(1) Rushingdale Ltd S.A. and Another v (1) Byblos Bank S.A.L. (2) Alan John Barrett
| Jurisdiction | England & Wales |
| Judge | LORD JUSTICE SLADE,LORD JUSTICE DILLON |
| Judgment Date | 31 July 1985 |
| Judgment citation (vLex) | [1985] EWCA Civ J0731-11 |
| Court | Court of Appeal (Civil Division) |
| Docket Number | 85/0501 |
| Date | 31 July 1985 |
[1985] EWCA Civ J0731-11
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL
ON APPEAL FROM THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
(MR. JUSTICE HARMAN)
Royal Courts of Justice
Lord Justice Slade
Lord Justice Dillon
85/0501
MR. E. C. EVANS LOMBE Q.C. and MR. G. S. MOSS (instructed by Messrs. Tuck & Mann) appeared for the Appellant.
MR. S. A. MORTIMORE (instructed by Messrs. Wilkinson Kimbers) appeared for the Respondent (Second Defendant).
MR. J. H. HAMES Q.C. and MR. M. J. CURWEN (instructed by Messrs. Landau & Scanlan) appeared for the Respondents (Plaintiffs).
I will ask Lord Justice Dillon to deliver the first judgment in this case.
This is an interlocutory appeal by the first defendant Byblos Bank SAL against an order of Mr. Justice Harman made on 19th July 1985. The first plaintiff in the action, Rushingdale Ltd. SA, is a Panamanian company. Its shares are all held by another Panamanian company in which the shares are held as to 65 per cent by the second plaintiff, Mr. Al Khudhairy, and as to 35 per cent by a Mr. Al Bunnia. According to the constitution of the plaintiff company its directors are Mr. Al Khudhairy, who is the president, Mr. Al Bunnia and Mr. Muaffaq Khudhairy, who is a brother of Mr. Al Khudhairy. The first defendant, Byblos Bank, is a bank or licensed deposit taker incorporated in Beirut but carrying on business in London and elsewhere in Western Europe. The plaintiff company carries on business in England as a manufacturer of furniture and it is duly registered under Part 10 of the Companies Act 1948.
In April 1982 Mr. Al Bunnia, who is apparently a shareholder in the defendant bank and is alleged by the plaintiffs to have considerable influence over that bank, introduced Mr. Al Khudhairy, the second plaintiff, to the bank for the purpose of the bank making advances to a company called Rowanridge Ltd., which was carrying on a business of manufacturing furniture near Chelmsford. At the end of 1983 there were negotiations between the bank and the plaintiff company with a view to the plaintiff company obtaining financial facilities from the bank for taking over the business conducted by Rowanridge and expanding that at new premises near Ipswich. At that time Rowanridge was very substantially indebted to the bank.
On 22nd March 1984 a facility letter was issued by the bank to the plaintiff company. That provided for the bank to make available a revolving credit facility up to a maximum amount at any one time of £3 million, or equivalent in other major currencies, which could be used either by way of loan account to finance the purchase of machinery and equipment, or by the acceptance of bills of exchange to guarantee deferred payment of goods and raw materials purchased from suppliers, or by way of overdraft facility on current account. The facility letter provided that security should be afforded to the bank as follows. Firstly, there was to be a cash collateral deposit for £1 million deposited by a company called Ron Holdings SA which, we are told, was a company of Mr. Al Bunnia's. That amount was deposited but was subsequently duly reduced to £650,000 which, with interest, now remains on deposit. The reduction was as a result of certain monies being paid off by the company. Secondly, there was to be a cash collateral deposit for £400,000 to cover total banking facilities. That was provided by another brother of Mr. Al Khudhairy and is still held together with accrued interest. Next, there was to be a fixed first charge over the lease of premises near Ipswich in Suffolk and plant and machinery worth £1 million, and a floating charge over all assets, present and future, of the company in a form acceptable to the bank's solicitors to cover total banking facilities. That did not happen in precisely that form and I shall come to what did happen. Then there was to be a personal guarantee by Mr. Al Khudhairy for a maximum amount of £1,600,000. That was duly given. Finally, there was to be a personal guarantee of Mr. Al Bunnia for £1,100,000 on a separate letter of guarantee. That I shall come back to: it has never been given. The facility letter was countersigned by Mr. Al Khudhairy alone on behalf of the company.
Over the period of December 1984 and January 1985 the security which is relied on by the bank in this action was entered into in the form of a fixed charge and a floating charge. At about the same time there were two letters from the bank of 17th December 1984 which I should mention. The first of these, which is headed "Fixed Charge" and addressed to the company for the attention of Mr. Al Khudhairy, says:
"In accordance with your request, we hereby confirm specifically to you that this charge is enforceable according to the maturities of the following promissory notes."
There are then set out four promissory notes, the first with a maturity date of 1st July 1985 amounting to £200,000, and the remaining three for £150,000 each, with maturity dates of 31st December 1985, 30th June 1986 and 31st December 1986. The letter continues:
"If a default occurs on any of these maturities, the whole set of maturities becomes due and the fixed charge is immediately enforceable on the principal and interest. On the other hand, this fixed charge is reduceable upon the payment of each maturity in accordance with the above mentioned schedule."
The second letter of the same date, headed "Floating Charge" and similarly addressed to the company for the attention of Mr. Al Khudhairy, says:
"We hereby confirm that we shall allow you a period of six months during which settlement of outstanding facility is to be repaid in full before enforcing our rights according to the floating charge executed over the company."
Those two letters were confirmed by the bank in a further letter to the company for the attention of Mr. Al Khudhairy of 14th January 1985.
The history of the execution of the forms of the fixed charge and the floating charge is tangled and is set out in detail in the judgment of Mr. Justice Harman. What emerged at the end were two documents, both dated 23rd January 1985, under hand only, bearing no indication of the common seal of the company and signed by Mr. Al Khudhairy alone on behalf of the company. On the face of the documents there are further initials or signature of his brother Muaffaq Khudhairy, but that was on the earlier form of the document and not on its final form and can be disregarded.
It was argued for the bank in this court, as below, that these documents were to be regarded as executed under seal and being the deeds of the company. Mr. Justice Harman held that the documents in their present form are unarguably not deeds and in this, in my judgment, he was plainly right. It is, however, the claim of the company that they constitute equitable charges conferring powers according to their terms. Before I examine the terms of the documents, I should explain that what happened was that, on 3rd June 1985, the bank appointed the second defendant, who is a chartered accountant, to be receiver under these charges. That brought about this litigation, and the order of Mr. Justice Harman, which is appealed against, provided that the second defendant, the receiver, do forthwith cease to exercise his powers as receiver and do hand over and restore to the company all assets of the company taken into his possession or control and remaining in his possession, and that the bank be restrained until judgment or further order in the meantime from appointing or purporting to appoint any receiver under hand pursuant to either of the claimed charges.
The fixed charge creates security only as a fixed charge on certain scheduled items of plant and machinery. The bank has not sought and, indeed, has agreed not to take, any charge on the company's leasehold interest in its premises near Ipswich. The floating charge is not a floating charge on the undertaking and assets of the company generally as contemplated by the facility letter, but is only a floating charge on the stock in trade of the company, including raw materials, work in progress and finished goods. In fact, the company, which, as I have said, was a manufacturer of kitchen furniture, had one principal customer, Texas Homecare, and it seems that its invoices to that company were factored. It also effected sales to a company called Hazelbeck Ltd., which was controlled by Mr. Al Khudhairy himself, and the terms of its dealings with Hazelbeck are very material in this litigation, and I shall have to come back to that later. The powers and provisions in the fixed charge and the floating charge, apart from the details of property charged, are substantially the same, and it is sufficient to refer to provisions in the floating charge. Clause 6.1 provides:
"At any time after the monies and liabilities hereby secured become payable and dischargeable the Bank may by writing under the hand of any of its officers appoint any person or persons to be a receiver or receivers of the property hereby charged or any part thereof…"
Clause 5 provides:
"The monies and liabilities hereby secured shall immediately become due and payable and the security hereby created shall immediately become enforceable on any of the following events:-
5.1 if any moneys advanced by the Bank to the Company by way of overdraft or on terms that they are repayable on demand are not repaid forthwith on demand or if any other principal sum due to the Bank is not paid on the due date of payment thereof;
…
5.9 if the...
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