Michael Bruce Fraser and Agatha Shuk-Yee Wong-Fraser and Davison Tools Ltd and Sankey Product Developments Ltd v Oystertec Plc and Paul Anthony Davidson and Adrian Philip Binney and Easyrad Ltd and Yorkshire Bank Plc
| Jurisdiction | England & Wales |
| Judgment Date | 21 May 2004 |
| Neutral Citation | [2004] EWHC 1582 (Ch) |
| Date | 21 May 2004 |
| Court | Chancery Division |
| Docket Number | Claim No HC02 C01138 |
[2004] EWHC 1582 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Terence Mowschenson Q C (sitting as a Deputy High Court Judge)
Claim No HC02 C01138
DANIEL LIGHTMAN (instructed by Berg & Co) for the First Defendant
MATTHEW PARKER (instructed by Addleshaw Goddard for the Third Party)
Hearing dates: 20th & 21st May 2004
Terence Mowschenson Q.C.:
This is an application by the First Defendant, Oystertec PLC ("Oystertec") for a final third party debt order ("pursuant to CPR Part 72.2(1) against Yorkshire Bank plc ("the Bank"). An interim third party debt order was made by Master Moncaster on 3rd March 2004 to enable Oystertec to enforce an order that Mr Davidson pay it the sum of £575,000 which it had obtained against him. The order was served on the Bank on or before 9th March 2004. On 7th May 2004 Chief Master Winegarten adjourned the final hearing to be heard by a High Court Judge.
Mr Davidson maintains three bank accounts with the Bank; the accounts with their respective balances as at 11 March 2004 are set out below:
i) Account No 1 (No 68148621): £25,015.32
ii) Account No 2 (No 6818736): £86,990.01
iii) Account No 3 (No 69038264): £541.58
The Bank contests the making of a final third party debt order on two grounds.
i) In relation to Account No 1 it claims to have an equitable charge over the chose in action represented by the monies standing to credit of Account No 1; alternatively, if the agreement said to give rise to the equitable charge does not create an equitable charge, i.e., a proprietary interest, on the grounds that it is a charge in favour of the Bank on a chose in action owed by the Bank to Mr Davidson, the agreement constitutes a flawed asset arrangement which would have had contractual effect to prevent Mr Davidson obtaining the monies and Oystertec cannot be in a better position that Mr Davidson in relation to the monies in Account No 1.
ii) In relation to all three Accounts it claims that it had a right of set off as at the date of service of the order (on or before 9th March 2004) of the order of Master Moncaster in respect of the sum of £147,232.26 due from Mr Davidson to the Bank under a loan facility dated 7th August 2003.
In the event that that I found either or both of the grounds set out above made out, the Bank contends that I should not exercise my discretion in favour of making the final order but should discharge the interim order.
Before embarking on the particular facts of this matter I should note briefly the manner in which an interim third party debt order operates. The making of an interim third party debt order creates an equitable charge on the debt: see Farwell LJ in Galbraith v Grimshaw [1910] 1 KB 339 and Joachimson v Swiss Bank Corp [1921] 3 KB 110 at 131 per Atkin LJ. Accordingly the interim third party debt order does not afford priority over a prior equitable charge; a court would not (other things being equal) exercise its discretion to make an interim order into a final order in circumstances where there was a prior equitable charge.
Where a Bank resists a final order on the ground that it has a right of set off, the Bank may dispute liability on that ground. In the past the courts have been concerned with cases where a Bank or garnishee (now third party) has attempted to set off debts accruing due after the date of the interim order against monies owed to the judgment debtor: see Tapp v Jones (1875) LR 10 QB 591 where Blackburn stated at p.593:
I agree that no greater right is given to the creditor than the debtor had. It is obviously just that if a cross debt were due to the garnishee at the date of the attachment there should be a right of set-off in his favour, and I should strive hard to give effect to it if I could, though there would be difficulties in the way. But Mr. Williams goes further, and maintains the right to set off debts accruing after the attachment. For this I see no ground. On the attachment the thing is absolutely fixed; and there is no clause of mutual credit or set-off. What would have been wise or just I do not say; but the legislature has certainly said no such thing as that contended for.
It is not clear whether the reference to debts "accruing" due is a reference to debts pursuant to contracts entered into before service of the interim order or to contracts entered into after service of an interim order.
Was Account No 1 charged to the Bank or the subject of a flawed asset arrangement?
The evidence from the Bank was contained in three witness statements. The first that of Mr Robert Payne a solicitor with the Bank's solicitors and two witness statements of Mr Paul Nielsen ("Mr Nielsen") a Senior Business Manager at the Manchester Regional Business Centre of the Bank. Mr Nielsen was able to give first hand evidence of matters as he had been involved in the opening of Account No 1. His evidence was to the effect that the sum of £25,000 was deposited in Account No 1 by Mr Davidson specifically in support of a guarantee executed by Mr Davidson dated 22nd April 2003 in favour of the indebtedness of a third party customer of the Bank. The Bank did not identify the customer due to reasons of bank confidentiality. A copy of the guarantee was exhibited to Mr Payne's witness statement. Mr Nielsen stated that albeit that Account No 1 was not referred to in the guarantee, there was an agreement with Mr Davidson to the effect that monies (i.e., the monies standing to the credit of Account No 1) would be deposited by Mr Davidson to be held as specific security for Mr Davidson's liability under the guarantee, that the amount to be drawn down under the third party facility would be limited to the monies deposited in Account No 1 and that Mr Davidson could not draw on Account No 1 whilst there was a liability on the guarantee. I shall not set out all of the evidence given by Mr Nielsen but it was relatively detailed albeit supported by very little contemporary documentary evidence.
The agreement with Mr Davidson was not in writing; nor had the Bank made any notes or meeting recording the agreement. It did produce a document dated 27th May 2003 relating to the third party facility which was endorsed in manuscript with the following "Reduced O/D pending receipt of £25,000 additional monies by PD". In addition the Bank statements for Account No 1 recorded that after credit of the initial £25,000, there had been no movement on the account other than the crediting of interest.
Mr Lightman urged me to reject the Bank's evidence as to the alleged agreement. He pointed out the dearth of contemporary written material to evidence the agreement. He also pointed to the guarantee which contained a provision for the maintenance of a set off credit balance to be maintained; the provision had been struck through. The set off credit balance mechanism referred to in the guarantee provided for a specified balance to be kept in an account to be available to be set off against monies owed under the guarantee. Mr Nielsen stated in his 2nd witness statement that he had dealt with Mr Davidson on a number of occasions and Mr Davidson had not used the set-off route...
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