Response Engineering Ltd v Caherconlish Treatment Plant Ltd

JurisdictionIreland
JudgeMr. Justice Hogan
Judgment Date06 September 2011
Neutral Citation[2011] IEHC 345
CourtHigh Court
Docket Number[No. 429 S/2009]
Date06 September 2011

[2011] IEHC 345

THE HIGH COURT

[No. 429 S/2009]
Response Engineering Ltd v Caherconlish Treatment Plant Ltd

BETWEEN

RESPONSE ENGINEERING LIMITED
PLAINTIFF

AND

CAHERCONLISH TREATMENT PLANT LIMITED
DEFENDANT

COMPANIES ACT 1963 S99(2)(E)

COMPANIES ACT 1963 S99

RSC O.45 r1

COMPANIES ACT 1963 S99(2)(C)

FARRELL v EQUITY BANK LTD 1990 2 IR 549 1989/2/271

HALSBURYS LAWS OF ENGLAND 4ED VOL 3 PARA 525

KUM TONG RESTAURANT (DUBLIN) LTD, IN RE; BYRNE v ALLIED IRISH BANKS LTD 1978 IR 446

KENT & SUSSEX SAWMILLS LTD, IN RE 1947 CH 177 1946 2 AER 638

INTERVIEW LTD, IN RE 1975 IR 382

SIEBE GORMAN & CO LTD v BARCLAYS BANK LTD 1979 2 LLOYDS 142

MARWALT LTD, IN RE 1992 BCC 32

RSC O.45

MARTIN & ORS v NADEL 1906 2 KB 26

COMPANY LAW

Book debts

Bank overdraft - Registration - Solicitor's undertaking regarding future payments - Solicitor's undertaking not registered as charge by bank - Banker client relationship - Equity of redemption - Whether monies owed to defendant book debts - Whether solicitor's undertaking created security interest in book debts - Whether requiring registration - Farrell v Equity Bank Ltd [1990] 2 IR 549 considered; Byrne v Allied Irish Banks Ltd. [1978] IR 446 distinguished; In re Kent and Sussex Sawmills [1947] Ch 177 considered; Re Marwalt Ltd [1992] BCC 32 and Siebe Gorman & Co. Ltd v Barclays Bank Ltd [1979] 2 Lloyd's Rep 142 distinguished - Companies Act 1963 (No 33), s 99 - Relief granted (2009/429S - Hogan J - 6/9/2011) [2011] IEHC 345

Response Engineering Ltd v Caherconlish Treatment Plant Ltd

PRACTICE & PROCEDURE

Garnishee

Judgment creditor - Discretion - Whether unfair to grant order of garnishee - Martin v Nadel (Dresdner Bank, Garnishees) [1906] 2 KB 26 distinguished - Conditional order made absolute (2009/429S - Hogan J - 6/9/2011) [2011] IEHC 345

Response Engineering Ltd v Caherconlish Treatment Plant Ltd

Facts The plaintiff company had been granted judgment against the defendant for a sum of monies. The defendant itself was owed monies by a local authority. The local authority was holding the sum of monies pending the outcome of court proceedings. The plaintiff had obtained a conditional order of garnishee and when it sought to have the conditional order made absolute, a bank (AIB) appeared before the court and contended that it had acquired an interest in the sum held by the local authority and contended that this equitable charge took priority over any claim made by the plaintiff. On behalf of the Bank it was contended that a letter of undertaking by a solicitor acting on behalf of the defendant entitled it to the funds in question and these should be made payable to the Bank. In addition it was contended that the court should exercise its discretion in refusing to make the order of garnishee conditional.

Held by Hogan J in finding in favour of the plaintiff. The entire case turned on whether the undertaking constituted a registerable charge within the meaning of s. 99 of the Companies Act, 1963. The payment in question clearly amounted to a book debt. The real question was whether the local authority's debt had been effectively sold to the Bank by way of assignment via the solicitor's undertaking or whether the defendant retained an equity of redemption in the monies in the event that the Bank debt were to be discharged. The evidence was that the Bank wanted security for its debt and it was not, in the business of effectively purchasing the debt by providing additional overdraft facilities to the defendant. The solicitor's undertaking was by way of security and not assignment and accordingly the undertaking was void as against any creditor of the company for want of registration as required by s. 99(2)(e) of the 1963 Act. There was no contractual or quasi-contractual nexus between the Bank and the plaintiff that would make it inherently inequitable for the plaintiff to obtain an order of garnishee.

Reporter: R.F.

Mr. Justice Hogan
1

The issue in these proceedings is whether a solicitor's undertaking regarding future payments to be made to his client company constitutes a charge over the book debts of his client's company within the meaning of s. 99(2)(e) of the Companies Act1963 ("the 1963 Act"). It is common case that the undertaking in question was not registered by the bank as a charge for this purpose. It will be seen immediately that this case raises a difficult question of company law and the interpretation of s. 99 of the 1963 Act.

2

The background to this application arises as follows. On 1st February, 2010, the plaintiff company ("Response") was granted judgment against the defendant ("Caherconlish") in the sum of €225,351.00 together with an order for costs by the late Lavan J.. It is not in dispute but that Caherconlish is owed the sum of approximately €220,000 by Limerick County Council ("the Council") in respect of works which it performed in relation to the construction of a water treatment plant. Unfortunately, however, Caherconlish has no assets amenable to execution by the plaintiff other than what amounts to this chose in action against Limerick County Council in respect of the sum of €220,000. The Council is presently holding this sum for payment pending the outcome of the determination of the priority issue and it has indicated that it will abide the order of the court on this question.

3

A few weeks later on 1st March, 2010, Response obtained a conditional order of garnishee in respect of the said sum of €220,000 pursuant to Ord. 45, r.1 RSC. When Response applied to have the conditional order made absolute, the bank in question, AIB plc, appeared before the court and contended that it had acquired an interest in the sum held by the Council by way of charge and that this equitable charge took priority over any claim made by Response.

4

In that regard AIB relied upon a letter of undertaking written by the solicitor for Caherconlish, Mark Potter, on the 13th November, 2006. The letter is, in material part, in the following terms:-

"Caherconlish Treatment Plant Limited and Limerick County Council have entered into an agreement whereby the company will construct a treatment plant at Caherconlish. The Council will make a contribution towards the costs of same in the amount of €370,000.00 on an agreed stage payment basis. The Council has to date paid the sum of €65,657.48 and a cheque in the sum of €82,342.52 is payable in the week ending the 17th November, 2006. The treatment plant is now constructed and "practical completion" will be certified in the next week. At that stage the Council will make the final payment in the sum of €220,000.00…my client, Caherconlish Treatment Plant Limited, require an overdraft facility in the amount of €305,000.00 and the same will be discharged in two payments namely, €82,342.52 and €222,000.00 as soon as the said payments come in from Limerick County Council. I confirm that I have irrevocable instructions to lodge the said cheques to Caherconlish Treatment Plant's account with AIB and I hereby undertake to do so."

5

As this undertaking precedes the garnishee application made by Response, it is clear that subject to the registration issue, it would otherwise have priority over the claim now made by that plaintiff. Putting this another way, unless this undertaking constitutes a security over book debts which requires to be registered for the purposes of s. 99(2)(3) of the 1963 Act, AIB is entitled to priority over the claim from Response. Accordingly, the entire case turns on whether the undertaking in question constitutes a registerable charge in the meaning of s. 99.

6

In the first instance, two questions immediately fall to be determined. First, what is the meaning of the phrase "book debts" in s. 99(2)(e) and does the payment from the Council amount to a "book debt" for this purpose. Second, in the event that the sum in question comes within the definition of this phrase, does the solicitor's undertaking amount to a security on the company's property? Before considering these questions it is necessary first to set out the relevant provisions of s.99 itself.

1963
7. The relevant provisions of s. 99 are as follows:-
7

2 "(1) Subject to the provisions of this Part, every charge created after the fixed date by a company, and being a charge to which this section applies, shall, so far as any security on the company's property or undertaking is conferred thereby, be void against the liquidator and any creditor of the company, unless the prescribed particulars of the charge, verified in the prescribed manner, are delivered to or received by the Registrar of Companies for registration in manner required by this Act within 21 days after the date of its creation, but without prejudice to any contract or obligation for repayment of the money thereby secured, and when a charge becomes void under this section, the money secured thereby shall immediately become payable.

8

(2) This section applies to the following charges:

(e) a charge on book debts of the company."
9

8. There is no doubt but that the phrase "book debts" has, to the modern ear, something of a musty feel to it. The phrase conjures up...

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