Charterbridge Corporation Ltd v Lloyds Bank Ltd
| Jurisdiction | England & Wales |
| Date | 1969 |
| Court | Chancery Division |
Company - Powers - Memorandum of association - Objects clause - “To secure or guarantee by mortgage” own liabilities or those of associates - Overdraft of associated supervisory company guaranteed by company and secured by charge on company's property - No separate consideration of interests of company - Obligation eventually necessitating sale - Validity of charge as against purchaser - Whether intention to benefit company necessary - Whether in fact for benefit of company as entity within group.
C. Ltd., a private company, was incorporated in 1956. Its objects were, inter alia, to acquire lands for investment and
“to secure or guarantee by mortgages, charges, or otherwise the performance and discharge of any contract, obligation or liability of [C. Ltd.] or of any other person or corporation with whom or which [C. Ltd.] has dealings or having a business or undertaking in which [C. Ltd.] is concerned or interested whether directly or indirectly.”
C. Ltd. was one of a large group of companies headed by D. Ltd. and trading as property developers. All the companies had a common shareholding, directorate and office. D. Ltd. supervised the activities of all the companies, provided the office services and finance and carried out the acquisition and development of the sites. A separate company was incorporated to deal with each particular site acquired. By a lease dated October 26, 1956, certain land was demised to C. Ltd. for 999 years. D. Ltd. guaranteed performance by C. Ltd. of its covenants and paid the rent due from C. Ltd. In December, 1960, the accounts of D. Ltd. and two other companies in the group with the defendant bank were overdrawn by £22,901. Those overdrawings were in excess of the bank's permitted limit. The bank pressed for security and a chain of guarantees was given to the bank by the majority shareholder and various companies in the group. On December 19, 1960, C. Ltd. guaranted payment on demand of all money and liabilities owing or incurred by D. Ltd. to the bank up to a limit of £30,000; and C. Ltd. deposited with the bank the title deeds of the leasehold property. On December 19, 1961, C. Ltd. took a first mortgage from A. borrowing £14,813, against a covenant to repay £18,147 on December 4, 1962. The proceeds of that mortgage were paid to the bank in reduction of D. Ltd's overdraft but it increased again over the following months to about the former amount and following pressure from the bank a legal charge dated March 29, 1962, was executed by C. Ltd., charging the leasehold property to the bank, subject to the mortgage in favour of A. The officers of the group and the bank did not, at the time of the transaction, take into consideration the interest of C. Ltd. separately from that of the group. On April 18, 1962, C. Ltd. entered into an agreement to sell the property to the plaintiff company for over £30,000. The plaintiff company paid £20,000 on account. Almost the whole of that sum was applied in discharging A.'s mortgage, leaving the bank as first mortgagee. The plaintiff company paid a further £10,000 on account in four instalments. Those sums were not paid to the bank. On December 31, 1962, C. Ltd. and the plaintiff company entered into a new sales agreement superseding the agreement dated April 18, 1962, and setting out the previous payment of £30,000 on account of the purchase price. On August 28, 1964, the bank demanded repayment by C. Ltd. of a stated amount and threatened to realise the security.
On September 18, 1964, the plaintiff company took out a writ seeking a declaration that the legal charge was created for purposes outside the scope of C. Ltd.'s business and purposes and was ultra vires and invalid:—
Held, that where, as here, a company was carrying out the purposes expressed in its memorandum, and did an act within the scope of a power expressed in it, that act was within the powers of the company; that the memorandum of a company set out its objects and proclaimed them to persons dealing with the company and it would be contrary to the whole function of a memorandum if objects unequivocally set out in it should be subject to some implied limitation by reference to the state of mind of the parties concerned; and that the state of mind of officers of C. Ltd. and the bank whether the transaction was intended to benefit the company was irrelevant on the issue of ultra vires.
Held, further that, alternatively, even if the intention was relevant on the issue of ultra vires, the directors acting as intelligent and reasonable men might reasonably have concluded that the transaction would have enured to the benefit of C. Ltd.
The following cases are referred to in the judgment:
Introductions Ltd., In re, Introductions Ltd. v. National Provincial Bank Ltd. [
Lee, Behrens & Co Ltd., In re [
Payne (David) & Co. Ltd., In re, Young v. David Payne & Co. Ltd. [
Ridge Securities Ltd. v. Inland Revenue Commissioners [
The following additional cases were cited in argument:
Bell Houses Ltd. v. City Wall Properties Ltd [
Chapleo v. Brunswick Permanent Building Society (
ACTION.
Charterbridge Corporation Ltd., of Eccleston Street, Belgravia, London, S.W. asked by writ for a declaration that a legal charge dated March 29, 1962, and made between the second defendant, Pomeroy Developments (Castleford) Ltd., of Wigmore Street, London, W. (“Castleford”) of the one part and the first defendant, Lloyds Bank Ltd., of Lombard Street, London, E.C. (“the bank”) of the second part on the security of leasehold premises at Bridge Street, Castleford, Yorkshire, was void as being outside the powers of Castleford.
The writ also claimed an injunction to restrain the bank from selling or disposing of the leasehold premises in exercise of their powers as mortgagees.
The facts are fully stated in the judgment.
E. I. Goulding Q.C. and D. A. Thomas for the plaintiff company.
W. A. Bagnall Q.C., and R. A. K. Wright for the bank,
Castleford was not represented.
PENNYCUICK J. By this action the plaintiff company, Charterbridge Corporation Ltd., seeks a declaration that a legal charge dated March 29, 1962, and created by the second defendant, Pomeroy Developments (Castleford) Ltd., referred to as “Castleford,” in favour of the first defendant, Lloyds Bank Ltd., is void, as being ultra vires Castleford. The legal charge was given consequently upon a guarantee given by Castleford to the bank on December 19, 1960, to secure the indebtedness of a company known as Pomeroy Developments Ltd., to which I will refer as “Pomeroy,” to the bank. It is common ground that the primary issue in the action is whether the guarantee itself was ultra vires Castleford. Castleford has taken no part in the action.
I will first set out the facts as I find them. In the event there was very little dispute as to particular facts. No evidence was called on behalf of the plaintiff company. On behalf of the bank there were called two officers of the bank, a Mr. Watkins, who was the manager of Cox & King's branch at the date of the relevant transactions, and Mr. Barber, who was the manager of the particular section concerned with the affairs of Pomeroy and Castleford at the date of the relevant transactions, and Mr. Oscar Alexander Pomeroy (on subpoena), he being the gentleman who controlled Pomeroy, Castleford and a number of other companies. All these three witnesses gave their evidence truthfully and carefully and were able to check it by reference to contemporary records.
Castleford was incorporated in 1956. Under clause 3 (A) of its memorandum its first object is to acquire lands for investment with a strictly qualified power of realisation. Sub-clause (H) is in these terms:
“To secure or guarantee by mortgages, charges or otherwise the performance and discharge of any contract, obligation or liability of [Castleford] or of any other person or corporation with whom or which [Castleford] has dealings or having a business or undertaking in which [Castleford] is concerned or interested whether directly or indirectly.”
Reference should also be made to sub-clause (N), joint adventure or agreement for co-operation, (R) “… such things as may be incidental or conducive to the attainment of the above-mentioned objects …”, and (S), each sub-clause to be deemed to be independent.
Mr. Pomeroy owned all the issued shares in Castleford except one. That was owned by his wife. Mr. and Mrs. Pomeroy were the sole directors of Castleford. Castleford was one of a large group of companies. At the head of the group stood Pomeroy, which was almost wholly owned by Mr. Pomeroy. The other companies of the group, including Castleford, were not subsidiaries of Pomeroy, but had a common shareholding, directorate and office. The basic trade of the group was property development. A separate company was incorporated to deal with each...
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