by way of security.
100. While it is true to say that in the present case clause 11 requires that the monies received by BHT be placed in a separate account, a feature often considered to support the existence of a fiduciary duty, such an account was never opened. Further, at no stage prior to the receivership had Unitherm sought to establish that any such account existed or that the proceeds received in respect of the resale of its goods were directed to that account. However, even if this account had been established, insofar as it was intended to ring fence 100% of the proceeds recovered on the resale of the goods, the clause would not have been consistent with BHT holding the monies as a fiduciary on Unitherm’s behalf for the reasons just stated. The existence of the clause is not inconsistent with an agreement that Unitherm should have a charge over the monies received to secure repayment of any monies that remain outstanding.
101. Some assistance in this regard is to be found in the decision of Phillips J. in E. Pfeiffer Weinkellerei-Weineinkauf G.m.b.H. & Co. v. Arbuthnot Factors Ltd [1988] 1 W.L.R. 150. There the plaintiff, a German wine exporter, sold wine to an English importer on terms that included a property reservation clause which provided that the goods remained the plaintiff’s property until they had been paid for, but which permitted the importer to sell the goods in the meantime. The conditions of sale were not materially dissimilar to those in the present case in that the rights of the importer arising from the onward sale were to vest in the plaintiff and the monies received from the onward cash sale of the wine, which was stated to become the plaintiff’s money once received, was to be separated from other monies held by the importer. The importer failed to pay the plaintiff for all sums due, and the plaintiff brought an action claiming beneficial ownership of the funds referable to each sub-sale. The importer had entered into a factoring agreement pursuant to which it had assigned to the defendant, absolutely, the debts which it was owed from sub-purchasers and had warranted that “no reservation of title by any third party would apply to all or any part of the goods sold.” The plaintiff, in its action, claimed to be the beneficial owner of the proceeds of each sub-sale that had been entered into by the importer and that the defendant’s title to the debts assigned under the factoring agreement was subordinate to its prior equitable title. It accordingly sought an order that the defendant account to it for the monies received under the assignments made pursuant to the factoring agreement. In its defence, the defendant claimed that any interest which the plaintiff had over the proceeds of the sub-sales was in the nature of a charge on the importer’s property which was void for want of registration against the defendant under the provisions of the Companies Act 1948.
102. In his judgment, Phillips J. stated that, where a buyer was permitted to sell on a suppliers goods in the normal course of his business before paying the seller for them, the normal implication was that he was doing so for his own account and not as a fiduciary who was obliged to account to the seller for all the proceeds of sale; that the “property reservation clause” set out comprehensively the nature of the interest which the plaintiff was to have by way of security in respect of debts created by sub-sales; and that its terms were inconsistent with the existence of such a fiduciary relationship. Further, he held that the clause in question had created an equitable assignment in favour of the plaintiff over the monies owed by the sub-purchaser to the importer up to the amount of any outstanding indebtedness of the importer to the plaintiff and that this constituted a charge requiring registration under s.95 of the Companies Act 1948 (i.e., the equivalent of our s. 99 of the 1963 Act).
103. Another factor which has been deemed to be a strong indicator against the existence of a fiduciary relationship is an agreement whereby the purchaser is provided with a period of credit. Re Andrabell Ltd. [1984] 3 All E.R. 407 is a decision on point. There, the plaintiff supplied travel bags to a company on terms which provided that ownership of the goods would not pass until such time as the total purchase price had been paid to the plaintiff. The buyer was afforded 45 days credit. The bags were sold by the buyer in the normal course of its business, and the proceeds of sale were paid into its general bank account where they became mixed with monies belonging to the company. The buyer went into liquidation, and the plaintiff contended that, since the bags had not been paid for, the Court should conclude that the bags had been delivered to the buyer under a contract of bailment which had an implied term that the buyer was to account to the plaintiff in respect of the proceeds of sale of the bags in accordance with the normal fiduciary relationship of bailor and bailee.
104. While the facts in Andrabell were somewhat different from those in this case, insofar as Unitherm’s standard conditions of sale did specify that the monies received in respect of the onward sale of the goods would be placed in a separate account and that a fiduciary relationship was deemed to exist between the parties, the decision is nonetheless of assistance. In concluding that the parties were not in a fiduciary relationship, the Court emphasised that the company was not selling as agent for the plaintiff or on the plaintiff’s account and it was to be inferred from the fixed 45 day period of credit that the company was free during that period to use the proceeds received from the sale of the bags as it liked and that was not compatible with the plaintiff having an interest in the proceeds of sale.
105. The question I have to ask myself is whether the parties agreed that BHT would be trustee of the proceeds of sale. In that regard, in order for the seller to be entitled to the type of proprietary interest in the proceeds of sale as is contended for by Unitherm, the legal title to the proceeds of sale must vest in the buyer while their beneficial ownership vests in the seller. However, if the buyer is expressly or impliedly empowered to use the proceeds of sale as its own money, then it will not be considered to be a trustee of the proceeds but will be deemed to be in a normal creditor-debtor relationship with the seller.
106. In the present case, a 60 day period of credit was afforded to BHT to discharge its liabilities to Unitherm. That facility was agreed further to a letter of Mr. Declan Kissane dated 9th March, 2007, written on Unitherm’s behalf. It must be inferred from such a facility that Unitherm was content that BHT could use monies received by it in respect of the resale of Unitherm’s goods as it wished during the credit period to support its day-to-day commercial operations. If it were otherwise, how would BHT manage its day-to-day finance? Would it not face an acute cash flow problem?
107. I do, of course, recognise that, in terms of deciding upon the nature of the relationship between BHT and Unitherm, regard can only be had to business efficacy against the backdrop of the contractual provisions agreed to and, where there are obvious competing considerations, the question must be answered in light of what both parties agreed to rather than on a unilateral view taken from the point of view of the buyer. That said, however, for reasons earlier stated in this judgment, I do not believe it can realistically be inferred that the credit period in this case may have been agreed so that BHT could source a customer and conclude a sale after which it would hold the monies received exclusively in trust for Unitherm until the end of the sixty day period. Such an agreement would make no commercial sense. If the monies received from the sub-sale were intended to replace Unitherm’s prior interest in the goods, why did the clause not provide for immediate payment of monies received by BHT in respect of the onward sale of those goods, given that BHT as trustee thereof would not have been entitled to use the money for its own purposes during the remaining period of credit?
108. Accordingly, I am of the view that the terms of credit are completely at odds with Unitherm’s contention that BHT sold its goods as trustee in possession such that it was intended that it would hold the proceeds of sale on trust on its behalf.
Conclusions
109. In conclusion, clause 11 of Unitherm’s standard conditions of sale, that being the foundation stone upon which its claim is based, was clearly designed with the objective of securing its interests, so far as was possible, against the risk of non-payment after it had parted possession with its goods to any of its customers such as BHT.
110. It is accepted that the retention of title clause in the conditions of sale operated between Unitherm and BHT as intended in relation to the supply contract. It is clear from those conditions and from the manner in which the parties traded that while Unitherm’s goods remained in BHT’s possession and payment therefore remained outstanding, title did not pass and was not intended to pass, hence the payment of €13,853.49 to Unitherm in respect of goods which fell into that category in the course of the liquidation.
111. As to the proceeds of sale clause and the relationship between the parties when BHT sold Unitherm’s goods to its customers, I am satisfied that the relationship at that stage was always intended to be one of creditor and debtor. The parties did not intend that BHT would act as fiduciary on behalf of Unitherm either as its agent or as bailee in possession of its goods with a power of sale.
112. As to agency, in my view, the High Court judge was wrong in concluding that the evidence supported a finding that the parties had entered into such a relationship. Such a relationship is not evidenced in the standard conditions of sale, the documentation concerning the supply contract, or the contracts for the resale of the goods, or by the conduct of the parties themselves.
113. As to a fiduciary relationship built upon a relationship of bailment, a relationship not considered by the High Court judge, I can find no evidence to support a conclusion that the parties intended that BHT would sell Unitherm’s goods as bailee in possession. Again, this relationship is not to be found in the terms and conditions of sale, the contractual provisions, the trading documentation, or the manner in which the parties conducted their business.
114. Against such a finding are:-
(i) BHT’s right to sell to it’s customers in the course of its own business;
(ii) credit terms of 60 days;
(iii) the standard conditions of sale which sought to impress the entirety of the purchase monies received, including BHT’s profit margin, with a trust, the latter being monies to which it had no legal or beneficial entitlement;
(iv) the fact that no separate account was ever created for the purchase monies; and
(v) the “all sums due” nature of the retention of title clause.
All of these are characteristics of a charge made in favour of the seller over a fund to which it might have recourse for the discharge of any monies outstanding.
115. Regardless of some differences in the underlying facts between the two cases, I am satisfied that the transaction whereby BHT sold Unitherm’s products to its customers was in substance the same as that with which the Court was concerned in Carroll. In this regard, I differ with respect from the conclusion reached by Peart J. in the High Court. That being so, I am satisfied that in substitution for the right of property which Unitherm had enjoyed in its goods until the point in time when BHT proceeded to resell them, BHT granted to Unitherm a charge in its favour over the proceeds of sale of those goods. That charge was one which required registration under s. 99 of the Companies Act 1963, and in the absence of such registration is invalid and void as against the liquidator.
116. Accordingly, for my part, I would allow the appeal.
Anglo Irish Bank Corporation plc v. Edward Kavanagh Maynooth (Ltd.) (In Liquidation)
[2003] IEHC 113 (19 December 2003)
Judgment of Mr. Justice Gilligan delivered the 19 day of December, 2003.
The defendant herein was a customer of the plaintiffs and had been since in or about 1989. The agreement between the plaintiff and the defendant over the years was that each year sums of money were advanced by way of loan from the plaintiff and these were repaid in or around August of each year and a new loan structure was put in place.
On or about 31st August, 2000 the defendant having repaid its previous loan facility specifically requested the plaintiff to make a further loan facility in the sum of £1.650 million available.
Mr. O’Sullivan, now an Associate Director of the plaintiff but in 2000 a Senior Manager gave evidence as to the background arrangement between the plaintiff and the defendant. He indicated that prior to the loan facility the subject matter of these proceedings being advanced he had a number of discussions with Edward Kavanagh and William Kavanagh directors of the defendant company and Cormac Murphy who was financial controller. It was outlined to him that the company had obtained planning permission for certain lands known as “Manor Mills” at Maynooth and a value had been placed on the lands of a sum in the region of £8 million. He was aware that the defendant at the time was making very modest profits and it was proposed to him that the lands referred to were about to be sold and that a sale would take place within a number of months. Taking the various factors into account he was not happy to deal with the defendant without security being in place. He says that if no security was in place he would not have advanced the loan facilities to the defendant.
The background details to the loan facility as advanced to the defendant are set out in an agreed booklet of documents and I particularly note clause 2 (b) and (e) of the conditions precedent, relating to the resolution of the Board of Directors of the borrower approving the terms of the agreement and the security documents and authorising the execution thereof and the security documents duly executed by the parties thereto.
In the plaintiff’s letter of loan facility as dated the 15th September, 2000 it is specifically stated the facility is being made available on the terms and conditions set out in the general conditions as referred to and “this facility letter”.
The facility letter at para. 3 (a) refers specifically to a security in terms
(a) Solicitors undertaking that the facility will be repaid on sale of lands at Maynooth or on transfer of the lands to a newco for the purposes of redevelopment of the lands at Maynooth.
There were also a number of other security terms which are not relevant to the issues that arises in this case.
There was also a condition precedent set out at para. 5 of the facility letter which refers to the facility not being available for draw-down unless the conditions precedents set out in the general conditions are satisfied.
The defendant accepted the conditions as set out in the facility letter by way of signatures of Edward Kavanagh, William Kavanagh and Thomas Kavanagh as dated 19th September, 2000. The defendant’s resolution was also passed on the 19th September, 2000 agreeing the terms of the facility letter of 15th September, 2000 and the defendant’s solicitors gave a solicitors’ undertaking as dated 20th September, 2000 addressed to the plaintiff in the following terms:
“Dear Sirs,
We act for the above named Edward Kavanagh Maynooth which company is involved in negotiations to sell the above property for a total consideration of £7.875 million.
We are advised that our client is in debt to your bank in the amount of IR£1.65 million. Please note that whilst negotiations are at a very advanced stage binding contracts have not yet been put in place. It is anticipated that the contracts will be put in place very shortly and that the completion will take place within the next two weeks.
In consideration of your bank providing facilities to our above named client we hereby irrevocably unconditionally undertake with your bank to retain the sum of £1.65 million out of the proceeds and to forward same to your bank forthwith upon receipt by us.
Please note that whilst we have unequivocal instructions from our client in this regard our undertaking is strictly conditional upon the conclusion of a binding contract for the sale and the receipt of the sale proceeds by us.
We trust this is the information you require.”
Pursuant to the terms as agreed the plaintiff advanced to the defendant company the sum of £1.650 million in two tranches on 20th September, 2000 and the 21st September, 2000.
On 26th October, 2000 a provisional liquidator was appointed to the defendant company and on 1st December, 2000 at a meeting of the defendant’s creditors Mr. David M. Hughes chartered accountant who had initially been appointed as provisional liquidator was appointed liquidator to the company.
Subsequently the plaintiff attempted to protect its position but the liquidator has declined to meet the plaintiff’s demands and the issue in this case is as to whether or not it was the intention of the parties as of 19th/20th September, 2000 that the loan should be secured by the proceeds of sale of the lands as referred to and as to whether or not the solicitor’s letter of 20th September, 2000 creates an equitable charge upon the purchase monies to the extent of the monies so advanced by the plaintiff to the defendant company.
Mr. O’Sullivan in cross-examination by Mr. McCann S.C. for the defendant accepted that he would have had a concern if the solicitors on record who wrote the letter of undertaking of 20th September, 2000 were to come off record or were to be no longer retained and this aspect arose as a result of the content of a letter of 26th October, 2000 written by the solicitors for the plaintiff to the solicitors for the defendant wherein it was indicated on behalf of the defendant that “our client does not consent to the cessation of your retainer or to the appointment of your client of Messrs Beauchamps or any other firm to act in any sale of the property. Could we ask you to immediately take your clients instructions and clarify the position in this regard and further to confirm that you retain the title documents to the property.”
Mr. Cush S.C. for the plaintiff relies on the decision of this Court by McWilliam J. in Kum Tong Restaurant (Dublin)Limited (in Liquidation); Patrick J. Byrne and Allied Irish Bank [1978] I.r. 446, where he outlines the distinction as drawn therein between a mortgage by deposit of title deeds which would be a charge on the vendor’s interest in the property concerned and a charge on the proceeds of sale and their respective effect having regard to the provisions of s. 99 of the Companies Act, 1963.
Counsel submits that a solicitor’s undertaking has implications for the client and cannot be set at nought after the draw-down of the facility. The solicitor may subsequently be relieved of the undertaking but a client cannot walk away from same. Counsel submits that it was the intention of the parties as of 20th September, 2000 that the proceeds of sale of the lands was to be the security for the loan facility and that was the intention of the parties and it was on that basis that the loan facility was advanced. He submits that in these circumstances it was the intention of the parties that the loan would be secured by the proceeds of sale and the letter of the 20th September, 2000 created an equitable charge upon the purchase monies to the extent of the amount as advanced by the plaintiff to the defendant company.
He distinguishes the facts of this case from the position that pertained in Re Gregory Love & Company Limited [1961] Ch. 203 wherein the facts were that there was merely an agreement to create a charge in the future upon the happening of some designated contingencies. In the present case, Counsel submits that the clear intention of the parties was to create a charge on the proceeds of sale at the time of and by the letter of undertaking.
It is not in dispute between the parties that if an equitable charge was created at the time such a charge would not be a book debt within the meaning of s. 99 2(a) of the Companies Act, 1963 and need not have been registered.
Mr. McCann S.C. on the defendant’s behalf submits that the wording of the letter of 20th September, 2000 does not give rise to an equitable charge and that even if a charge was created no such charge can be upheld as to do so would be to defeat the statutory winding up process. Further if a charge existed it was void as a charge on lands as opposed to the proceeds of sale and further if there was a charge it fails for lack of fulfilment prior to the date of the winding-up.
Counsel refers to the fact that the first mention of an equitable charge only arose a significant time after the events referred to and that this is evidenced in the plaintiff solicitor’s letter of 26th October, 2000 and in particular the clear concern that was being expressed as regards the possibility of a change of solicitor and concern as regards to the defendant’s company’s then solicitors retaining the title documents. He advances an argument that if as the plaintiff contends an equitable charge had been created there would have been no reason to have been concerned about the defendant company’s then solicitors retaining possession of the title deeds and further refers to the fact that in any event the solicitors had never even undertaken to do so in the first place. In those circumstances he submits that no equitable mortgage was created by the parties over any sale proceeds.
Counsel submits that the wording of the alleged charge is far too conditional to create a charge and that, for example, there is no provision as to what would happen if the sale did not proceed ahead and further refers to the fact that the defendant company might never have developed the lands.
Counsel advances the case that if any interest was created it was a highly contingent interest and that the only reason why the plaintiff does not advance an argument on the basis of having had any interest in the land is because undoubtedly any such charge would have been void for non registration pursuant to s. 99 of the Companies Act, 1963. He refers to the distinction in Re Kum Tong Restaurant (Dublin) Limited (In Liquidation) Patrick J. Byrne v. Allied Irish Bank Limited [1978] I.R. 446 where the company had already entered into a binding contract to sell its lands by the time of the giving of the letter of undertaking and where that letter stated as follows:
“We now therefore undertake in consideration of your granting the company a bridging loan of £4,000 on the strength of the contract for the sale of their premises in Grafton Street to hold such documents of title to the said premises as we may have in trust for the bank and to hand over sufficient monies out of the proceeds of sale to redeem this bridging finance as soon as the sale is closed.”
In his submission counsel says that the words “to hold such documents of title to the said premises as we may have in trust for the bank” make it quite clear that the company in the Kum Tong case were encumbering not only the sale proceeds which related to an actual contracted sale but also the documents of title and thus the lands themselves. In these circumstances it is submitted that whatever interest the plaintiff may have had in the proceeds could not possibly be construed as an extra charge given the extent to which it was contingent on other events occurring.
Counsel further submits that where there was an intervening liquidation between the date of the alleged charge and the date of the coming into existence of the asset allegedly charged the situation is altered. At the date of the winding up it is submitted on the defendant’s behalf that the plaintiff was no more than an unsecured creditor as the asset over which it allegedly had a charge had not as of that date come into existence. and that if a charge was created, and the charge did not require registration, then the charge was subject to conditions that remain unfulfilled.
I take the view that the essential issue in this case is as to whether or not I am satisfied that it was the intention of the parties to the loan that it should be secured by the proceeds of the sale of the company’s lands and as to whether or not the plaintiff’s solicitor’s letter of 20th September, 2000 created an equitable charge upon the purchase monies to the extent of the amount as advanced by the plaintiff to the defendant company.
I accept the evidence of Mr. O’Sullivan that he was advised by senior representatives of the defendant that planning permission had been obtained for the relevant lands at “Manor Mills” Maynooth, that a sale of these lands was imminent for a sum in the region of £8 million, that he was not happy to advance any loan to the defendant without there being security in place and that it was agreed by the defendant that the security would be that the loan would be repaid out of the proceeds of sale of the lands and that this event was to happen within a relatively short period of time.
In my view on the evidence the terms and conditions were quite clear to the effect that it was the intention of the parties to create a present charge on the sale proceeds to repay the loan that was in fact advanced in the sum of 1.65 million on 20th and 21st September, 2000.
I am satisfied on the evidence that the charge was clearly attached to the proceeds of sale of the relevant lands and not to the land itself.
I am satisfied that the defendant company solicitor’s letter of 20th September, 2000 was effective to create the charge intended on the proceeds of sale and I am further satisfied accordingly that the charge is not a book debt within the meaning of s. 99 of the Companies Act, 1963.
I do not accept the argument advanced on the defendant’s behalf that the statutory winding up process is defeated in any way. I take the view that the equitable charge was existing at the time of the liquidation and the liquidator is bound by the charge. In effect he takes, subject to the equitable claim. As Henchy J. set out in Dempsey v. Bank of Ireland, Supreme Court 6th December, 1985.
“The liquidator takes the assets subject to any pre-existing enforceable right of a third party in or over them. If that were not so, equities, liabilities and contractual rights validly and enforceable created while the assets were in the hands of the company would be unfairly swept aside and an unjust distribution of the assets would result.”
I do not accept that the charge as created is too conditional, nor do I believe that the absence of a contract for a sale makes a difference. The facts of this case are that a sale was imminent and this was confirmed by the content of the solicitor’s letter of the 20th September, 2000, prior to the loan being advanced. The lands were subsequently sold in the course of the liquidation.
I take the view that the position in this case is distinguishable from the situation which pertained in ‘Re Gregory Love and Company Limited [1916] 1 Ch. 203, as in that case there was merely an agreement to create a charge in the future, upon the happening of certain designated contingencies. In the present case I find that it was the intention of the parties at the time to create a present ‘undertaking’ over the proceeds of sale of the lands.
McWilliam J. ‘In the matter of Kum Tong Restaurant (Dublin) Limited (In Liquidation); Patrick J. Byrne and Allied Irish Banks Ltd., [1978] I.R. 446 in somewhat similar factual circumstances attached significant importance to the intention of the parties to the loan in addition to the actual letter giving rise to the equitable charge over the proceeds of sale of a property.
At page 451 of his judgment McWilliam J. stated:-
“The letter of the 8th day of April, 1974 dealt solely with the proceeds of sale; the title deeds were stated to be held solely to secure payment out of the proceeds of sale. Although not stated in so many words, the clear intention was to charge the proceeds of sale and no argument has been advanced to me to show that the proceeds of the sale cannot be charged as such and I can see no reason why they should not be so charged.”
Accordingly, in these circumstances I grant the plaintiff;
1. A declaration that the undertaking as contained in the defendant’s solicitor’s letter of the 20th September in favour of the plaintiff created an equitable charge over the sale proceeds to be derived from the sale of the defendant’s lands, the subject matter of the equitable charge.
2. A declaration that the plaintiff’s equitable charge over the proceeds of sale to be derived from the sale of the defendant’s land is valid and enforceable against the defendant.
And further I direct that the liquidator of the defendant company do pay to the plaintiff the sum of €2,095,067.80 being the equivalent of 1.650 million Irish Pounds together with appropriate interest thereon.