RESPONSE ENGINEERING Ltd v CAHERCONLISH TREATMENT PLANT Ltd

• Jurisdiction: Ireland
• Judgment Date: 06 September 2011
• Date: 06 September 2011
• Docket Number: [2009 No. 429S]
• Court: High Court

Response Engineering Ltd. v. Caherconlish Treatment Plant Ltd.

Response Engineering Limited

Plaintiff

and

Caherconlish Treatment Plant Limited

Defendant

[2011] IEHC 345,

[2009 No. 429S]

High Court

Company law - Charge - Registration - Book debts - Bank overdraft - 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 registration required - Companies Act 1963 (No. 33), s. 99.

Practice and procedure - Order of garnishee - Judgment creditor - Discretion - Whether unfair to grant order of garnishee - Rules of the Superior Courts 1986 (S.I. No. 15), O. 45.

Section 99 of the Companies Act 1963 provides, inter alia, that:-

"(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…

(2) This section applies to the following charges:

[…]

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

The plaintiff was granted judgment against the defendant in the sum of EUR225,351. The defendant was owed approximately EUR220,000 by Limerick County Council in respect of works it performed in relation to the construction of a water treatment plant. The defendant had no assets amenable to execution by the plaintiff other than the monies owed by the Council. Subsequently, the plaintiff obtained a conditional order of garnishee in respect of the monies owed to the defendant by the Council.

The plaintiff applied to have the conditional order made absolute. The bank claimed that it had acquired an interest in the monies held by the Council and that this took priority over the plaintiff's claim. The bank relied upon a letter of undertaking written by the solicitor for the defendant, which stated, inter alia, that the defendant:-

"required an overdraft facility in the amount of EUR305,000.00 and the same will be discharged in two payments, namely EUR82,342.52 and EUR222,000.00 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 [the defendant's] account with AIB and I hereby undertake to do so."

The undertaking was not registered by the bank as a charge. The bank claimed that the undertaking amounted to an assignment of debt by the defendant to it, rather than a security over the debt, and therefore did not require to be registered as per s. 99 of the Act of 1963. The bank further claimed that, as it had advanced the monies to the defendant, which had dispersed the monies in its dealings with the plaintiff, it would be unfair and inequitable to allow the plaintiff to obtain the advantage of monies from the Council by way of order of garnishee.

Held by the High Court (Hogan J.), in declaring that the undertaking constituted a book debt within the meaning of s. 99(2)(e) of the Act of 1963 and that the undertaking was void against any creditor of the defendant in the absence of registration, and in granting an absolute order of garnishee, 1, that the term "book debts" referred to future income which would accrue to a company by reason of the provision of goods and services to third parties by that company in the course of its trade or business. The defendant had provided goods and services to a third party, Limerick County Council, by constructing a water treatment plant and it was awaiting payment by the Council at some future date. Such a payment amounted to a book debt within the meaning of s. 99(2)(e) of the Act of 1963.

Farrell v. Equity Bank Ltd. [1990] 2 I.R. 549considered; Byrne v. Allied Irish Banks [1978] I.R. 446 distinguished.

2. That the presumption which must apply to an ordinary banker client relationship, absent a clear indication to the contrary, that a client enjoyed an equity of redemption in respect of debt, had not been displaced. The undertaking was not inconsistent with an equity of redemption. Nor did it in itself imply that the debt had been effectively sold by way of assignment in consideration of the extension of the overdraft facilities. In the event that the defendant's account had come into surplus, all the undertaking meant was that the cheque from the Council had to be lodged in the company's account. It did not mean that these monies had become the property of the bank by way of windfall since there had been no effective sale or assignment of the Council's payment to the bank in return for the credit facilities. The bank wanted security for its debt and had not purchased the debt by providing additional overdraft facilities to the defendant.

In re Kent and Sussex Sawmills [1947] Ch. 177 considered; Re Marwalt Ltd. [1992] B.C.C. 32 andSiebe Gorman v. Barclays Bank [1979] 2 Lloyd's Rep 142 distinguished.

3. That, while the making of an order of garnishee under O. 45 of the Rules of the Superior Courts 1986 remained in the discretion of the court, it would generally require special circumstances before the court would decline on discretionary grounds to make an order in favour of a judgment creditor who had otherwise satisfied the necessary proofs. The bank could have protected its position by registering the solicitor's undertaking as a charge. Further, there was no contractual or quasi-contractual nexus between the parties such as would make it inherently inequitable for the plaintiff to apply for an order of garnishee.

Martin v. Nadel [1906] 2 K.B. 26 distinguished.

Cases mentioned in this report:-

Byrne v. Allied Irish Banks [1978] I.R. 446.

Farrell v. Equity Bank Ltd. [1990] 2 I.R. 549.

In re Interview Ltd. [1975] I.R. 382.

In re Kent and Sussex Sawmills [1947] Ch. 177; [1946] 2 All E.R. 638.

Martin v. Nadel [1906] 2 K.B. 26.

Re Marwalt Ltd. [1992] B.C.C. 32.

Siebe Gorman v. Barclays Bank [1979] 2 Lloyd's Rep 142.

Garnishee

The facts have been summarised in the headnote and are more fully set out in the judgment of Hogan J., infra.

On the 1st February, 2010, the High Court (Lavan J.) granted the plaintiff judgment...