MacJordan Construction Ltd v Brookmount Erostin Ltd
| Jurisdiction | England & Wales |
| Judge | Parker,Farquharson,Scott L JJ. |
| Judgment Date | 23 October 1991 |
| Court | Court of Appeal (Civil Division) |
| Date | 23 October 1991 |
Court of Appeal
Before Lord Justice Parker, Lord Justice Farquharson and Lord Justice Scott
Insolvency - contractual right - precedence of floating charge
Where a property developer failed to set up a retention fund in breach of the terms of a building contract with a builder and became insolvent, the builder's contractual right to have the retention fund established could not take precedence over a bank's charge even though the bank had express notice of the building contract when its charge was executed.
The Court of Appeal so stated dismissing an appeal by the plaintiff builder, MacJordan Construction Ltd, from the decision of Mr Recorder Brian Knight, QC, who, sitting as a deputy judge of the High Court on official referee's business, refused an application by the builder for an order that the defendant developer, Brookmount Erostin Ltd, establish a separate fund in a bank or building society account identified as the retention fund.
Mr Adrian Williamson and Mr Mark Arnold for the builder; Mr Piers Ashworth, QC and Mr Robert Hantusch for the developer and the bank, Generale Bank SA, NV.
LORD JUSTICE SCOTT said that the developer, who had become insolvent, owed a substantial sum to the builder under the terms of a building contract dated May 31, 1989 and was also heavily indebted to the bank, who had advanced money for the development repayment of which was secured by a floating charge granted by a charge dated June 23, 1989.
The building contract provided for interim payments to be made against interim architects' certificates but entitled the developer under clause 30.4 to make a retention of 3 per cent from each certified amount. By January 1991 the retentions made by the developer under clause 30.4 amounted to £109,247 but no fund was appropriated and set aside by the developer.
On March 4, 1991 the bank pursuant to its powers under the charge appointed administrative receivers of all the undertakings, property and assets of the developer comprised in the charge. One of the results of the appointment of receivers was that the bank's floating charge crystallised.
The builder argued that if the requisite fund had been appropriated and set aside, the trust fund thus constituted would have been removed from the assets that remained subject to the as yet uncrystallised floating charge. His Lordship agreed that that would have been the effect of the...
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