National Westminster Bank Plc v Spectrum Plus Ltd and Others

Hearing dates : 16 th and 17 th December 2003

Approved Judgment

I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.

In Siebe Gorman & Co. Ltd v Barclays Bank Ltd [1979] 2 Ll.L.R.142 (" Siebe Gorman") Slade J, as he then was, decided that it was possible to create a fixed charge over present and future book debts and that, on its true construction, the debenture granted to Barclays Bank Ltd had done so. That debenture has since become a more or less standard form and little criticism has been levelled at the decision of Slade J. But in Agnew v Commissioner of Inland Revenue [2001] 2 AC 710 (" Agnew"), an appeal to the Privy Council from the Court of Appeal in New Zealand, Siebe Gorman was referred to by Lord Millett in terms which might be thought to cast doubt on the decision of Slade J, not as to the possibility of creating a fixed charge on present and future book debts, but on whether the debenture in Siebe Gorman did so. The application now before me relates to one of several hundred liquidations which are being held up pending the resolution of the doubt which has arisen.

Spectrum Plus Ltd ("the Company") was incorporated in May 1992 to carry on the business of a manufacturer of dyes, paints, pigments and other chemical products for the paint industry. In the autumn 1997 the Company changed banks. It opened an account with National Westminster Bank plc ("the Bank"), obtained an overdraft facility of £250,000 and granted the Bank a debenture to secure all moneys due from the Company to the Bank. The overdraft facility ("the Facility") was, in accordance with its terms, made available on a fully fluctuating basis for the purpose of providing working capital. It was to be reviewed on 1st September 1998 but was repayable on demand. It might be withdrawn, reduced or made subject to further conditions or otherwise varied on notice. Otherwise it was subject to the Bank's "general terms upon which the Bank makes facilities available".

The debenture dated 30th September 1997 and duly registered on 7th October 1997 ("the Debenture") was in a standard form and contained the following material terms:

"1. The Company hereby covenants to pay the Bank on demand the sum of One pound (£1) and to pay and discharge on demand all moneys obligations and liabilities (whether present or future actual or contingent) which may now or at any time hereafter may be or become due owing or incurred by the Company to the Bank….

2. The Company with full title guarantee and to the intent that the security shall rank as a continuing security hereby charges with the payment or discharge of all moneys obligations and liabilities hereby covenanted to be paid or discharged (together with all costs and expenses howsoever incurred by the Bank in connection with this Mortgage Debenture on a full indemnity basis):

[(i) – (iv)]

(v) by way of specific charge all book debts and other debts (including without limitation rents) now and from time to time due or owing to the Company…

[(vi) – (vii)]

[3.-4.]

5. With reference to the book debts and other debts hereby specifically charged the Company shall pay into the Company's account with the Bank all moneys which it may receive in respect of such debts and shall not without the prior consent of the Bank sell factor discount or otherwise charge or assign the same in favour of any other person or purport to do so and the Company shall if called upon to do so by the Bank from time to time execute legal assignments of such book debts and other debts to the Bank."

Clause 15 authorised the Bank to combine accounts.

On 6th October 1997 the Bank advanced to the Company £200,000 and debited its new account accordingly. Whilst the overdraft facility varied from time to time the Company's account was never in credit. The proceeds of book debts were collected by the Company and paid into its account with the Bank, thereby reducing the overdraft, and the Company drew on the account as and when it needed to do so thereby increasing the overdraft.

On 15th October 2001 the company resolved to go into creditors' voluntary liquidation and appointed the second and third respondents as liquidators. According to the statement of affairs sworn that day £165,407 was due to the Bank, £156,554 was estimated to be realiseable from book debts with a face value of £291,293, £16,136 was due to preferential creditors (including the Inland Revenue £6,865, Customs & Excise £7,760 and employees £1,511) and the deficiency with regard to creditors was £649,249. Since then the liquidators have collected book debts to the value of £113,484 but have refused to account for them to the Bank.

The application before me was issued by the Bank on 10th July 2003. The relief sought, pursuant to s.112 Insolvency Act 1986, is a declaration that the debenture created a fixed charge over the Company's book debts and the proceeds thereof and an order on the liquidators to account to the Bank in respect of them. Subsequently the Commissioners of Customs & Excise, the Commissioners of Inland Revenue and the Secretary of State for Trade and Industry were joined as the fourth to sixth respondents as being or being subrogated to preferential creditors (collectively "the Crown").

It is not suggested by the Crown that there is any material distinction between the Debenture and that considered by Slade J in Siebe Gorman. Accordingly it is conceded that if the Crown fails to convince me that the conclusion of Slade J that the debenture in Siebe Gorman created a fixed charge on present and future book debts is wrong then I must allow the application. That counsel for the Crown has adopted the correct test is apparent from Paragraph 1244 Halsbury's Laws of England 4th Ed.Reissue Vol 37 and the cases there cited.

In some of them the reason why a judge should follow the decision of a judge of co-ordinate jurisdiction unless convinced it is wrong has been described as "judicial comity". I do not doubt that comity is one reason for the rule or convention. In my view there is another, more compelling, reason, namely certainty. Unless the second judge is convinced that the first was wrong his, contrary, decision merely creates uncertainty. If, by contrast, he leaves the issue to the Court of Appeal the decision of that court, whichever way it goes, will (subject to any further appeal to the House of Lords) bind all lower courts as well as the Court of Appeal itself. Thus, in Re Hotchkiss Trusts (1869) 8 Eq.643 Sir William James V-C said (p.647)

"In this case, if the words of the will had been the same as the words in In re Potter's Trust, I should, without expressing any opinion of my own, simply have followed the decision of Vice-Chancellor Sir R.Malins in that case; because I do not think it seemly that two branches of a Court of co-ordinate jurisdiction should be found coming to contrary decisions upon similar instruments, and encouraging as it were a race, by inducing persons who wish for one construction to go to one court and those who wish for another construction to go to another. I should simply have affirmed the Vice-Chancellor's decision, with the intimation of my wish that the whole matter should be brought before a Court of Appeal."

Some might think that such a statement has a rather dated ring to it, given the extremely high cost of litigation and the present emphasis on case management and expedition. But, in my view, on a point of general importance such as the correctness or otherwise of Siebe Gorman the approach of Sir William James V-C remains valid because of the overriding need, going beyond the interests of the parties, for certainty. I agree with the approach of Neuberger J in Hadley Industries plc v Metal Sections Ltd (21st October 1999) New Law Online p.8 where he said

"I do not pretend that I would have regarded the point as at all easy, if it had been virgin territory. It would be wrong to leave this case with the impression that I regard the decisions of the three judges as clearly right or, indeed, as wrong. What I do think is that the arguments that I have been presented with do not justify me in departing from those decisions. I consider that the arguments that have been addressed to me are arguments which should be addressed to the Court of Appeal. For my part, I await their decision with interest. For me, I think the right course must be to follow Laddie J, Pumfrey J and Jacob J. Whether one characterises that course as craven or prudent no doubt depends on whether one is [the defendant] or the [claimant]."

I turn then to the arguments which have been addressed to me. Both start from the definition or description of a floating charge to be found in Re: Yorkshire Woolcombers Association [1903] 2 Ch.284. The judge, Farwell J, (p.289) said:

"A charge on all...