Welch v Bowmaker (Ir.) Ltd

• Jurisdiction: Ireland
• Judge: Henchy J.,KENNYJ.:,Parke J.
• Judgment Date: 01 January 1980
• Neutral Citation: 1978 WJSC-SC 3929
• Docket Number: [1977 No. 405 Sp.]
• Court: Supreme Court
• Date: 01 January 1980

WELCH v. BOWMAKER (IRELAND) LTD.

T. NIALL WELCH

v.

BOWMAKER (IRELAND) LTD. AND THE BANK OFIRELAND

1978 WJSC-SC 3929

Henchy J.

Kenny J.

Parke J.

No. 405 Sp. Ct. 6/1977

no.116/1978

THE SUPREME COURT

1 Judgment of Henchy J.delivered the 9th July 1979

2 These proceedings have been brought by the liquidator of Central Garage (Cork) Ltd. ("the company") to clear up a point arising out of a debenture. The debenture was given by the company to Bowmaker (Ireland) Ltd. ("Bowmakers") on the 16 January 1965. Having recited that the company will pay to Bowmakers on demand all money due to Bowmakers on any current or other account and discharge all liabilities incurred by the company to Bowmakers together with interest and other charges as specified, the debenture provided as follows:

"The company as beneficial ownerhereby charges with such payments as aforesaid its undertaking and all its property and assets present and future including its uncalled capital for the time being and goodwill and also as beneficial owner hereby charges as a specific charge the hereditaments and premises specified in the schedule hereto".

3 The hereditaments and premises specified in the schedule are there stated to be situate at Nos. 1, 2, 3 and 4 Patrick's Quay, Cork, and 29 MacCurtain St., Cork. The company's property at Ivy Lawn (otherwise Iveagh Lawn), Dougles Road, Cork was not included in the schedule. It is the latter property that is the subject of the present dispute.

4 The debenture was duly registered with the Registrar of Companies pursuant to the Companies Act, 1963. The particulars given by Bowmakers for the purpose of that registration indicated that the debenture created a specific charge over only the properties specified in the schedule - therefore not over the Ivy Lawn property.

5 If the matter rested exclusively on the excerpt I have quoted from the debenture, there would never have been any question of a specific charge having been created over the Ivy Lawn property. The debenture would have created no more than a floating charge or security over that property. This would mean that until the floating charge over Ivy Lawn crystallised into a specific charge, the company could mortgage that property just as if the floating charge did not exist. In fact, that is what the company did. On the 25 February 1975 it gave the Bank of Ireland and equitable mortgage over that property by deposit of title deeds. Again, if the foregoing excerpt from the debenture was exhaustive of Bowmakers' powers, there would be no question of the Bank yielding priority to Bowmakers. But because there is included in the debenture a qualifying condition, a conflict has arisen between Bowmakers and the Bank as to their priorities in regard to Ivy Lawn. It is to resolve that conflict that the liquidator has sought the help of the court in the present proceedings.

6 The complicating condition in the debenture is in the followingterms:

7 "This debenture is to rank as a second charge on the property within mentioned and such charge is to be as regards the company's lands and premises for the time being and all its uncalled capital a specific charge and as regards all other the property and assets of the company a floating security but so that the company is not to be at liberty to create any mortgage or charge on its property for the time being in priority to or pari passu with this debenture".

8 This condition, read literally and on its own, is conflict with the charging provision I have already quoted. The charging provision makes only the properties specified in the schedule subject to a specific charge; all else (including Ivy Lawn) is subject only to a floating charge; whereas if the condition is to be given prevailing force, it would make "the company's lands and premises for the time being" (thus including Ivy Lawn) subject to a specific charge. Relying on the condition, counselfor Bowmakers contend that the Bank's equitable mortgage over Ivy Lawn must yield priority to rights of Bowmakers over that property as holders of specific charge under the debenture. Counsel for the Bank, on the other hand, contending that it is the charging provision that is definitive of Bowmakers' rights, claim that Bowmakers had only a floating charge over Ivy Lawn, so that when the Bank became equitable mortgagees on deposit of the title deeds, without (as is conceded) any actual notice of the prohibition in the debenture of the creation of such a mortgage in priority to the debenture, they acquired rights as mortgagees over Ivy Lawn in priority to those of Bowmakers under thedebenture.

9 In the High Court the judge, in an unreserved judgment, held with Bowmakers. He felt constrained to rule that the condition in the debenture gave Bowmakers a specific charge over Ivy Lawn.

10 For my part, with the benefit of a fuller argument and after more mature consideration, I reach the opposite conclusion. I consider thattheprimary and dominant words and expressions delineating the extent of the powers and interests vested in Bowmakers by the debenture are to be found in the charging provision rather than in its attendant condition. The relevant rule of interpretation is that encapsulated in the maxim generalia specialibus non derogant.. In plain English, when you find a particular situation dealt with in special terms, and later in the same document you find general words used which could be said to encompass and deal differently with that particular situation, the general words will not, in the absence of an indication of a definite intention to do so, be held to undermine or abrogate the effect of the special words which were used to deal with the particular situation. This is but a commonsense way of giving effect to the true or primary intention of the draftsman, for the general words will usually have been used in inadvertence of the fact that the particular situation has already been specially dealt with. In this debenture, the chargingprovisionlimits the creation of a specific charge to the properties specially marked out with particularly in the schedule. The subsequent condition, providing that the charge created by the debenture is to be a specific charge "as regards the company's lands and premises for the time being", if given its full literal meaning, would have such a generality of application as to make nonsense of the clear distinction that is drawn in the charging provision between the properties marked out for a specific charge and the company's other properties. In such a case, in order to effectuate the draftsman's true intention, it is the special rather than the general words that must prevail. Those special words show that the primary and transcendent intention was that the Ivy Lawn property, since it was not included in the schedule, was not to be subject to a specific charge. I would therefore hold that the debenture gave Bowmakers only a floating charge over it.

11 The words in the condition referring to "the company's lands and premises for the time being"should be construed as if they read "the company's lands and premises for the time being as specified in the scheduleherein". In that way, the charging provision and the condition are brought into harmony. I am fortified in this conclusion as to the extent of the specific charge by the fact that when particulars of the charge created by the debenture were lodged with the Registrar of Companies for registration, the "short particulars of the property" charged were given (over the signature of Bowmakers' solicitor) as "the company's undertaking and all its property and assets present and future including its uncalled capital for the time being goodwill and as a specific charge the following premises: [the premises specified in the schedule]". It would therefore seem that Bowmakers did not consider— or intend anyone consulting the statutory register of charges to consider— that the debenture had created a specific charge over the Ivy Lawn property. They represented to the Registrar of Companies and to the public at large that the charge over the Ivy Lawnproperty created by the debenture was only a floating charge. In my view, that was a correct representation of the effect of thedebenture.

12 Counsel for Bowmakers has argued that, even if that be so, the Bank should be fixed with constructive notice of the provision in the debenture precluding the company from creating a mortgage (such as the Bank got) which would have priority over the debenture. Since such as prohibition is more or less common form in modern debentures, there would be much to be said for applying the doctrine of constructive notice to such a situation, were it not that it is settled law that there is not duty on the Bank in a situation such as this to seek out the precise terms of the debenture. See, for example, Re Standard Rotary Machine Co. Ltd. (1906) 95 L.T. 829 at 834; Wilson v.Kelland 1910 2 Ch. 306; G. & T. Earle Ltd. v. HemsworthR.D.C. (1928) 44 T.L.R. 605 at 608. Actual or express notice of the prohibition must be shown before the subsequent mortgagee can be saidtobe deprived of priority. Whatever attractions there may be in the proposition that priority should be deemed lost because a duty to inquire further was called for but ignored, and such inquiry would have shown that the company was debarred from entering into a mortgage which would have priority over the debenture, the fact remains that it would be unfair to single out the Bank in this case for...