ACE Paper Ltd v Mark Robert Fry and Others
| Jurisdiction | England & Wales |
| Judge | Edward Murray |
| Judgment Date | 18 June 2015 |
| Neutral Citation | [2015] EWHC 1647 (Ch) |
| Docket Number | Case No: CH/2014/0325 |
| Court | Chancery Division |
| Date | 18 June 2015 |
[2015] EWHC 1647 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
ON APPEAL FROM DEPUTY REGISTRAR GARWOOD
Royal Courts of Justice
Strand, London, WC2A 2LL
Edward Murray
(sitting as a Deputy Judge of the Chancery Division)
Case No: CH/2014/0325
Mr Timothy Sisley (instructed by Mathias Gentle Page Hassan LLP) for the Appellant
Mr Matthew Smith (instructed by TLT Solicitors) for the First and Second Respondents
Mr Joseph Curl (instructed by DLA Piper UK LLP) for the Third Respondent
Hearing date: 11 February 2015
Edward Murray (sitting as a Deputy Judge of the Chancery Division) :
This is the appeal of an order of Deputy Registrar Garwood, refusing the application of the Appellant, Ace Paper Limited ("Ace"), made under rule 4.83 of the Insolvency Rules 1986 to set aside the decision of the First and Second Respondents, who are the joint liquidators of Capital Print & Display Limited ("Capital"), to reject Ace's proof of debt dated 1 April 2011 for the sum of £138,716.70 lodged in Capital's liquidation.
The issue
Ace and the Third Respondent, RBS Invoice Finance Limited ("RBSIF"), were parties to an invoice discounting agreement dated 4 January 2008 (the "IDA"). Under clause 2.2 of the Invoice Discounting Terms forming part of the IDA (the "ID Terms"), Ace assigned to RBSIF all debts (and related rights) owed to it by its customers under sale contracts entered into with its customers in the United Kingdom, including debts existing at and debts created after the agreed commencement date of the IDA. Among the debts assigned to RBSIF under the IDA was the aggregate debt owed by Capital to Ace (the "Capital Debt") under a series of fourteen invoices, twelve dated 26 June 2008 and two dated 29 July 2008 (the "Capital Invoices"), set out in a statement from Ace to Capital dated 29 July 2008. The Capital Invoices totalled £138,716.70 (including VAT).
In May 2011 the parties agreed in principle to terminate the IDA, and the termination was confirmed by an exchange of letters, one from RBSIF to Ace dated 5 July 2011 (the "5 July 2011 Letter") and the other from Ace to RBSIF dated 12 July 2011 (the "12 July 2011 Letter"), which was signed on behalf of RBSIF and returned to Ace. This appeal concerns the proper construction of a provision of the 12 July 2011 Letter from Ace to RBSIF. The issue is whether under the 12 July 2011 Letter RBSIF re-assigned to Ace its claim against Capital in respect of the Capital Debt.
By order of Mr Registrar Baister dated 3 October 2013 a related issue arising from Ace's original application concerning the proper valuation of Ace's claim against Capital in respect of the Capital Debt was stood over until the issue mentioned in para 3 above was determined as a preliminary issue.
The Bad Debt Provisions
Under clause 2.3 of the IDA, read together with clauses 5.2, 18 and related provisions of the ID Terms (the "Bad Debt Provisions"), RBSIF provided credit risk protection to Ace in respect of certain approved debts. Under the Bad Debt Provisions, RBSIF agreed with Ace that if a "Credit Risk Event" occurred in relation to a relevant customer of Ace, then RBSIF would pay to Ace the value of the approved debt after deduction of:
i) the VAT element of the debt (it being assumed that Ace would be entitled to recover this under the VAT bad debt relief rules);
ii) the "First Loss", defined to be £1,000; and
iii) the "Recourse Percentage", defined to be 5 per cent of the value of the debt after deduction of the VAT element and the First Loss.
Capital
Like Ace, Capital was a company carrying on business in the paper industry. Ace supplied raw materials in the form of cardboard and paper to Capital, in respect of which Ace raised the Capital Invoices. Administrators were appointed in relation to Capital on 26 June 2008. This was a "Credit Risk Event" as defined in the ID Terms, triggering the application of the Bad Debt Provisions. Ace made a claim against RBSIF under those provisions by completing and sending to RBSIF a Statement of Loss dated 25 July 2008, which was received by RBSIF on 4 August 2008.
On 26 August 2008 RBSIF paid the amount of £111,203.93 in respect of the Capital Debt. The amount was calculated by deducting from the value of the Capital Debt, £138,716.70, the following amounts:
i) £20,659.93, representing the VAT element of the debt calculated as 17.5 per cent of £138,716.70;
ii) £1,000, representing the First Loss amount agreed by the parties; and
iii) £5,852.84, representing the Recourse Percentage, being 5 per cent of £117,056.77 (the amount equal to £138,716.70 less the VAT element and the First Loss).
Capital exited administration and went into creditors' voluntary liquidation on 12 March 2009. As already noted, the First and Second Respondents are the joint liquidators of Capital. They are neutral as to the outcome of this appeal, but participated by counsel in order to assist the court, if required, and to address the consequential directions that would be required if the appeal were to succeed. Among other things, there is a related county court action brought by Ace against the joint liquidators of Capital, which it is not necessary to describe for the purposes of this appeal.
Further background
In a letter dated 31 July 2008 Ace informed RBSIF that it had a retention of title claim to goods supplied under the Capital Invoices and that it was "endeavouring to recover goods on your behalf". Ace noted that the goods had been supplied to Capital in a non-standard form and therefore their value once "uplifted" would be greatly reduced. Ace subsequently recovered from Capital goods that had been invoiced to Capital at £36,285.17 (excluding VAT). Ace's own estimate is that it was only able to recover £19,361.21 (excluding VAT) in relation to the uplifted goods. It is not in dispute that Ace never accounted to RBSIF for that amount.
By letter dated 11 August 2008 RBSIF notified Begbies Traynor (South) LLP ("Begbies Traynor"), acting for the administrators of Capital, of the assignment of the Capital Debt by Ace to RBSIF and submitted a proof of debt in respect of the Capital Debt in the amount of £138,716.70. By letter dated 15 August 2008 Ace confirmed to Begbies Traynor its assignment of the Capital Debt to RBSIF.
Amendments to and termination of the IDA
During the period from 2008 to 2010 RBSIF made substantial payments to Ace under the Bad Debt Provisions, a significant proportion of which was in respect of the Capital Debt. By contrast it received a much smaller amount from Ace in service charges under the IDA. On 23 November 2010 Amit Odedra of RBSIF, the Relationship Manager for Ace, wrote to Darren Osborne, the Financial Director of Ace, by e-mail following up on an earlier telephone conversation regarding amending the IDA to delete the Bad Debt Provisions from a certain date but otherwise continuing it as a "recourse facility".
On 12 January 2011 Mr Odedra sent a further e-mail to Mr Osborne following up on earlier e-mails and telephone conversations on the same topic. This was followed by a telephone conversation between Mr Odedra and Mr Osborne on 14 January 2011, in relation to which Mr Osborne prepared a handwritten note for the benefit of Gary Brady, a Director of Ace, in which he recorded his understanding of the conversation with Mr Odedra concerning the termination of the Bad Debt Provisions. On 24 February 2011 RBSIF wrote to Ace confirming the termination of the Bad Debt Provisions with effect from 31 March 2011. The other provisions of the IDA were confirmed to continue in full force and effect.
In a further internal note prepared by Mr Osborne for Mr Brady following a telephone conversation on 3 May 2011 between Mr Osborne and Mr Odedra, Mr Osborne recorded that the parties had now agreed in principle that the IDA was no longer necessary for Ace as it no longer had any active customers. On the next day Mr Osborne confirmed this agreement by e-mail to Mr Odedra, asking him to "send the relevant paperwork for us to sign to cancel the facility for Ace Paper Ltd". This was followed eventually by the 5 July 2011 Letter and the 12 July Letter, to which I will return when considering the Deputy Registrar's order and judgment.
On 1 April 2011 Ace filed a proof of debt in respect of the Capital Debt with the joint liquidators of Capital, although on its own case it did not acquire the claim until 12 July 2011.
By letter dated 5 June 2013 the joint liquidators of Capital rejected Ace's claim in respect of the Capital Debt, setting out their reasons for doing so. The letter makes it clear that the liquidators had been made aware, by an earlier letter from solicitors for Ace, that in making its claim Ace was relying on its interpretation of the 12 July 2011 Letter as effecting a re-assignment of the Capital Debt by RBSIF to Ace. This rejection of Ace's claim led to the application by Ace before Deputy Registrar Garwood, whose order in relation to that application is the subject of this appeal.
By letter dated 5 June 2013 the joint liquidators of Capital accepted RBSIF's claim in respect of the Capital Debt, but noted Ace's claim and anticipated, correctly, that Ace would contest their decision to accept RBSIF's claim in lieu of Ace's.
The law
As this matter turns on the proper construction of the 12 July 2011 Letter, I was referred by counsel for Ace and for RBSIF to the leading case of Rainy Sky SA v Kookmin Bank Ltd [2011] UKSC 50 and in particular to paragraph 14 of that judgment. The Deputy Registrar quoted from this passage in his judgment. For convenience, I set out a slightly longer excerpt from that paragraph as a reminder of the basic principles:
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