Cox v Dublin City Distillery Company

• Jurisdiction: Ireland
• Judgment Date: 15 February 1906
• Date: 15 February 1906
• Court: Court of Appeal (Ireland)

Cox

and

Dublin City Distillery Company (1).

Appeal.

CASES

DETERMINED BY

THE CHANCERY DIVISION

OF

THE HIGH COURT OF JUSTICE IN IRELAND

AND BY

THE IRISH LAND COMMISSION,

AND ON APPEAL THEREFROM IN

THE COURT OF APPEAL.

1906.

Company — Borrowing powers — Debentures — Floating charge — Power of Company to deal with property — Pledge — Priority.

Held (affirming the decision of Barton, J.), that the transaction came within the restriction against creating any mortgage or charge on the property in priority to the debentures, and the provision that the debentures should take precedence over all moneys which might be raised by the Company by any means whatsoever, and that the Bank were not entitled to the whisky against the debenture-holders.

Held, also, on further evidence produced in the Court of Appeal, which had not been given in the Court below, that the Bank had notice of the debentures, at the date of the pledge of the whisky to them, and were consequently not in the position of purchasers for value without notice.

Action by John M. Cox, suing on behalf of himself and the other debenture-holders, for a declaration that certain mortgage-debentures were well charged on all the property, present and future, of the Company.

The defendant Company was incorporated in the year 1890, under the Companies Acts, for the purpose of carrying on the business of whisky distillers at Dublin, Banagher, and elsewhere in Ireland.

The memorandum of association gave the Company power to borrow money secured by mortgage or debentures, charged on all or any of the property and rights of the Company.

In September, 1900, the Company raised and borrowed, for the purpose of the Company, a sum of £35,000 by the issue of 350 debentures for £100 each, and on the 20th September, 1890, the Company executed a deed for the purpose of securing the said debentures, made between the Company of the one part and Frederick Kennedy and Patrick Egan of the other part. The form of the debenture was as follows:—

“The Dublin City and Banagher Distilleries, Limited (hereinafter called the Company), will, on the 1st day of January, 1920, or on such earlier day as the principal sum of £100 hereby secured shall become payable in accordance with the conditions endorsed hereon, pay to or other registered holder for the time being hereof, his executors or administrators, the sum of £110; and the Company will, in the meantime, pay to him or them interest on the said principal sum of £100 at the rate of £5 per cent. per annum by equal half-yearly payments on the 28th day of February and 31st day of August in each year, the first of such half-yearly payments to be made on the 28th day of February next.

“The Company doth hereby charge with such payment its undertaking and all its property, both present and future, not comprised in an indenture hereinafter mentioned. The registered holder of the debentures for the time being, including the registered holder hereof, their and his executors and administrators, are entitled pari passu to the benefit of an indenture dated the 20th September, 1890, and made between the Company of the one part and Frederick Kennedy and Patrick Egan of the other part, whereby certain hereditaments and premises were vested in the trustees therein named for securing payment of the principal moneys and interest payable by virtue of such debentures.

“This debenture is issued upon, and subject to, the conditions endorsed hereon.”

The conditions endorsed—so far as material—were as follows:—

“1. This debenture is one of a series of 350 like debentures issued, or about to be issued, by the Company for securing principal sums amounting in the aggregate to £35,000.

“2. The debentures of the said series shall rank pari passu, and without preference or priority one over another.

“3. The charge created by this debenture shall be a floating security, and, accordingly, the Company may, in the course of its business and for the purpose of carrying on the same, deal with the property hereby charged in such manner as the Company may think fit, and in particular may sell, lease, or exchange the same, pay and receive money, and may declare and pay dividends out of profits.

“4. Nothing herein contained shall be taken to authorize the creation of any mortgage or charge, on the property for the time being of the Company, in priority to the charge hereby created.

“16. If the Company make default for a period of three calendar months in the payment of any interest hereby secured, the registered holder hereof, may at any time thereafter, before such interest is paid, by notice in writing to the Company, call in the principal moneys hereby secured, and in case any such notice is duly given or if any order of some Court of competent jurisdiction is made, or a special or extraordinary resolution is passed for the winding-up of the Company, the principal moneys hereby secured shall immediately become payable.”

By the trust deed executed to secure the debentures the Company assigned to Kennedy and Egan the freehold and leasehold property possessed by the Company to secure the payment of the debentures pari passu, and the Company covenanted to pay the principal and interest secured by the debentures, and that the same should be a first charge on the mortgaged premises, and should take precedence over all moneys which might thereafter be raised by the Company by any means whatsoever.

There was a second issue of mortgage debentures to secure a sum of £25,000 on the 9th November, 1895. This was secured by a deed of that date, and the debentures were in the same form as the first issue.

The plaintiff was the holder of two debentures of £100 each in the Company. The Company made default in payment of a half-year's interest due to the plaintiff on his said debentures on the 31st August, 1904, and the plaintiff on the 4th February, 1905, served notice on the Company calling in the principal moneys secured by the said debentures. The plaintiff at the same time demanded payment of such principal money, but without success.

On the 5th February, 1905, the plaintiff brought the action.

On the 15th February, 1905, the Company passed a resolution to wind up.

The action came on for hearing before Barton, J., on the 16th March, 1905, when an order was made declaring the mortgage debentures well charged on the Company's property, and the usual accounts and inquiries were directed.

On the 15th March, 1905, the Hibernian Bank issued a writ against Cox, and the Company, and some of the directors for a declaration that the charge or pledge which they held on certain whisky of the Company was valid against the first and second mortgage debentures. This action was stayed by Barton, J., on the 30th March, 1905, and on the 19th May, 1905, the Hibernian Bank filed a claim in the present action for the purpose of enforcing their rights.

The Bank thereby claimed that the pledge made by the defendant Company to the Bank of the 25,638¹/₄ gallons of potstill whisky, bonded in the name of W. A. Craig, and the 65,885 gallons of pot-still whisky, warrants for the delivery of which (with invoices) were held by the said Bank, were valid and effectual against the first and second debenture-holders and the said defendant Company, and all persons claiming under them or any of them.

The total amount secured by the said pledge, with interest to the 3rd March, 1905, was £13,771 12s. 4d.

The Bank submitted that the pledge to them of the said whisky was paramount to any claim which the debenture-holders or any of them could have against the same; further, that the said pledge did not constitute a mortgage or charge within the meaning of the provisions of the said debentures so as to give the debentures priority thereto; and further, that the said whisky, having been manufactured from grain purchased with the moneys advanced by the said Bank to the defendant Company for such purpose, did not in equity, when manufactured and bonded, become subject to the claims of the debenture-holders under their debentures in priority to the claim of the said Bank created by the pledge; and that the debentures being only a floating charge on the said whisky did not prevent the Company, for the purposes of manufacturing their whisky and carrying on their business, obtaining advances from their Bankers in the ordinary course of business, and securing the repayment of such advances by pledging their whisky.

There were about 373,148 gallons of whisky of the estimated value of £44,697 7s. 6d., stored in the bonded warehouses of the defendant Company on the distillery premises, the warrants of which had been lodged as pledges with the Bank and other creditors.

The claim of the Bank was adjourned into Court for hearing before the Judge.

On the 20th July, 1905, Barton, J., gave judgment, and he held that the first debentures took precedence over the claim of the Hibernian Bank, and that the Bank should hand over to the receiver the warrants in their hands. The Bank appealed, and both parties served notice of intention to use fresh evidence on the hearing of the appeal; the fresh evidence proposed to be given by the Bank being given to show the custom of the Company in using the money advanced by the Bank to purchase materials for the manufacture of whisky; and the fresh evidence proposed to be given by the respondents being given for the purpose of proving that the Bank had notice of the debentures at the time of the pledge of the whisky. The respondents did not oppose the Bank's application to give further evidence; but the Bank strongly opposed the respondent's application. The Court of Appeal allowed the new evidence to be given under the circumstances fully stated in the judgment of FitzGibbon, L.J. (infra, pp. 458-462).

Ronan, K.C., O'Brien, K.C., and A. C. Meredith, for the appellants:—

The Bank got a legal title, by way of a pledge, to the property represented by these warrants, which is good against a purely equitable...