Dempsey v Bank of Ireland

JudgeMr. Justice Murphy
Judgment Date28 May 1984
Neutral Citation1983 WJSC-HC 1991
Docket NumberNo. 353 Sp/Court 5/1983
CourtHigh Court
Date28 May 1984

1983 WJSC-HC 1991


No. 353 Sp/Court 5/1983




Mr. Justice Murphy

On the 11th day of April, 1983 a resolution was passed for the winding-up of the above named Euro Travel Limited (hereinafter called "the Company") by means of a creditor's voluntary winding-up. By that resolution the plaintiff Robert Dempsey was appointed liquidator and his appointment as such was confirmed at a meeting of creditors likewise held on the 11th April, 1983.


The present proceedings constitute an application by the liquidator of the company for the direction of the Court pursuant to Section 280 of the Companies Act1963. The circumstances in which the directions of the Court are sought are as follows:


As might be inferred from the title of the company it had been engaged in business as Travel Agents and was in fact a member of the Irish Travel Agents” Association. The company sought to avail itself of a bonding scheme which had been recommended to the members of the Irish Travel Agents” Association. For that purpose an agreement dated the 31st day of December, 1982 had been executed between the company of the first part, the trustees of the Irish Travel Agents” Association of the second part and the Governor and Company of the Bank of Ireland (hereinafter called "the Bank") of the third part. Under that agreement the company agreed to pay to the trustees the sum of £75,OOO if prior to the 31st day of March, 1983 certain events occurred, one of which was that the company became unable to pay its debts or ceased to carry on business as a result of being unable to pay its debts as they fell due with the result that the company should be unable to carry out or fulfil its obligation to its customers. The Bank executed the agreement aforesaid for the purpose of guaranteeing the due payment by the company of the said sum of £75,OOO in the event of the same becoming payable in accordance with the terms and provisions contained in the said agreement.


At an earlier date and before any question of bonding arose the company had executed in favour of the Bank the Bank's standard form of letter of set-off. That letter is dated 26th March, 1981 and expressly authorised the Bankpending payment of any bills, notes, overdrafts, loans, guarantees or other contingencies to hold any monies which then or thereafter might stand to the credit of the company with any of the branches of the Bank as security for all such liabilities. The letter of set-off then went on expressly to provide as follows:-

"Furthermore you are authorised to set-off and apply such monies or any part thereof from time to time in or towards the satisfaction of such liabilities entirely at your discretion, without further notice to us and we agree that such set-off would be a good and valid discharge of such monies so applied without the necessity of any further endorsement or authorisation from us whatsoever".


In addition to that letter of set-off and contemporaneously with the bonding agreement the company entered into an agreement on the 31st December, 1982 with the Bank (sometimes referred to as "the letter of indemnity") which, after reciting the bonding agreement and in consideration of the Bank joining therein, went on to provide that the company should indemnify the Bank against all liabilities incurred by it on foot of the bonding agreement and authorising the Bank to pay any amounts demanded from it by reason of the bonding agreement on demand being made to the Bank and without requiring proof or agreement that the amounts so demanded were due or payable and indeed notwithstanding the fact that the company itself might dispute the validity of such demands. The letter went on to provide in paragraph 3 thereof as follows:

"You may debit any account in our names with any sums payable by us hereunder".


By March of 1983 it was clear that the company was in financial difficulties. A statement of affairs prepared as at the 23rd of that month showed an excess of liabilities over assets of £13,777 but more particularly showed creditors of approximately £130,000 where the cash and bank balances amounted to only some £35,000. It was recognised by the company and confirmed by the liquidator in the affidavit sworn by him that the company was on the 22nd March, 1983 no longer in a position to pay its debts and that it ceased to carry on business. On behalf of the liquidator the point was made - somewhat tentatively - that the inability of the company to pay its debts and to carry on its business had not necessarily resulted in the company being unable to carry out or fulfil its obligations to its customers. Whilst that point may be valid to the extent that no particular customer had been stranded abroad the former managing director, Mr. Kelly, in his evidence clearly recognised that the company would be unable to meet its commitments to its customers.


By letter dated the 24th March, 1983 the then auditors to the company notified the Irish Travel Agents” Association of the financial position of the company and by further letter dated the 29th March, 1983 Messrs William Fry and Sons Solicitors on behalf of the Association formally demanded payment from the Bank of the sum of £75,000 in accordance with the obligations of the Bank under the bonding agreement. It. was on the 19th April, 1983 that the Bank -in pursuance of their obligation under the bonding agreement - forwarded to the Association the Bank's draft for £75,000.


At the time, or shortly before the bonding agreement was entered into, the company had agreed in principle with the Bank to lodge a sum of £75,000. In fact this amount was lodged to the credit of the company with the Bank of Ireland Finance Company Limited, a separate legal entity from the Bank itself but of course associated with it. It was recognised that the reason for selecting the finance company as opposed to the Bank itself was merely to procure more favourable terms in relation to interest. The amount so lodged to the credit of the company with the Bank of Ireland Finance Company was, together with the interest accumulated thereon, transferred by the Bank to the company's account in Clones with the Bank of Ireland on the 22nd March, 1983 and on the 20th April, 1983 the sum of £75,000 was - as I was informed by Counsel for the Bank - transferred to the Head Office of the Bank and set-off against the amount paid as already mentioned to the Trustees of the Association.



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