Distribution
Cases
Bell Lines Ltd -v- Companies Acts
[2006] IEHC 188 (28 April 2006)
U
JUDGMENT of Ms. Justice Dunne delivered on the 28th day of April, 2006
The above entitled companies (the companies) formed a substantial Irish owned shipping business based in Waterford. On 4th July, 1997, David Hughes (the liquidator) of Ernst and Young, Accountants, was appointed official liquidator of the companies. By an amended composite notice of motion dated 25th July, 2005, the liquidator has sought, inter alia, the following reliefs:
c. An order confirming that French creditors of the French branch of Bell Lines Limited are permitted to claim in the Irish liquidation of Bell Lines Limited notwithstanding the appointment of a liquidator in France, and an order that the official liquidator deduct from dividends in respect of amounts due to French creditors in the liquidation of Bell Lines Limited (in liquidation) any payment which such creditors may have received from the French insolvency fund or from the French liquidator in respect of such amounts.
d. An order that the English Insolvency Service (DTI) be admitted subject to adjudication as a creditor in the liquidation of Bell Lines Limited in respect of payments lawfully made to employees of that company from the English equivalent of the Redundancy and Employers Insolvency Fund, as a preferential creditor insofar as such payments were in respect of Irish preferential debts due to employees of Bell Lines Limited and as an unsecured creditor insofar as such payments were in respect of Irish unsecured debts due to employees of Bell Lines Limited; and a similar order in favour of the Northern Ireland Department of Employment and learning in respect of payment of a debt due to a Northern Ireland employee of Bell Lines Limited.
h. An order that in principle the English Insolvency Service (DTI) and the Northern Ireland Department of Employment and Learning (DEL) have preferential claims to the extent to which payments made by them are preferential under Irish Law in respect of wages, holiday pay and pension but that their claims for payments relating to redundancy and minimum notice are not preferential.
Affidavits were sworn by the liquidator herein on 17th June, 2005, 11th July, 2005, 19th July, 2005, 28th September, 2005 and 18th November, 2005, relating to the issues referred to above. I propose to deal with the issues raised in respect of paras. (d) and (h) of the notice of motion. It was not necessary to deal with para. (c). Written submissions were furnished to me on behalf of the liquidator and on behalf of the notice party herein, the Port of Waterford (the notice party).
In his oral submission Mr. Shipsey, on behalf of the liquidator, indicated that at the time of the liquidation there were two hundred and nine employees of the companies based in the UK. Those employees made claims for sums due in respect of minimum notice, holiday pay, preferential wages, redundancy and pension to the relevant insolvency agency where they were based, namely the English Insolvency Service (DTI) in respect of UK employees based in England and Wales and to the Northern Ireland Department of Employment and Learning (DEL) in respect of payment of a debt due to a Northern Ireland Employee of Bell Lines Limited. Initially the DTI and DEL refused to pay the amounts due and following proceedings before an industrial tribunal in Bristol the matter was referred to the European Court of Justice. The European Court of Justice found that the UK employees were entitled to claim in the UK from DTI. The judgment of the European Court was delivered on 16th December, 1999, in a matter entitled Everson and Barrass v. Secretary of State for Trade and Industry and Bell Lines Limited [1999] EC C-198/98, in which it was held “where the employees adversely affected by the insolvency of their employer were employed in a Member State by the branch established in that State of a company incorporated under the laws of another Member State, where that company has its registered office and in which it was placed in liquidation, the competent institution, under Article 3 of Directive 80/987 on the approximation of the laws of the Member States relating to the protection of employees in the event of the insolvency of their employer for payment to those employees of outstanding claims is that of the State within whose territory they were employed.” Accordingly on the basis of that decision the DTI and DEL made payments in respect of wages, holiday pay and pension together with redundancy and minimum notice to the relevant employees.
Mr. Shipsey submits that the monies paid by the DTI and DEL insofar as the monies concerned relate to categories of payment referred to in s. 285 of the Companies Act, 1963 should be treated as preferential claims arising under s. 285. He argues that this is so by virtue of the wording of s. 285 itself or alternatively, it arises out of the interpretation of s. 285 read together with EU Directive 80/987/EEC. It is also submitted that the payments should be treated as preferential claims by operation of law from a restitutionary right of subrogation to the position of the person whose debt has been discharged.
Section 285 of the Companies Act sets out the provisions in relation to preferential payments in a winding up.
Subs. 2 In a winding up there shall be paid in priority to all other debts
(a) The following rates and taxes…
(b) All wages or salary…
(c) All accrued holiday remuneration…
(i) Any payments due by the company… for the provision of superannuation benefits to or in respect of employees…
Subs. 3 provides for a monetary limit in respect of the amount to which priority is given in the case of any one claimant.
Subs 6, Where any payment has been made –
(a) To any clerk, servant, workman or labourer in the employment of a company, on account of wages or salary; or
(b) To any such clerk, servant, workman or labourer or, in the case of his death to any other person in his right, on account of accrued holiday remuneration; or
(c) To any such clerk, servant, workman or labourer while he is absent from employment due to ill health or pursuant to any scheme or arrangement for the provision of superannuation benefit to or in respect of him;
out of money advanced by some person for that purpose, the person by whom the money was advanced shall, in a winding up, have a right of priority in respect of the money so advanced and paid up to the amount by which the sum, in respect of which the clerk, servant, workman or labourer or other person in his right, would have been entitled to priority in the winding up have been diminished by reason of the payment having been made.
Subsection 7 is a pari passu provision.
Mr. Shipsey submits that on a construction of s. 285 there is nothing to prevent the DTI or the DEL from claiming preference in respect of the debts due to them. He emphasised that under s. 285 it is the debt which is given priority as opposed to the person per se who is preferential. In support of this contention he stated that this is shown by the fact that any further debt due to the individual employee will be unsecured. He also pointed out that under s. 285(6) it is clearly provided that claims may be brought other than by the employee and that accordingly monies may be paid to persons other than the employee concerned in respect of preferential debts. He accepted that this section is most often relied on by someone who advances monies such as a banker prior to a winding up to pay wages. He argued that on a proper construction of s. 285 there is nothing to prevent DTI or DEL claiming preference. He contended that it is the debt that gains the priority not the person to whom the debt is due. If the debt in this case is one which would be a preferential debt then DTI and DEL should be able to step into the shoes of the person to whom the debt was originally due.
Mr. Shipsey further submitted that if he was wrong on the construction to be placed on s. 285 then, he argued, EU Directive 80/987/EE7 provided some support for his contention and he referred to the preamble which states:
“Whereas it is necessary to provide for the protection of employees in the event of the insolvency of their employer, in particular in order to guarantee payment of their outstanding claims, while taking account of the need for balanced economic and social development in the community; whereas differences still remain between the Member States as regards the extent of the protection of employees in this respect; whereas efforts should be directed towards reducing these differences, which can have a direct effect on the funding of the common market.
Whereas the approximation of laws in this field should, therefore, be promoted while the improvement within the meaning of Article 117 of the Treaty is maintained;…”
He then referred to Article 2 and 3 of the Directive. He went on to refer to the judgment in the Everson decision and in particular paras. 20, 22 and 23 thereof. He pointed out that as can be seen from that judgment the result of the operation of the Directive makes clear that where a company incorporated in one Member State has a branch in another Member State the regulatory authority in that State has a duty to meet claims of employees in that State. This relieves other entities in the present situation, such as the Irish Guarantee Institution (Department of Enterprise, Trade and Employment) of meeting such a claim. He argued that in the absence of the Directive it would have been an obligation for the equivalent Irish body to discharge the payments due to the UK employees. Thus he contended that s. 285 on its own should be sufficient to enable the DTI and DEL to claim as preferential creditors and if not on its own, then s. 285 should be read in the light of the EU Directive. So doing would have the effect of ensuring that the foreign guarantee institution such as the DTI or DEL once it has paid in accordance with the EU Directive is then subrogated to the position of the employee in the Member State where the winding up is taking place in accordance with the ranking of those debts subject to the provisions of s. 285. In other words they would be in the same situation as would be the Irish guarantee institution in respect of debts paid by that guarantee institution, namely the Department of Enterprise Trade and Employment.
The next point raised by Mr. Shipsey related to the remedy of restitution. He argued that DTI and DEL should be entitled to make a claim in the same way (with preferential status) as the employee would be able to on the basis of restitutionary remedies or subrogation or the right of recoupment. He argued that the view of the notice party that subrogation is a concept which arises in the context of a principle/surety relationship only is incorrect. Subrogation can arise to prevent unjust enrichment in a variety of circumstances. In this instance someone benefits at the expense of another, that is to say other creditors benefit at the expense of the person who is obliged as a guarantee institution to make a payment. He referred to Goff and Jones on the Law of Restitution where it is stated in chapter 3:
“But as these examples show, it is in essence a remedy, fashioned to the particular facts, and designed to ensure ‘a transfer of rights from one person to another…by operation of law’ in order to deprive B of a benefit gained at A’s expense.”
He also referred to the judgment of Millett L.J. in Boscawen v. Bajwa [1995] 4 All ER 769, 777 where he stated:
“Subrogation…is a remedy, not a cause of action… it is available in a wide variety of different factual situations in which it is required in order to reverse the defendant’s unjust enrichment. Equity lawyers speak of a right of subrogation or equity of subrogation, but this merely reflects the fact that it is not a remedy, which the court has a general discretion to impose whenever it thinks it just to do so. The equity arises from the conduct of the parties on well settled established principles and in defined circumstances which make it unconscionable for the defendant to deny the propriety interest claimed by the plaintiff. A constructive trust arises in the same way. Once the equity is established the court satisfies it by declaring the property in question is subject to a charge by way of subrogation in the one case or a constructive trust in the other.”
He also referred to the decision of the Supreme Court in the case Highland Finance (Ireland) Limited v. Sacred Heart College of Agriculture Limited & Others [1998] 2 I.R. 180 in which both Murphy J. in the High Court and Blayney J. in the Supreme Court referred to the following passage by Lord Salmon’s judgment in Orakpo v. Manson Investments Limited [1978] A.C. 95:
“The test as to whether the court will apply the doctrine of subrogation to the facts of any particular case is entirely empirical. It is I think impossible, to formulate any narrower principle than that the doctrine will be applied only when the courts are satisfied that reason and justice demands that it should be.”
On the basis of those authorities Mr. Shipsey argued that the claim for debts due for wages, holiday pay, pension are an encumbrance on the assets of the company by virtue of s. 285 and where a person such as the DTI has paid off that encumbrance they are entitled to a charge by way of subrogation to the amount recoverable under s. 285. He argued that to hold otherwise would be to unjustly enrich the general body of creditors in circumstances where the intent of the legislation is that the general body of creditors stands behind the debts identified in s. 285. He contended that there is no circumstance which precludes the general application of the general right of subrogation. He pointed out that no issue is taken by the notice party to the position of the Irish equivalent of the DTI or DEL in respect of the Irish employees.
He also referred to the case of Re Downer Enterprises Limited [1974] 1 WLR 1460. In that case a lease was signed to D. Limited, which later collapsed with rent unpaid: a prior assignee was forced to pay the landlord. The right to rent had the status of a preferential debt in the insolvency. It was held that the prior assignee had a right obtained by subrogation to the landlord’s preferential status and thus Mr. Shipsey argued that this was a similar analogy to the facts of the present case. In other words there is a primary liability on the company to pay certain debts of employment and a secondary liability, arising by virtue of statute in Britain and Northern Ireland and the operation of the EU Directive 80/987/EEC on the DTI in Britain and the DEL in Northern Ireland to pay the employee’s wages, holiday pay and so on. He conceded that the existence of a statutory remedy may preclude a right of subrogation depending on the wording of the statute concerned but argued that the fact that legislative decisions relevant to English and Northern Ireland insolvency funds do not refer to preferential status in the insolvency proceedings of other jurisdictions it did not follow that this omission that no subrogation should arise. The omission is, he argued, more readily explained in terms of respect of the laws and sovereignty of other States. The question of whether and to what extent the doctrine of subrogation will arise in any jurisdiction is a question for the law of that jurisdiction allowing for rights which may be conferred on a claimant from another jurisdiction under their local law. He also referred to a decision of this court in which the DTI was allowed to be subrogated for unpaid wages and holiday pay on a preferential basis but he indicated that there was no objection made in that case by any creditor and accordingly this point was not argued in those proceedings.
Finally Mr. Shipsey dealt with an argument based on the right to recoupment. He pointed out that the payments made by the DTI and DEL were made under compulsion by virtue of statute having regard to the requirement on Member States to abide by the decision of the ECJ in Everson and Barrass v. Bell Lines in respect of the Directive 80/987. Thus he argued that as the payments were made under compulsion and resulted in the discharge of another’s (the company in liquidation) liability the payments made by DTI and DEL should be regarded as payments within s. 285. He referred to Goff and Jones and quoted:
“In general, any body that has under compulsion of law made a payment whereby he has discharged the primary liability of another is entitled to be reimbursed by that other.”
Goff and Jones then quoted the common law principle stated in Moule v. Garrett [1872] LR 7 EX. 100:
“Where the plaintiff has been compelled by law to pay, or being compellable by law, has paid money which the defendant was ultimately liable to pay, so that the latter obtains the benefit of the payment by the discharge of his liabilities; under such circumstances the defendant is held indebted to the plaintiff in the amount.”
Based on those authorities Mr. Shipsey submitted that the DTI and DEL are compelled to pay and therefore the company in liquidation should have to answer for the benefit it received. If the manner in which that is done is simply to treat the debt discharged by the DTI and DEL as unsecured then the company in liquidation benefits unjustly. The only just way of dealing with the matter is to allow the DTI and DEL the status accorded to the debt which they were compelled to discharge.
Ms. Marshall on behalf of the notice party submitted that the principles of subrogation do not apply in the context of the claims of DTI and DEL. She pointed out that in Northern Ireland and in Britain there is a statutory scheme for the payment of employee entitlements as there is in this jurisdiction. Such schemes are not for the purpose of applying subrogation but rather excluding the concept of subrogation by creating a separate statutory scheme for the transfer of claims from the individual to the particular guarantee institution. In such circumstances it is unnecessary for the court to find that there is an equitable remedy open to a guarantee institution given that there is a statutory scheme. She pointed to similarities in relation to the statutory scheme in Northern Ireland, Britain and Ireland and contrasted the effect of subrogation with the effect of the statutory scheme. In the case of subrogation she stated that the party who has paid is “entitled to step into the shoes of the creditor” and is entitled to exercise all the creditor’s rights and remedies. In the case of the statutory scheme the relevant guarantee institution does not seek to step into the shoes of the employee and exercise all the employee’s right but rather has the benefit of a statutory transfer of rights from the employee to the relevant body. She argued that such a transfer operates to exclude equitable principles which might otherwise apply. Further she argued that it is for this reason that it was necessary in each jurisdiction to provide separate preferential status for the transferred claim.
Ms. Marshall also raised the issue of the rule against double proof. She pointed out that certain difficulties would be created under that rule in circumstances where the creditor had not been paid in full. She submitted that the purpose of the statutory scheme was to enable the guarantee institution to claim in competition with the employees and thus to avoid the effects of subrogation and the rule against double proof.
So far as preferential status is concerned she argued that under Irish law preferential status is exclusively a matter of statute by virtue of s. 285 of the Companies Act, 1963, as amended. There is no provision giving preferential status to debts due to the guarantee institutions save for that provided for in respect of the Irish guarantee institution. Further she submitted that a transfer of a preferential debt does not carry with it a right to preferential status. She referred to the provisions of s. 10(1) and (2) of the Protection of Employees (Employer’s Insolvency) Act, 1984. It would be useful to look at the precise wording of the provision.
“Section 10(1). Where, in pursuance of section 6 of this Act, the Minister makes any payment to an employee in respect of any debt to which that section applies, any rights and remedies of the employee in respect of that debt (or, if the Minister has paid only part of it, in respect of that part) shall, on the making of the payment, become rights and remedies of the Minister.
(2) Without prejudice to the generality of subsection (1) of this section, where rights and remedies become, by virtue of subsection (1) of this section, rights and remedies of the Minister, there shall be included amongst them any right to be paid in priority to all other debts under –
(a) section 4 of the Preferential Payments in Bankruptcy (Ireland) Act, 1889; or
(b) section 285, as amended by section 10 of the Companies (Amendment) Act, 1982, of the Companies Act, 1963,
and the Minister shall be entitled to be so paid in priority to any other unsatisfied claim of the employee concerned being a claim which, but for this subsection, would be payable to the employee in such priority; and in computing for the purposes of any of the provisions of the said section 4 or the said section 285, as so amended, any limit on the amount of sums to be paid, any sums paid to the Minister shall be treated as if they had been paid to the employee.”
She argued that if the transfer of the claim at subs. 1 was sufficient to transfer the preferential status of the claim, the insertion of subs. 2 would be unnecessary. She referred to the fact that in Northern Ireland and in Britain similar provisions effect the transfer of rights and the granting of preferential status in respect of those transferred rights. On that basis she argued that the provisions of s. 285(6) of the Companies Act, 1963 as amended should not be construed as applying to monies advanced after the relevant date as defined in s. 285 subs. 1 because if that subsection applied it would have been unnecessary to include s. 10 in the Protection of Employees (Employers Insolvency) Act, 1984.
Ms. Marshall referred to the case of Food Controller v. Cork [1923] AC 648. In that case it was claimed that the Food Controller was entitled to be paid in priority to other creditors on the basis that the sum involved constituted a crown debt. It was held by the House of Lords that under the Companies (Consolidation) Act, 1908 the combination of s. 186 which contained the pari passu rule and s. 209 which provided for certain preferential debts govern the entire application of the assets of a company. Those provisions had the effect of abolishing the general crown priority in the case of liquidations of companies. Relying on that authority Ms. Marshall submitted that in the absence of express statutory authority there is no entitlement of a debt to preferential status.
It should be noted again that there is no dispute whatsoever that DTI and DEL are entitled to claim in the liquidation in respect of the sum paid by them to employees of the companies. The issue is whether or not DTI and DEL are entitled to claim as preferential creditors. It is interesting to note that in Northern Ireland and in Britain specific legislation similar to the provisions of s. 10 of the Protection of Employees (Employers Insolvency) Act, 1984 put the DTI and DEL in the same position as the Department of Enterprise Transport and Employment in this jurisdiction vis à vis preferential debts.
Decision
The argument made by Mr. Shipsey in regard to this particular case seems to me to be, at first sight, very attractive. In essence he submits that the wording of
s. 285 identifies the type of debt which is to have preference on the assets of the company. While this is an attractive proposition it seems to me to be a misinterpretation of s. 285. Without the benefit of s. 285 all unsecured creditors of the company would have to be paid on an equal basis among themselves. However, the legislature by s. 285 has given certain types of creditors priority over other unsecured creditors. A cursory examination of the list of debts referred to in s. 285 show that priority was given by the legislature firstly to rates, taxes and wages and salaries, holiday remuneration and pension contributions. Therefore in this context the identity of the person to whom the debt is due is clearly crucial. Mr. Shipsey and Ms. Marshall in the course of their submissions referred to the social aims of the legislation and the EU Directive. It is clear that the legislature in enacting s. 285 had regard to the importance of protecting employees of a company in priority to other unsecured creditors. Mr. Shipsey referred to the importance of s. 285(6) in that it provided a statutory form of subrogation to a lender who advanced money to the company for the purpose of paying wages or salary in priority to other creditors in respect of the money so advanced. It is significant to note that this right of subrogation is reinforcing the legislature’s view of the importance of protecting the employees of the company.
A further example of statutory subrogation is provided for by s. 10 of the Protection of Employees (Employers Insolvency) Act, 1984. By virtue of that section the relevant Minister is empowered to make payments to employees out of the redundancy fund in respect of debts owed by an insolvent employer to his employees. The Minister is given by s. 10 the same right as the employee in respect of such debt. It is important to note that in each of these situations i.e. the provisions of s. 285(6) of the Companies Act as amended and s. 10 of the Protection of Employees (Employers Insolvency) Act, 1984, the legislature has chosen to apply a form of statutory subrogation to the class of those who were identified in s.285 as of such importance that special protection was required for them in priority to the remainder of the unsecured creditors.
Mr. Shipsey has said that if he is not entitled to treat the DTI and DEL as being entitled to similar subrogation in respect of the sums paid by those guarantee institutions to employees in their respective jurisdictions that that will amount to unjust enrichment of the body of unsecured creditors. I take the contrary view. Far from being unjust enrichment in the sense contended for by Mr. Shipsey, the body of unsecured creditors are not postponed to any creditor of the company other than those expressly provided for by statute. In the course of her submissions, Mrs. Marshall submitted that in the absence of express statutory authority there is no entitlement of a debt to preferential status. I agree with that submission. Notwithstanding the very careful arguments of Mr. Shipsey to the contrary, it does not seem to me to be possible to obtain on foot of subrogation preferential status. If that were possible, one would have to question the need for s. 285(6) of the Companies Act, 1963 and
s. 10 of the Protection of Employees (Employers Insolvency) Act, 1984. Further I do not see how s. 285(6) could be interpreted as in some way being capable of being interpreted as covering payments made by bodies such as the DTI and DEL. In essence it seems to me that the category of creditors entitled to priority has been carefully and narrowly drawn by the legislature.
There is no doubt in this case that DTI and DEL are entitled to claim as creditors in respect of the sums paid by them to the employees of the companies. That much is not in dispute. However I cannot conclude from any of the authorities cited by Mr. Shipsey that that right of subrogation extends to an entitlement not just to seek to have the debt repaid but also to step into the status that the employee would have had directly against the companies. Preference has been given to certain categories of creditors in respect of certain types of debt. That priority is delimited by reference to the statutory provisions. There is no provision within the legislation for guarantee institutions from outside the jurisdiction. In the absence of such legislation I have come to the conclusion that the DTI and DEL cannot have preferential status.
Mr. Shipsey also referred to the right to recoupment. He referred to a number of passages from Goff and Jones in that regard. Undoubtedly the DTI and DEL have been compelled by law to pay in their jurisdiction money which the companies were under a liability to pay; again it is difficult to see how the undoubted liability of the companies to DTI and DEL is advanced to preferential status as a result. I do not accept that the authority cited by him in support of his contention goes that far. I am of the view that in considering the applicable principles of law I must have regard to the manner in which the legislature has provided for the payment of debts in an insolvency. The body of unsecured creditors rank equally among themselves. A limited number of unsecured creditors in respect of certain types of debt have been given preferential status. In the absence of express statutory authority a debt does not acquire preferential status by reference to equitable principles of restitution, whether by way of subrogation or recoupment. If that were not so, there would have been no need to enact s.285 (6) or s. 10 of the Protection of Employees (Employers Insolvency) Act, 1984. In the circumstances I cannot accept the arguments made by Mr. Shipsey in this regard.
I should add briefly that in the course of his submissions, Mr. Shipsey referred to the decision in the English case of Re Downer. I think that whilst he correctly identified in that case the right of a prior assignee to be entitled to the landlord’s rights by way of subrogation, that right of subrogation in that case did not amount to the grant of a preferential status. On the facts of the case, it was held that the landlord would have been entitled to be paid as an expense of the liquidation, rent from the date when agents were instructed to find a purchaser to the date when the leasehold interest was sold. Thus, the prior assignee having paid the rent was entitled to be paid in full out of the assets of the company, as an expense in the liquidation. Accordingly, that decision was not of any assistance.
For the reasons outlined above I am refusing the relief claimed herein.
In the Matter of Nelson Car Hire Limited
In the Matter of The Companies Act, 1963
The High Court
1 March 1971
[1969 No. 1903 P.]
[1973] 107 I.L.T.R 97
Kenny J.:
Nelson Car Hire Limited (“the Company”) was incorporated in the Republic of Ireland as a private company on the 17th April 1961. The subscribers to the memorandum of association, who were employees in a solicitor’s office, subsequently transferred their shares to two members of a firm of accountants. In 1965 four shares were allotted to Mr. John Bernard King of San Antonio, Dalkey Avenue, County Dublin, (“Mr. King”) who was described as a building contractor, and four to Mr. Charles Fay of 29, Fitzwilliam Square, Dublin, a solicitor. The company never traded in the hiring or buying of cars.
On the 14th December 1964 Mr. Garret Reilly agreed to sell to Mr. King 15 acres of land at Shanganagh, County Dublin for £11,264. 1. 3. On the 21st January 1965 Mr. King lodged an application for planning permission to develop these but seems to have found out that it was unlikely that this would be granted. On the 15th March 1965 the purchase of the lands at Shanganagh was completed by a conveyance of them to the company and on the 26th March Mr. King lodged another application for outline planning permission for development of the lands by building a supermarket and ninety houses. *99 On the 31st March 1965 Mr. King agreed to pay £50,000 to the company for a licence which gave him permission to enter on the lands and he contracted to make roads and footpaths and to build so that the development would be completed on the 1st September 1968. The company agreed to give leases to purchasers from Mr. King at rents of not less than £10 per year for each lease. Stamp duty of ten shillings was paid on the licence. An Order for the grant of outline planning permission for the building of a supermarket and ninety houses was made by the local authority on the 7th April 1965 and their decision was sent to Mr. King on the 13th July. The £50,000, the price of the licence, was paid to the company before August 1965.
On the 14th April 1965 Traditional Homes Limited (“Traditional”) was incorporated as a private company with a nominal capital of £10,000 which was fully subscribed. The directors and shareholders were Mr. King (who was a director and shareholder of the company, who had made the contract for the purchase of the lands at Shanganagh and to whom the licence had been granted), Mr. Hugh King and Mrs. Catherine King of San Antonio, Dalkey. One of the objects of Traditional was to purchase for investment or resale and to traffic in land and other property. On the 1st August 1965 the company conveyed the 15 acres at Shanganagh to Traditional for £6,000 and, in reply to an enquiry from the Revenue Commissioners in connection with the stamp duty payable on the deed, the solicitors acting for the vendors and purchasers stated that this sum represented the full market value of the property passing and that it had been paid in cash. There was no reference in the deed or in the form lodged to get the particulars delivered stamp on it to the licence of the 31st March 1965. Traditional, however, took the lands subject to it.
On the 20th August 1966 the company passed a resolution that it be wound up voluntarily and Mr. Joseph Charleton was appointed liquidator. The liquidation did not present any unusual problems and so Mr. Charleton was able to prepare an account of the winding up within a short time. Section 263 of the Companies Act 1963, so far as it is relevant, provides: “263 (1) … as soon as the affairs of the company are fully wound up, the liquidator shall make up an account of the winding up showing how the winding up has been conducted and the property of the company has been disposed of, and thereupon shall call a general meeting of the company for the purpose of laying before it the account and giving any explanation thereof. (3) Within one week after the meeting, the liquidator shall send to the registrar of companies a copy of the account, and shall make a return to him of the holding of the meeting and of its date, … (4) … the registrar on receiving the account and either of the returns hereinbefore mentioned shall forthwith register them, and on the expiration of three months from the registration of the return the company shall be deemed to be dissolved.”
The liquidator’s account, which is dated the 15th May 1967 shows loans and advances of £56,000 as the main asset of the company while the amount due to creditors was £11,819 so that there was an estimated surplus of £44,189. The return required by s. 263 of the holding of the meeting was made to the registrar of companies on the 19th June 1967 and the company was therefore dissolved on the 19th September of that year. In April 1966 five shares in the capital of the company had been allotted to Mr. Hugh King so that on dissolution there were fifteen issued shares on each of which £2,938. 17. 3. became payable.
The Revenue Commissioners became interested in the company and began to ask for information. On the 10th December 1965 Messrs. Bastow Charleton and Company had written to them confirming that from the date of its incorporation the company had not had any income, trading or otherwise, taxed or untaxed and that it had not paid any charges or other sums under deduction of tax. The Revenue became much more interested in 1968 when the company had been dissolved and from March 1968, they were pressing the accountants for information. Ultimately on the 23rd September the accountants wrote to the inspector that the company bought land at Shanganagh for £11,818. 15. 3. which it sold for £56,000 before liquidation, that the property had been bought by the company as an investment and that at the time of the purchase it was agricultural land without planning permission. The inspector was also informed that the company realised six months after it purchased the land that development on it was possible but that it was not bought as trading stock as there was no permission for development and no reason to suspect that this would be granted. The statement in this letter that the property was sold for £56,000 is, I think, an error because £50,000 was paid for the licence and £6,000 for the property subject to the licence. *100
Section 310 sub-section (1) of the Act of 1963 reads:
“310 (1) Where a company has been dissolved, the court may at any time within two years of the date of the dissolution, on an application being made for the purpose by the liquidator of the company or by any other person who appears to the court to be interested, make an order, upon such terms as the court thinks fit, declaring the dissolution to have been void and thereupon such proceedings may be taken as might have been taken if the company had not been dissolved.”
On the 14th July 1969 the Revenue Commissioners presented a petition to this Court for an order under s. 310 declaring the dissolution to have been void. They wish to assess the company for income tax and corporation profits tax on the profits made from the purchase and sale of the land which, they say, was an adventure in the nature of trade and also because they claim that stamp duty at the rate of 3% was payable on £56,000 and not on £6,000 only. As no assessment for tax was made on the company when it was on the register, the Revenue Commissioners are not creditors but in my view they are persons interested in having the dissolution declared void. The expression “any other person who appears to the court to be interested” has a wider meaning than member or creditor of the company. The words themselves have this effect but it is also shown by a comparison of s. 310 with s. 311 which deals with the power of the registrar to strike companies which are not carrying on business off the register. If the register does this, sub-s. 8 provides that if a company or any member or creditor thereof feels aggrieved by the company having been struck off, the court may restore the name of the company to the register. I think that the Revenue Commissioners are persons interested within s. 310 if they establish that they have a reasonable prospect of success in a claim for tax against the company if it is restored to the register and an assessment is made on it. The Court has a discretion in granting the application and the decisive matter must be whether the claim, which it is sought to make against the company, is one which might succeed. It is relevant that if the company is restored to the register and the claim fails, the company will not suffer any loss as the Revenue Commissioners will be liable for all the costs including the costs of this application.
I do not propose to express a final view on the question whether the company is liable for tax of any kind on the land transaction because this is a matter to be decided in other proceedings. Under the law in force when the property at Shanganagh was bought, income tax was payable on every trade carried on in the State and trade was defined by s. 237 of the Income Tax Act, 1918 as including “every trade, manufacture, adventure or concern in the nature of trade”. I think that there is much to be said for the view that the purchase of this land, the immediate application for planning permission, the grant of the licence to a building contractor who was a shareholder in the company and the subsequent sale to a development company was not an investment but an adventure in the nature of trade and a passage in the speech of Lord Radcliffe in Edwards v. Bairstow [1956] A.C. 14; 36 Tax Cases 207 supports this. In that case the taxpayers had bought spinning plant which they subsequently sold at a substantial profit. They had not had any transactions in machinery before and they had no intention of using it. They were assessed to income tax on the profit which they made on the transaction. The Commissioners decided that it was not an adventure in the nature of trade. The High Court and the Court of Appeal held that the question whether it was or not, was, in the hallowed judicial formula, “purely one of fact” but this determination was reversed in the House of Lords. The passage in Lord Radcliffe’s speech which I think is of assistance is: “If I apply what I regard as the accepted test to the facts found in the present case, I am bound to say, with all respect to the judgments under appeal, that I can see only one true and reasonable conclusion. The profit from the set of operations that comprised the purchase and sale of the spinning plant was the profit of an adventure in the nature of trade. What other word is apt to describe the operations? Here are two gentlemen who put their money, or the money of one of them, into buying a lot of machinery. They have no intention of using it as machinery, so they do not buy it to hold as an income-producing asset. They do not buy it to consume or for the pleasure of enjoyment. On the contrary, they have no intention of holding their purchase at all. They are planning to sell the machinery even before they have bought it. And in due course they do sell it, in five separate lots, as the events turn out. And, as they hoped and expected, they make a net profit on the deal, after charging all expenses such as repairs and replacements, commission, wages, travelling and entertainment and incidentals, which do in fact, represent the cost of organising the ven *101 ture and carrying it through. This seems to me to be, inescapably, a commercial deal in second-hand plant. What detail does it lack that prevents it from being an adventure in the nature of trade, or what elements is present in it that makes it capable of being aptly described as anything else?”
Mr. Baker says correctly that there is no liability for income tax or corporation profits tax until the assessment becomes final and that the Revenue are not, therefore, creditors and so cannot succeed on this application. This, however, is not a good answer to the contention that the Revenue Commissioners are persons interested and so entitled to the order sought. In my opinion the company should be restored to the register and there will be an order declaring that the dissolution of the company was void. The costs of this application will be reserved: if the claims for duty which the Revenue wish to make are unsuccessful, those who opposed the order will be awarded their costs of these proceedings on a solicitor and client basis.
In the Matter of Supatone (Eire) Ltd.
In the Matter of The Companies Act, 1963
The High Court
21 October 1971
[1969 No. 1904P]
[1973] 107 I.L.T.R 105
Supatone (Eire) Limited (“Supatone”) was incorporated on the 9th September 1960 with an authorised share capital of £20,000. Its first object was to carry on a number of businesses but it had power to purchase and acquire freehold and leasehold property and to sell and grant licences over any of its property and assets. Two shares only were issued and it did not trade until March 1965 when these two shares were transferred to persons associated with a firm of solicitors. *108 On the 24th September 1964 this firm (Messrs. James F. Fitzpatrick & Co.) had signed a contract in trust by which they agreed to purchase 46 acres of land at Butterfield, Rathfarnham, County Dublin, from members of the Hely Hutchinson and McEntaggart families for £95,000. On the 22nd February 1965 an application was made to the Dublin Corporation as the town planning authority for outline permission to develop these lands. On the 31st March 1965 Supatone made an agreement with a company which had not then been formed, Industrial and Commercial Property Development Company Limited (“the development company”) by which the development company agreed to pay £229,000 for a licence to enter on the lands at Butterfield. This was to be paid by instalments, £29,000 on the signing of the agreement and the balance when the development company entered on the lands. The development company were to build roads and houses in accordance with the plans which had been prepared and were to complete the work before the 1st September 1968 and Supatone agreed to grant leases of the plots on which the houses were built when they were completed at yearly rents. The development company was incorporated on the 15th April 1965 and then ratified the agreement of the 31st March.
Outline planning permission for the development was given by the Dublin Corporation on the 12th April 1965 but an appeal against this was lodged by some of the residents in the area and on the 8th November 1965 the Minister confirmed the planning permission. On the 31st March 1965 the two issued shares in Supatone were transferred to Mr. J. Duffy and Mr. Charles G. Fay, members of the firm of solicitors to which I have referred and on the 8th April 1965 the lands at Butterfield were conveyed to Supatone.
The share capital of the development company was £1,000 divided into 1,000 shares of £1 each and 495 of these were allotted to Mr. Austin Hastings, 495 to his wife Bridget Hastings and 10 to Mr. Vincent Collier. The directors of the development company were Mr. Austin F. Hastings, Mrs. Bridget Hastings and Mr. Collier.
On the 18th January 1967 298 shares in Supatone were allotted for cash, 99 to Mr. Austin F. Hastings, who was a shareholder in the development company, 99 to Mr. Pascal Vincent Doyle and 100 to Mr. Frank Fitzpatrick, a member of the firm of solicitors which I have already mentioned.
On the 28th February 1967 Supatone passed a resolution that it be wound up voluntarily and Mr. T. J. Thunder was appointed liquidator. When this resolution was passed the balance of the purchase money had not been paid because the development company had not entered on the lands but it was subsequently paid in April. On the 4th April 1967 Mr. Thunder as liquidator made an agreement with L.S.D. Limited (“the purchasers”) by which he agreed to sell the lands at Butterfield which had formerly been used by the Rathfarnham Golf Club for £62,500 subject to the agreement of the 31st March 1965. When this sale had been completed, the liquidation did not present any further problems and so an account of the winding-up was prepared for submission to a meeting.
Section 263 of the Companies Act, 1963, so far as it is relevant, provides: “263(1) … as soon as the affairs of the company are fully wound up, the liquidator shall make up an account of the winding-up showing how the winding-up has been conducted and the property of the company has been disposed of, and thereupon shall call a general meeting of the company for the purpose of laying before it the account and giving any explanation thereof. (3) Within one week after the meeting, the liquidator shall send to the registrar of companies a copy of the account and should make a return to him of the holding of the meeting and of its date … (4) … the registrar on receiving the account and either of the returns hereinbefore mentioned shall forthwith register them and on the expiration of three months from the registration of the return the company shall be deemed to be dissolved.”
The liquidator’s account, which was prepared in June 1967, shows that the amount of £200,180 due by debtors on the 22nd February 1967 had been paid and that the property of the company valued at £43,500 on that date had realised £62,500. When the bank overdraft and other creditors had been paid, there was a surplus of £168,292, and when the liquidator’s fee was provided for, the members received £611.8.8 for each £1 ordinary share which they held. The property of Supatone had been transferred to the purchasers by two deeds on the 2nd June and the liquidator’s account was submitted to a meeting of the members on the 12th July. This was then sent to the registrar of companies together with the return of the holding of the meeting and Supatone was therefore dissolved on the 14th October, 1967. On the 14th July, 1969, the Revenue Commissioners *109 presented a petition to this Court for an order under section 310 declaring the dissolution to have been void.
Between 1962 and 1967 the Inspector of Taxes had enquired as to whether the company was trading and had been informed that it had not. On the 18th April, 1967, after the liquidation had commenced, he wrote to Mr. Thunder that he understood that Supatone had purchased property for development in November, 1964, and that as liability to income tax and corporation profits tax might arise on the disposal of this, the distribution of the assets of the company should not be completed pending the ascertainment of the exact liability to tax. The inspector asked for a statement of the amount received on the sale of the property. On the 9th June, 1967, Mr. Thunder gave the information which had been asked for and also sent a draft of the liquidator’s account which he proposed to submit to the meeting to be held on the 12th July. On the 15th June the inspector wrote to the liquidator a letter which included these passages:—
“The question of liability of the company on property transactions including licences granted, is under enquiry here and a further communication will issue on this matter in due course.
“You should note, however, that assessment may be raised covering the profits of the company in respect of all property transactions from the date of purchase of the property on the 10th December, 1964. No distribution of the assets of the company should therefore be made which does not take into account liability to income tax and corporation profits tax which may arise on the profits of the company in connection with its transactions and property.”
The liquidator adhered to his view that no liability for tax arose in respect of the property transactions though the inspector repeated his view that it did in a letter of 4th July. On the 12th December, 1967, when the company was already dissolved, the inspector asked for further information and in May 1968 issued notices of assessment to tax on £29,000 for the year 1965/1966 and £167,500 for 1966/1967.
Section 310 of the Act of 1963 reads:
“Where a company has been dissolved, the Court may at any time within two years of the date of the dissolution, on an application being made for the purpose by the liquidator of the company or by any other person who appears to the Court to be interested, make an order, upon such terms as the Court thinks fit, declaring the dissolution to have been void and thereupon such proceedings may be taken as might have been taken if the company had not been dissolved.”
It seems to me that the Revenue Commissioners are persons interested if they establish that they have a reasonable prospect of success in a claim for tax against the company if it is restored to the register and an assessment is made on it. I do not wish to repeat what I said in the Nelson Car Hire Limited and the Companies Acts 107 I.L.T.R. in which judgment was given on the 1st March 1971. The expression “any other person who appears to the Court to be interested” is one of great amplitude (see Test Holdings (Clifton) Limited [1970] Ch. 285 and in re Wood and Martin (Bricklaying Contractors) Limited [1971] 1 All E.R. 732. Mr. Justice Megarry said that the interest required to enable a successful application to be made to have a company restored to the register has not to be one which is firmly established or highly likely to prevail but that one which is not merely shadowy is sufficient.
The main argument advanced against the restoration of Supatone to the register is that the money paid for the licence was not a taxable receipt and would not have to be included in its profits for tax purposes even if it should be held that it was trading in land. Insofar as liability for tax under Schedule A (now repealed) is concerned this is correct but the document is not a licence only: it is a licence and an agreement to grant leases. The Revenue Commissioners, however, do not rest their claim on Schedule A but on Schedule D and say that Supatone was trading in land and that the sum received for the licence is part of its assessable profits. The grant of the licence to the development company in 1965 and the passing of the resolution in 1967 to wind up Supatone show that the lands were not acquired as an investment. They were not purchased with the intention that Supatone should develop them (see the letter of 28th December 1967 from Messrs. Bastow, Charleton & Co.). They were bought by Messrs. Fitzpatrick in trust for a company in which their client would acquire all the issued shares. The two shares in Supatone were transferred on 31st March, 1965, and on the same day the agreement creating the licence which gave the development company *110 the right to call for leases to purchasers from them was made. These matters provide evidence on which a court would be justified in holding that the lands were acquired by those who subsequently bought the shares in Supatone with the design that a licence would be given to the development company at a price which would give a substantial profit to Supatone which would then be put into liquidation. The conclusion that there is evidence of trading in land is supported by Mr. Austin Hastings’ shareholding in Supatone and in the development company. I am therefore not prepared to hold that the money paid for the licence escapes tax. The Revenue Commissioners may succeed in their claim that the purchase of the land was an adventure in the nature of trade.
The next argument advanced by Mr. McKenna was that the order which the Revenue were seeking was not one to which they were entitled as of right but for which they had to invoke the discretion of the Court. He argued that the delay by the Revenue Commissioners in making their claim and their failure to issue assessments on the company before its property had been distributed in the liquidation should have the result that the order should be refused. On the 9th June, 1967, the liquidator had disclosed all the relevant matters in connection with the purchase and the licence when he wrote to the Chief Inspector of Taxes. On the 15th June, Mr. Thunder had been told that he should not distribute the assets of the company without making provision for liability to income tax and corporation profits tax on the profits in connection with the dealings in these lands and the inspector had repeated his warning on the 4th July. No assessments however issued in connection with the matter until May, 1968. True, the inspector had sought additional information in December, 1967, but since the 9th June he had had all the information on which he could decide whether he would treat the profits made on this transaction as being assessable to tax. I do not think, however, that this delay in issuing assessments is a valid ground for refusing to restore the company to the register. It might be a reason for refusing to do so if the first attempt to collect tax had been made after the assets had been distributed but the warning on the 15th June, 1967, that a claim for tax might be made should have indicated to the liquidator that he should retain an amount sufficient to meet any liability for tax which might arise.
In my opinion, Supatone should be restored to the register and there will be an order declaring that its dissolution was void. The costs of this application will be reserved: if the Revenue fail in the claims for duty which they are now making, those who opposed the order to restore the company will be awarded their costs of these proceedings on a solicitor and client basis.
In The Matter of Van Hool McArdle Ltd (In Liquidation)
High Court
21 May 1981
[1982] I.L.R.M. 340
(Carroll J)
CARROLL J
delivered her judgment on 21 May 1981 saying: The liquidator has sold certain properties which were subject to incumbrances and has incurred a liability for corporation tax on chargeable gains accrued on that sale under the Capital Gains Tax Act, 1976. The questions which the liquidator has asked the Court to answer are as follows:
1. Whether or not the capital gains tax payable in relation to the sale is an expense incurred in the realisation of an asset within the meaning of rule 129 of the winding-up rules order 74;
2. If it is, can it be deducted from the proceeds of sale payable to the mortgagee(s) and;
3. Is the tax merely a necessary disbursement of the liquidator under the third heading listed in order 74 rule 129.
A similar question to question 1 was asked in In Re Mesco Properties Ltd [1979] 1 WLR 558 and on appeal [1980] 1 WLR 96. I accept the reasoning of Brightman J, in answering no to that question. I adopt his argument which is set out in [1979] 1 WLR at 563:
Nor do I think that corporation tax on a capital gain made by the liquidator when he sells an asset is an expense incurred in realising that asset. It is not like the fees *341 payable to a solicitor or to an estate agent in connection with a sale, or the advertising costs of a sale which are clearly part of the expenses of the sale. The tax does not assist the liquidator to sell. Nor is it a necessary result of the sale. It is merely a possible consequence of a sale at a profit. Even when a sale has been made at a profit the liquidator may not know whether any tax will ultimately be payable. This will depend on what, if any, profits, including both income and chargeable gains or losses, arise in that financial year and whether any losses can be carried forward from a previous year. The tax is merely a possible consequence of the realisation of an asset at a profit; it is not an expense which the liquidator incurs for the purposes of, or as a direct result of realising that asset, and therefore it is not, in my view, an expense incurred in realising it.
Therefore the answer to question 1 is No.
Accordingly question 2 does not arise.
Question 3 is similar to question B also asked in Mesco Properties Ltd to which Brightman J, answered Yes. I do not agree that this should be the answer to question 3 asked here.
Under clause 15 of schedule 4 to the Capital Gains Tax Act, 1975 capital gains tax qualfies for preferential payment under s. 285 of the Companies Act, 1963 to the extent that it is assessed on the company up to 5 April before the liquidation and is claimable under sub-s. 2(a)(ii). No other priority is given by the Capital Gains Tax Act, 1975 to capital gains in a winding up. The chargeable gain in this case has accrued after the date of liquidation so the statutory priority given by s. 285(2) of the Companies Act, 1963 does not apply.
S. 285(2) commences, In a winding up there shall be paid in priority to all other debts there then follows details of the preferential debts.
The company is chargeable to corporation tax on profits arising on chargeable gains in a winding-up (see s. 6(2) and s. 13(5) of the Corporation Tax Act, 1976). After assessment, the tax is a debt of the company. If the capital gains tax incurred in this case were interpreted as a necessary disbursement of the liquidator within the meaning of the third heading listed in rule 129 order XXII it would give a priority not conferred by Statute.
I do not accept that the capital gains tax is a necessary disbursement within the meaning of the third heading. The liquidator is bound to discharge the tax but only to the extent that assets are available and in the order of priority laid down by Statute. In my opinion the rules cannot disturb a priority which is given by Statute. If the legislature have failed to give any priority in respect of capital gains tax assessed after the commencement of winding-up, such priority cannot be given by the rules.
Accordingly I answer question 3 No.
Green & Sons, Limited v Gogarty
High Court (Bankruptcy).
5 May 1926
[1926] 60 I.L.T.R 149
Johnston J.
Johnston, J.
The defendant is sued as one of the makers of two promissory notes on which he was surety for a debtor in an arrangement matter in bankruptcy, and his defence is that he was released from the debt by the conduct of the plaintiffs in accepting a dividend in a second arrangement matter instituted by the petition of the same debtor. The following are the admitted facts. The principal debtor took the protection of the Bankruptcy Court on March 10, 1924, and offered to pay twenty shillings in the £1 in six instalments payable after three, six, nine, twelve, fifteen and eighteen months. The first four instalments were secured by the debtor’s own notes and the last two by the notes of the debtor and John J. Gogarty, the defendant. This offer was confirmed on June 20, 1924, the plaintiff’s debt being £161 16s. 2d. The notes were duly lodged, and the debtor paid the first two of them and then made default.
On May 26, 1925, he presented a second petition for arrangement, offering two shillings and sixpence in the £ in cash. The plaintiffs did not appear at all at the first private sitting in this matter. They did appear by their solicitors at the second private sitting, when the offer was confirmed, but there is no record that they voted or otherwise took part in that proceeding. They proved for a debt of £108 10s. 8d. “for promissory notes not met,” and in the schedule to the affidavit of proof the four promissory notes made by the debtor and (as regards the last two notes) the defendant in the first arrangement and payable on March 20, June 20, September 20, and December 20, 1925, are properly set out. The proof did not expressly reserve any rights against the defendant as surety on the last two notes. The plaintiffs received a sum of £13 11s. 4d. by way of dividend in the second arrangement, and they have sued the defendant for £47 9s. 8d., being the amount owing on the last two of the promissory notes, less one half of the dividend paid in the second arrangement.
There is no doubt that, generally speaking, when a creditor binds himself to accept a composition on his debt from the principal debtor, the surety is released unless the creditor expressly reserves his rights against him. This rule is based not so much on any reason of consideration for the surety as on the supposed interests of the principal debtor. Patteson, J., in North v. Wakefield, 13 Q. B. 536, sets out very clearly the reason for this rule of law. He says:—“The reason why a release to one debtor releases all jointly liable *150 is because unless it was held to do so, the co-debtor after paying the debt might sue him who was released for contribution, and so in effect he would not be released; but that reason does not apply where the debtor released agrees to such a qualification of the release as will leave him liable to any rights of the co-debtor. Neither does such a clause qualifying the release operate as a fraud on other creditors, for as it appears on the face of the deed, all who execute that deed are aware of it and agree to it.” It has always been held, however, that that rule of law does not apply in the case of composition proceedings carried through in a court of law, the reason being, firstly, the publicity which such a proceeding entails and, secondly, the fact that the carrying of the composition ultimately is effected “by operation of law consequent upon pending statutory liquidation” (per Vaughan-Williams, J., in In re London Chartered Bank of Australia, [1893] 3 Ch. 540), and not by the voluntary act of the parties. (That principle is statutorily recognised in ss. 59 and 64 of the Bankruptcy (Ireland) Act, 1872).
When an arrangement matter breaks down through the failure of the debtor to pay one of the instalments, the creditors are remitted to all their original rights, and they may sue the debtor for the whole of the debt, giving credit, of course, for any sums they may have received in the arrangement matter: In re Campion, [1899] 2 Ir. R. 112. But the creditors may also rely upon the rights that they acquired in the arrangement, and they may sue the debtor for the amount due upon each of the instalment notes as they fall due: In re Butler, 1 L. R. Ir. 225. A third state of facts may arise. If after the arrangement has broken down, the debtor presents a second petition for an arrangement, the creditor may prove in the arrangement for the original debt; but if he does so, he must give up all rights and securities that he acquired in the first arrangement: In re R., 23 L. R. Ir. 19. In that case creditors in a second arrangement matter sought to prove their original debt and at the same time retain the benefit of a security that they had acquired in the first arrangement. It was held by the Court of Appeal that the creditors “must make up their minds whether they decide to stand by the old composition or to abandon it in toto, except as regards the moneys they have actually received on foot of it.” FitzGibbon, L.J., said:—“The creditors must either give up all the first notes still unpaid, in which case we shall allow them to prove for [the full original debt]; or if they retain any of the notes, they must keep them all and can only prove for the amount of them.” It seems to me that this decision, coupled with the decision of the Court in Provincial Bank v. Cussen, 18 L. R. Ir. 382, is absolutely conclusive in the plaintiff’s favour. In the latter case it was held that though a surety is discharged when the creditor gives time to the principal debtor, the same result does not happen if the indulgence is the judicial act of a bankruptcy court, even though it is done with the consent of the creditor.
The same principle was applied by the Court of Appeal in England in 1875 in In re Jacobs, L. R. 10 Ch. App. 211. In that case Sir William James, L.J., reading the judgment of Mellish, L.J., said:—“There can be no doubt that if the holder of a bill, by becoming party to a deed or agreement, independently of any Bankruptcy Act, agrees to accept a composition from the acceptor, he thereby discharges the drawer; but on the other hand, it is equally clear that if the acceptor is discharged from his liability by operation of law by becoming a bankrupt, the liability of the drawer to the holder is not thereby affected.” I think that the same reasoning applies in the case of two persons jointly liable on a note as principal and surety. Sir William James continues (p. 214):—“We think that a discharge of a debtor under a composition or liquidation is really a discharge in bankruptcy by operation of law,” for the reason that under the Bankruptcy Act, 1869, “the proper majority of the creditors have power to assent to the terms by which the debtor is to be discharged whether the creditor who is the holder of the bill chooses to attend or not or chooses to vote or not.”
It necessarily follows that if the creditors’ rights against a surety are preserved as a matter of law, no express reservation of his rights by the creditor is required, and as a matter of fact that matter was also decided in In re Jacobs and in In re London Chartered Bank of Australia, L. R. 10 Ch. App. 211, [1893] 3 Ch. 540.
The only matter that might obscure (to use Mr. Henry’s phrase) the application of the principle on which I base my decision is the fact that the dividend which was carried in the first arrangement was one of twenty shillings in the £; but it seems to me that the rule of law cannot be held to be dependent on the amount of the dividend—it must be the same whether the dividend is twenty or only five shillings in the £. It is clear that the creditors “stood by the old composition” (to use Lord Ashbourne’s phrase in In re R., 23 L. R. Ir. 19), and they are therefore entitled to all the benefits of the composition. *151
There must therefore be judgment for £47 9s. 8d.
In the Irish Aero Club;
Gillic v. Minister for Industry and Commerce and Minister for Defence
[1939] IR 207
Gavan Duffy J. 207
This case has raised some interesting and difficult questions at law, but I shall confine myself to deciding those matters which, in my view of the position, are material to my judgment.
The Irish Aero Club, Limited, is in voluntary liquidation;its assets are not likely to realise much over £300, while the Liquidator has received claims exceeding £900 and has the costs of liquidation to meet. He accordingly asks the Court to decide: 1, whether a claim by the Minister for Defence for some £260 is a valid claim, 2, whether, if valid, it is payable in priority to the claims of the general creditors, and 3, whether a claim by the Minister for Industry and Commerce for £35, aerodrome licence fees, is payable in priority to the claims of the general creditors.
The bulk of the claim of the Minister for Defence which the Liquidator attacks as a commercial transaction, is for repairs done to the Club’s aircraft, together with a small claim for their daily inspection; the rest of the claim is nearly all for services rendered in connection with the King’s Cup Air Race, 1937, and is of a type which may have been contemplated by the relevant Appropriation Acts. All the claims arise from informal, but definite, arrangements between the Club and the Department of Defence; it is admitted that the several services were satisfactorily rendered and there is no suggestion of any overcharge.
The Liquidator seeks to repudiate these claims on the ground that the Minister had by law no authority to render the services, in other words, that he exceeded his powers under the Defence Forces Acts and the Ministers and Secretaries Act, 1924 (No. 16 of 1924). It is not suggested that the Minister did anything prohibited by law of course, he could not recover on an agreement that the law forbids. Nor can the Minister’s charges be attacked as disguised taxation, and therefore illegal; they are not taxation at all, because they are simply claims for services voluntarily rendered or for facilities voluntarily provided, and not demands made by virtue of the sovereign power of the State: cp. Packet Co. v. Keokuk (1).
Now, there are several ways in which, and many occasions on which, ultra vires action may successfully be challenged, but, valuable as the doctrine of ultra vires has proved to be as an instrument of defence in the hands of a body that has exceeded its power, it is generally out of place as a weapon of offence against such a body in the hands of a person seeking to impeach a transaction, fully completed, especially when he has enjoyed all the benefit, without giving the payment which he promised in return. For this purpose the Liquidator is in the position of the Club and cannot resist a claim which the Club wouldhave had to honour. In my view it was not open to the Club, and is not open to the Liquidator, in the absence of illegality, at once to approbate and reprobate; I do not think that the persons to whom the Minister has given full value at their request can now turn round and question his power to render the services, of which they have reaped the full benefit, after he has performed his whole bargain. Consequently, the Minister is entitled to recover his claim: Hull Flax Co. v. Wellesley (1); Bournemouth Commissioners v. Watts (2); In re Irish Provident Assurance Co. (3); R. v. Taylor (4).
But a radically different issue is raised, when the two Ministers claim, not payment merely, but preferential payment in full before the general creditors get anything. This claim was put upon two distinct grounds: 1, because the money is “due or payable to or for the benefit of the Central Fund” and accordingly has the special priority conferred upon certain assets of the Central Fund by s. 38, sub-s. 2, of the Finance Act, 1924 (No. 27 of 1924), and 2, because the State is entitled to enjoy the prerogative which accorded to the British Crown a right to payment in full in priority to its subjects; but, in the course of the hearing, Mr. Dixon, on behalf of the two Ministers, has expressly abandoned this second claim, very properly, if I may say so, for such a claim would be hard to reconcile with the Constitution.
The Central Fund is the national fund to which (apart from certain exceptions) all the revenues of the State, from whatever source arising, belonged under the late Constitution and belong under the Constitution of Éireann: see Constitution of Saorstát Éireann , Art. 61; Adaptation of Enactments Act, 1922 (No. 2 of 1922), s. 1; Constitution of Éireann , Art. 11; Constitution (Consequential Provisions) Act, 1937 (No. 40 of 1937), ss. 6, 7. The Liquidator, in my opinion, has a right, on behalf of the general creditors, to challenge the Ministers’ claim to priority. But the Act of 1924 speaks both of moneys”due” and of moneys “payable” to or for the benefit of the Central Fund. If the moneys now in question are payable for the benefit of the Central Fund, it matters not whether they are due legally or not. Now, I have held that the Liquidator must pay the Minister without questioning the lawfulness of the claim, in the circumstances of this case; in his turn the Minister, once he has got the money for the State, must pay it to or for the benefit ofthe Central Fund; I think it follows that this money, whether due or not legally, is “payable for the benefit of the Central Fund.”
The question is whether the money, being so payable, has the priority claimed for it. Mr. MacBride for the Liquidator says “No,” on the ground that s. 38, sub-s. 2, of the Act of 1924 confers special priority only on taxes and duties, whereas the licence fees claimed by the Minister for Industry and Commerce are no more taxes or duties than the miscellaneous revenue claimed by the Minister for Defence. This question is of practical importance in a country where the State retains to-day in all or most cases of insolvency a priority which it has given up in the country from which we take most of the working principles of our law. The question was expressly left open by the Supreme Court in McIntosh v. Thompson & Co. (1), and it is in the public interest that it should now be decided.
I have sufficiently described the claim of the Minister for Defence. The claim of the Minister for Industry and Commerce appears to be for fees payable on a licence authorising the use of an aerodrome as a regular place of departure and landing for aircraft carrying passengers or goods for reward: see the Air Navigation (General) Regulations, 1930 (Stat. R. & O., 1930, No. 26), Arts. 64 (1) and 87, and Sched. II c, and the Air Navigation and Transport Act, 1936 (No. 40 of 1936), s. 15. These fees are fixed by the Regulations themselves, which were made by the Governor-General on the advice of the Executive Council; they are not imposed by the Minister for Finance, nor with his official concurrence; they are described as”fees,” not as taxes or duties, and I am not at liberty to place them in the category of taxes and duties from the mere fact that they are payments imposed by authority, when the expert departmental draftsman has classified them as fees. The distinction is real and led to the passing of the Public Offices Fees Act, 1879, which does not apply to Customs duties (see s. 7) and under which the Air Navigation (Collection of Fees) Order and Regulations (Stat. R. & Or., 1934, Nos. 360 and 361) were made as to the method of payment, though these fees are, of course, payable for the benefit of the Central Fund: Act of 1879, s. 6; Regulations of 1934, Art. 4.
The Finance Act, 1924 (No. 27 of 1924), is divided into five Parts:I”Income Tax”; II”Customs andExcise”; III”Death Duties”; IV”Corporation Profits Tax”; and V”Miscellaneous and General”; there are four schedules. The titles of the first four Parts speak for themselves; Part V, if I omit s. 38, sub-s. 2, which is in dispute, deals only with various taxes and duties and matters incidental thereto; the same obervation applies to the schedules. Sect. 38 has two sub-sections; the first deals with taxes and duties under the care of the Revenue Commissioners and fines incurred in connection therewith which shall be deemed to be debts due to the Minister for Finance for the benefit of the Central Fund and shall be payable to the Revenue Commissionersnote the words”due” and “payable”and recoverable at the suit of the Attorney-General; then comes sub-s. 2:”Moneys due or payable to or for the benefit of the Central Fund shall have and be deemed always to have had attached to them all such rights, privileges, and priorities as have heretofore attached to debts due to the Crown”; the intended priority is clear, even if the assumed continuance of the royal prerogative under the then existing Constitution be open to question. The only doubt is as to the scope of the sub-section.
The wording, taken by itself, is wide enough to include the moneys now claimed by both Ministers. But, if the Oireachtas really intended to make so sweeping a declaration of priority for revenue of every description, one would have expected that so far-reaching a claim for the State would have had a section to itself; at least one would not have expected to find it rolled up with an introductory sub-section concerning the position and enforcement of taxes and duties under the care of the Revenue Commissioners. And one would certainly not, without the plainest wording to show that the Act was now launching out into a far wider topic, have looked for this declaration concerning all revenue of every kind in a sub-section of an Act dealing from the beginning to the end (including the schedules) with taxes and duties or matters incidental to taxes and duties.
I do not believe that the Legislature intended in s. 38, sub-s. 2, to deal with anything but taxes and duties under the care of the Revenue Commissioners, and this conclusion is fortified by s. 44, sub-s. 3, as to the dates at which different provisions come into force, a sub-section which, whatever other criticism may be made of it, carries the plain implication that the scope of the Act comprises income tax (including super tax) and other taxes and duties. I construe the Act on the long established principle that “the construction of a statute is best made ex visceribus actus” (Co. Lit. 381 a) and, so construing it, I hold that it was not intended to give priority either to the licence fees claimed by the Minister for Industry and Commerce or to the miscellaneous revenue claimed by the Minister for Defence. Cp. Ingram v. Drinkwater (1). The result is that the State in respect of these claims will get its dividendspro rata with the general creditors.
Alex Spain v The Revenue Commissioners
1979 No. 160 Sp
High Court
12 February 1980
[1980] I.L.R.M. 21
(McWilliam J)
12 February 1980
[Names of Counsel for defendant not available.] *22
McWILLIAM J
delivered his judgment on 12 February 1980 saying: The plaintiff was, on 2 February 1976, appointed by the Northern Bank Ltd to be receiver of the property of Vecta International Ltd (hereinafter called Vecta) and he brings these proceedings in that capacity for the determination of certain questions with regard to the payment of duty on certain goods imported by Vecta. These goods were imported by Vecta with exemption from payment of the duties payable in respect thereof because Vecta imported the goods merely for processing in Ireland before exporting them, when processed, for sale abroad. After his appointment as receiver, the plaintiff realised such of these goods as came into his possession by selling them on the home market. The defendants claim that the full duty is payable on the goods thus sold and claim that this duty is payable in priority both to the bank and to the ordinary unsecured creditors of Vecta.
S. 38 of the Finance Act, 1932, as amended by Regulation No. 11 of the European Communities (Customs) Regulations 1972, provides as follows:
(1) Whenever the Revenue Commissioners are satisfied that any article or goods chargeable with a duty of customs are imported for the purpose of undergoing in Saorstát Éireann a process of manufacture and being subsequently exported … the Revenue Commissioners may, subject to compliance with such conditions as they may think fit to impose, permit such article or goods (as the case may be) to be imported without payment of duty.
(2) The Revenue Commissioners may, under such conditions as they think fit to impose, permit any article or goods imported under this section, or any product manufactured or partly manufactured from such article or such goods to be delivered on payment of the appropriate amount of customs duty.
(4) Where the Revenue Commissioners so decide and subject to such conditions as they think fit to impose, the duty of customs payable under subsection (2) of this section shall be that applicable to the goods delivered on the date on which they are so delivered.
The expression ‘to be delivered’ and the expression ‘to the goods delivered’ in subsections(2) and (4) are unsatisfactory unless it is assumed that some phrase such as ‘to the customers in the State’ is intended to be added.
The Revenue Commissioners granted Vecta authority to import the goods without payment of duty subject to conditions contained in a document described as Notice No. 1181 and an appendix thereto. Clause 9(2) of the notice provided as follows:
Diversion to the home market may, in certain circumstances, be allowed with the prior consent of the Commissioners on payment of the appropriate duty chargeable and subject to such conditions as they may see fit to impose.
Clause 14 of the appendix provided as follows:
Diversion to the home market . All compensating products and any goods covered by inward processing arrangements, whether such goods are in the same condition as when imported, or partly processed, (including …) may be put on the home market on payment of the customs charges, charges having equivalent effect or agricultural levies applicable at the time of importation and on the basis of the value of the goods for customs purposes on that date. Application for permission to divert goods to the home market should be made in writing to the appropriate officer of Customs and Excise, quoting …
The plaintiff did not make any such application and did not pay the customs duties before selling on the home market.
*23
On behalf of the plaintiff it is argued that none of the provisions create a charge on the goods and that clause 3 of the appendix of conditions provides for a general bond or alternative security to be given for the due observance of the conditions and that no other security can be presumed.
Clause 3 of the appendix provides as follows:
That a general bond in an adequate penalty is entered into or alternative security is given for the due performance of these conditions.
It would appear that no such bond or security was given or required.
On behalf of the defendants, I have been referred to s. 45 of the Finance Act, 1932, and s. 177 of the Customs Consolidation Act, 1876, each of which provides for the forfeiture of goods on which duty has not been paid. It is to be noted that forfeiture under the 1932 Act only arises on conviction for an offence whereas forfeiture under the 1876 Act does not appear to defend on conviction for an offence. Whether this distinction is correct or not, this case must be decided without reference to penalties or conviction for an offence, and, in any event, no claim is made or has been made for forfeiture of the goods.
I have also been referred to the case of A.G. v Thornton (1824) 13 Price 805 in which an auctioneer who, after an ambassador’s term of office had expired, sold on behalf of the ambassador dutiable goods which had been imported during the ambassador’s term of office free of duty on diplomatic exemption, was held to be liable for the duty which became payable when the goods ceased to have the benefit of the diplomatic exemption by reason of the sale. One of the grounds for this decision was that, having applied to the Revenue Commissioners for permission to sell the goods, the auctioneer was impliedly acting as the Agent for the Revenue Commissioners to collect and pay the duty.
I was also referred to the cases of McQueen v McCann 1945 S.C. 151; Sayce v Coupe [1953] 1 QB 1; Schneider v Dawson [1960] 2 QB 106; and R v Berry [1969] 2 QB 73. These were all prosecutions in one form or another and merely establish that, in circumstances such as the present, the goods were subject to duty but did not consider the question of the priority of the duties over the other liabilities of the owners of the goods.
In the present case, the goods became liable to duty so soon as they were put up for sale in Ireland and, under condition 14 of the appendix, they could not lawfully be put up for sale in Ireland without the consent of the defendants and on payment of the duties. If the proper steps had been taken, the duties would have been paid before the goods were sold and I am of opinion that the court should not permit the plaintiff, or the bank, to benefit from an irregular dealing with the goods for which dealing the plaintiff was solely responsible. I accept the point made by Baron Hullock in A.G. v Thornton that it was the duty of the auctioneer there to ascertain what was the position with regard to the goods sold and so, also, it seems to me in the present case that it was the duty of the plaintiff to ascertain the position before he sold the goods. It also seems to me that, had he ascertained the position, the plaintiff must have paid the duties or given an undertaking to pay them before he sold them on the home market. This *24 being so, I am of opinion that the defendants are entitled to be paid the duties out of the proceeds of the sale of the goods in priority to everyone else.