The Governor and Company of The Bank of Ireland v Eteams (International) Ltd (in Voluntary Liquidation)

• Jurisdiction: Ireland
• Judge: Ms. Justice Baker
• Judgment Date: 14 May 2019
• Neutral Citation: [2019] IECA 145
• Date: 14 May 2019
• Court: Court of Appeal (Ireland)
• Docket Number: Neutral Citation Number: [2019] IECA 145 Appeal No. 2017/368

[2019] IECA 145

THE COURT OF APPEAL

Baker J.

Whelan J.

Baker J.

Costello J.

Neutral Citation Number: [2019] IECA 145

Appeal No. 2017/368

IN THE MATTER OF THE COMPANIES ACT 1963-2009

AND IN THE MATTER OF ETEAMS (INTERNATIONAL) LIMITED (IN VOLUNTARY LIQUIDATION)

AND IN THE MATTER OF SECTION 280 OF THE COMPANIES ACT, 1963

BETWEEN

BY ORDER THE GOVERNOR AND COMPANY OF THE BANK OF IRELAND

APPLICANT/RESPONDENT

-AND-

BY ORDER ETEAMS (INTERNATIONAL) LIMITED (IN VOLUNTARY LIQUIDATION)

RESPONDENT/APPELLANT

Written agreement – Debt sale – Registerable charge – Appellant seeking to appeal against the order and judgment of the High Court – Whether the High Court erred in its analysis or conclusion

Facts: The appellant, Eteams (International) Ltd (the Company), appealed to the Court of Appeal against the order and judgment of the High Court (Keane J) made on 15 June 2017, in which it determined the proper characterisation of a written agreement made on 5 July 2007 between the Company and the respondent, Bank of Ireland (the Bank). The grounds of appeal, in summary, were: (a) that Keane J failed adequately or properly to consider whether “on its own terms” the agreement was in fact and in law a charge upon the book debts of the Company, and to consider whether the indicia of a registerable charge were contained therein; (b) that Keane J erred in law and in fact in coming to the conclusion that the agreement did not create a registerable charge over the book debts of the Company; and (c) that Keane J erred in his construction, interpretation, and application of the case law on which he relied. The Bank denied that there was any error whether in law or fact and that the judgment of Keane J was to be upheld.

Held by Baker J that the agreement as a whole bore the attributes of a debt sale in substance and in form and that many of the general and special conditions were inconsistent with the characterisation of the agreement as a loan and charge as contended by the Company. It was not merely, as was contended by the Bank, that so many of the clauses bore the attributes of the agreement, as the matter was not to be determined by an assessment of the number of clauses supportive of one view or the other, but the agreement taken as whole bore, in Baker J’s view, attributes which were consistent with a debt sale and not with a loan and security agreement. Further, Baker J accepted the arguments made by counsel for the Bank that the only express clause on which the Company relied, namely Clause 1.4 of the General Conditions by which a trust is declared, did not support the assertion that the title did not pass. Baker J held that the arguments on which the Company relied did not support the appeal and that the agreement bore all the attributes of a debt sale. Baker J could find no error in the analysis or conclusion of Keane J.

Baker J held that the appeal would be dismissed.

Appeal dismissed.

JUDGMENT delivered on the 14th day of May 2019 by Ms. Justice Baker

1 This is an appeal of the order and judgment of Keane J. made on 15 June 2017, Bank of Ireland v. Eteams International Ltd [2017] IEHC 393, in which he determined the proper characterisation of a written agreement (‘the Agreement’) made on 5 July 2007 between Eteams (International) Ltd (‘the Company’) and Bank of Ireland (‘the Bank’). The question for consideration by the High Court and by this Court on appeal is whether the Agreement constitutes a sale by the Company of its debts to the Bank or whether the Agreement is properly to be characterised as a charge over the Company's book debts which would require to be registered under s. 99 of the Companies Act 1963, as amended (‘the 1963 Act’).

2 Anthony Fitzpatrick was appointed liquidator of the Company at a creditors” meeting on 27 March 2013, and as the Agreement was not registered as a charge under s. 99 of the 1963 Act, it is void against the liquidator if registration was required.

3 The question, as Keane J. indicated, raised issues of fact and law and no Irish authority directly on point was identified. The question is of some importance for creditors generally as a true debt factoring agreement does not carry a requirement of registration, but is not one the existence of which is readily ascertainable by other creditors of a company, and an agreement for the assignment of debt, or a factoring agreement, may, in its effect, obscure the true worth of a limited liability company.

4 There has been some discussion in recent academic commentary regarding the correct approach to the characterisation of a debt purchase agreement, and whether policy reasons might suggest that a degree of scrutiny by the courts as to the characterisation of such an agreement is warranted.

5 Gough, in his leading text Company Charges (2nd ed., Butterworths, 1996) para. 21.28, explains the matter as follows:

‘It must be counter-productive as a policy matter to continue to encourage artificial forms of finance and security to the prejudice of both secured and unsecured creditors by conferring on title security techniques the privilege of immunity from public disclosure through registration in the charges register. Stimulation of finance and security techniques involving the transfer of a company's trading stock and its normal trading function to some off balance sheet method of operation must be prejudicial to a fair, open and efficient system of secured financing.’

Background facts

6 The Agreement was executed by the Company and the Bank and bears the date 5 July 2007. It is expressly described on the cover page as a ‘debt purchase agreement’. The Agreement was for the sale by the Company of its debts in Ireland and otherwise to a maximum sum of €200,000, expressly for the initial period of twelve months. The Agreement incorporated by reference the general or standard terms and conditions (Edition A/2005) (the ‘General Conditions’) and the cover page whereof was signed for identification by an authorised signatory on behalf of the Company. The Agreement provided, in broad terms, for the advance by the Bank of 60% of relevant sales invoices issued by the Company and monies due on foot of invoices raised by the Company were lodged directly to a nominated bank account in the Bank.

7 While the amount owed by the Company to the Bank is not a matter material to this judgment, for completeness, I note that the claim of the Bank is that it is entitled to retain the sum of €82,339.50 which the Bank says represents debts already collected and lodged in the nominated account.

8 The application before Keane J. commenced by notice of motion grounded on the affidavit of Mr. Fitzpatrick sworn on 18 February 2015. The application was formulated, to use Keane J.'s words, in the guise of an application for directions that the monies were either lent to the Company or constituted a security. A replying affidavit of Michael Martin on behalf of the Bank, sworn on 12 March 2015 contested that claim and argued that the Agreement was in substance and form a debt purchase. Costello J. made an order on 8 June 2015 permitting the Bank to take over carriage of the proceedings and to be named as applicant and that the Company, therefore, be named as respondent to the motion.

9 The essential difference between the parties is that the Company argues that, as a matter of the true construction of the Agreement and in the light of the authorities on which counsel relies, the ownership of the debts did not transfer to the Bank. Counsel for the Bank argues that the language of the Agreement is clear and that the correct conclusion from the express language of the Agreement is that the debts did pass to the Bank and that, in form and substance, the Agreement is not to be characterised as a loan or security.

The High Court judgment

10 Keane J. delivered a considered judgment in which he expressed himself satisfied in the light of the authorities that the Agreement did effect a valid purchase of the debts of the Company by the Bank and did not constitute a registrable charge under s. 99 of the 1963 Act. He made an ancillary order that the liquidator pay to the Bank the proceeds of all the debts which he or the Company had collected and received and furnish such information that the Bank required in connection with the collection of the debts.

11 In his judgment, Keane J. analysed the historical jurisprudence and the parties to the appeal accept that his analysis is correct, and that no other authorities require to be considered. Counsel for the Company argues that the trial judge fell into error in the application to the facts of the test he identified, and in particular that he failed to have proper regard to the argument advanced by the Company that the risks associated with the book debts did not pass, or did not pass absolutely, to the Bank with the arguable consequence that, as a matter of substance, the Agreement created no more than a security interest under which title did not rest in the Bank. Some reliance is placed on the jurisprudence concerning retention of title clauses in commercial contracts for sale.

12 In a separate ground of appeal, the Company argues that the repeal of the 1963 Act by the Companies Act 2014 means that, as a matter of law, the proceedings were not properly constituted.

The grounds of appeal

13 The grounds of appeal, in summary, are:

(a) that Keane J. failed adequately or properly to consider whether ‘on its own terms’ the Agreement was in fact and in law a charge upon the book debts of the Company, and to consider whether the indicia of a registerable charge were contained therein;

(b) that Keane J. erred in law and in fact in coming to the conclusion that the Agreement did not create a registerable charge over the book debts of the Company; and

(c) that Keane J. erred in his construction, interpretation, and application of the case law on which he relied.

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