Investment Invoice Financing Ltd v Limehuse Board Mills Ltd

JurisdictionEngland & Wales
JudgeLord Justice Moore-Bick,Lord Justice Tuckey
Judgment Date18 January 2006
Neutral Citation[2006] EWCA Civ 9
Docket NumberCase No: B2/2005/1354
CourtCourt of Appeal (Civil Division)
Date18 January 2006
Investment Invoice Financing Limited
Limehouse Board Mills Limited

[2006] EWCA Civ 9


Lord Justice Tuckey and

Lord Justice Moore-Bick

Case No: B2/2005/1354







Royal Courts of Justice

Strand, London, WC2A 2LL

Mr. Leolin Price C.B.E, Q.C. and Mr. Thomas Williams (instructed by Key2Law LLP) for the claimant

Mr. Michael McLaren Q.C (instructed by Bircham Dyson Bell) for the defendant

Lord Justice Moore-Bick

This is an appeal with permission of the judge against part of an order made by His Honour Judge Mackie, C.B.E., Q.C. on 9 th June 2005 in the Mercantile List of the Central London Civil Justice Centre. In order to understand the issues to which it gives rise it is necessary to describe in a little detail the background to the application before the judge.


As part of its business the defendant, Limehouse Board Mills ("Limehouse") , is involved in the recovery of waste paper which it sells for the manufacture of cardboard. For some time prior to June 2003 it did business with a company called Papermarc Ltd ("Papermarc") which manufactured cardboard. Limehouse sold recovered paper to Papermarc which in turn sold cardboard to Limehouse. It seems that there were arrangements between the companies for contra-accounting with periodic payments of the net amounts due by Limehouse to Papermarc, but we are not directly concerned with that aspect of the matter.


Papermarc factored its trade debts to a company called GMAC Commercial Finance Plc ("GMAC") . We have not seen a copy of the factoring agreement, but from other evidence before us it appears that GMAC advanced monies to Papermarc against various securities including an assignment of its trade debts. Insofar as those debts were not paid as and when they fell due GMAC could enforce them in its own name as assignee but it was also entitled to look to Papermarc and to its other securities for the repayment of the outstanding amount of the advances. One of those securities was a debenture over the whole of Papermarc's assets and undertaking.


On 23 rd June 2003 GMAC appointed a receiver over the assets and undertaking of Papermarc under the debenture. The receiver kept the business running until 22 nd September 2003 when it was sold as a going concern. There is apparently a dispute between the parties as to the identity of the purchaser. Limehouse says that it was sold to a company called Croftacre Holdings Ltd ("Croftacre") , but the appellant denies that. Prior to the sale Croftacre had established a new subsidiary called Papermarc Holdings Ltd ("PHL") which itself owned various subsidiaries including Papermarc Mill Ltd ("PML") and Papermarc Sales Ltd ("PSL") . The intention was that PML would carry on the cardboard manufacturing operations and that PSL would sell the products. (The appellant says that the business of Papermarc was sold not to Croftacre but to PML, but it is unnecessary for the purposes of this appeal to resolve that question.) On the same day PHL and PSL entered into a loan facility agreement with GMAC, PSL entered into a factoring agreement also with GMAC and Croftacre and a number of its subsidiaries including PHL, PML and PSL executed a debenture in favour of GMAC by way of security for the performance of those agreements.


Between March and August 2004 PSL rendered 42 invoices to Limehouse for supplies of cardboard in the total sum of £141,817.11 which were assigned to GMAC under the factoring agreement. However, a dispute arose between PSL and Limehouse because Limehouse asserted that it was entitled to continue to take advantage of the contra-accounting arrangements that had previously been in force. The issue was of some importance to Limehouse because PML had ceased to trade and appeared to be sliding into insolvency.


6. At some time in October 2004 (the precise date is unclear and does not matter for present purposes) GMAC re-assigned the disputed debts covered by the 42 invoices to PSL to enable it to take steps in its own name to recover them. In a clumsy attempt to obtain payment PSL presented a petition in the Companies Court on 19 th October 2004 seeking to have Limehouse wound up. That was an improper step for PSL to take since it was well aware that the debts in question were disputed and there were no other grounds for seeking to have Limehouse wound up. On 12 th November 2004 the petition was dismissed by Lindsay J. as an abuse of the process and PSL was ordered to pay Limehouse its costs which the judge summarily assessed at £18,000. The judge did not direct that that sum be paid by any specific date and therefore by virtue of CPR rule 44.8 they were payable within 14 days of the order. So far, however, PSL has refused to pay those costs, although it did offer to give credit for them against the sums it said were due to it from Limehouse.


On 18 th November 2004 PSL began proceedings against Limehouse in the Central London Civil Justice Centre. Two months later on 18 th January 2005 the present claimants, Investment Invoice Financing Limited ("IIF") , bought PSL's liabilities to GMAC and obtained an assignment of the benefits of the loan facility agreement and the securities held by GMAC in respect of them. One of the securities was the debenture that had been granted to GMAC on 22 nd September 2003.


Having failed to persuade PSL to comply with the order for costs made by Lindsay J. on 12 th November, on 18 th February 2005 Limehouse issued an application notice in the present proceedings seeking an order that PSL provide security for those costs by paying the sum of £18,000 into court or by securing it in some other manner to its reasonable satisfaction. It also applied for an order that PSL provide security for the costs of the proceedings. These applications were fixed for hearing on 4 th March.


Shortly after that, someone at IIF decided that it would be desirable to take the claim based on the 42 invoices back into its own hands and accordingly on 3 rd March 2005 PSL executed a deed of assignment transferring 40 of the invoices to IIF. There appear to have been administrative problems in connection with the transfer of the remaining two invoices which therefore remained in the hands of PSL. On the same day IIF drafted an application notice seeking an order that it be joined as a party to the proceedings as a claimant in relation to the 40 invoices in substitution for PSL.


In the interests of efficient case management the judge heard both applications together on 4 th March, even though IIF had not formally issued its application notice by that time. His first step was to transfer the case into the Mercantile List. The application to join IIF as a claimant was not seriously opposed and the judge made an order to that effect. He gave permission to serve amended particulars of claim in which PSL remained as a claimant in respect of two of the invoices but IIF became the claimant in respect of the rest.


On Limehouse's application that the costs ordered by Lindsay J. should be secured the judge ordered that, unless PSL gave security for that sum by payment into court or in some other form to the satisfaction of Limehouse by 1 st April 2005, its claim should be struck out without further order. On the application for security for costs he ordered that, unless PSL gave security for costs in the sum of £10,000 by the same date, again by payment into court or in some other form to the satisfaction of Limehouse, its claim should be struck out without further order. Finally, he stayed all further proceedings until 1 st April and ordered PSL to pay the costs of the applications which he summarily assessed at £5,000, those costs to be paid by the same date.


Despite the rigorous terms of those orders, no application was made for permission to appeal. Nonetheless, PSL failed to comply with them and as a result its two remaining claims were struck out on 2 nd April. One can only assume that those responsible for its affairs were willing to give up any benefit they had hoped to obtain from those claims as the price of postponing the payment of the costs already awarded against it and avoiding the necessity of providing security for the future costs of the proceedings.


On 16 th May 2005 Limehouse issued an application notice seeking, among other relief, an order that the claim be struck out unless IIF paid or provided security for the £23,000 ordered to be paid by PSL in respect of its costs. The application was made on the grounds that the debts which were the subject of the proceedings had been assigned to IIF to enable PSL to flout the orders for costs made against it. Limehouse argued that the circumstances in which the assignment had taken place, in particular the fact that it had been made only the day before the hearing of the application on 4 th March, provided strong evidence that it was being used as a device to enable the claims to be pursued to the ultimate benefit of PSL free of the need to meet the existing orders for costs. IIF said that the assignment had been made for genuine commercial reasons and that it would not be right to impose terms of the kind being sought by Limehouse since the earlier orders for costs made against PSL had nothing to do with its joinder as a claimant. In support of that argument it relied on the decision of this court in Eurocross Sales Ltd v Cornhill Insurance [1995] 1 W.L.R. 1517, the decision of the House of Lords in Norglen Ltd v Reeds Rains Prudential Ltd [1999] 2 A.C. 1 and...

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