National Westminster Bank Plc v Spectrum Plus Ltd and Others
| Jurisdiction | England & Wales |
| Judge | Lord Justice Jonathan Parker,Lord Justice Jacob |
| Judgment Date | 12 July 2004 |
| Neutral Citation | [2004] EWCA Civ 670 |
| Court | Court of Appeal (Civil Division) |
| Docket Number | Case No: A2/2004/0202, A2/2004/0202A, A2/2004/0202B |
| Date | 12 July 2004 |
[2004] EWCA Civ 670
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM CHANCERY DIVISION, COMPANIES COURT
(VICE CHANCELLOR, SIR ANDREW MORRITT)
Royal Courts of Justice
Strand,
London, WC2A 2LL
Lord Phillips of Worth Matravers, Mr
Lord Justice Jonathan Parker and
Lord Justice Jacob
Case No: A2/2004/0202, A2/2004/0202A, A2/2004/0202B
G Moss QC & J Goldring (instructed byAllen & Overy LLP) for the Appellant
M Green, P Jones & C Addy (instructed bySolicitors to the Commissioners of Inland Revenue and HM Customs and Excise and theTreasury Solicitors) for the Respondents
Lord Phillips, MR:
Introduction
This is an appeal against a judgment of Sir Andrew Morritt V-C dated 15 January 2004 [2004] 2 WLR 783 in which he dismissed an application by the appellant ('the Bank') pursuant to s.112 Insolvency Act 1986 for a declaration that a debenture granted to the Bank by the first respondent ('the Company') created a fixed charge over the Company's book debts.
Both fixed and floating charges are the products of agreement between the chargor and the chargee. The rights conferred by fixed and floating charges were initially the creatures of equity. The use of fixed charges long predated the existence of floating charges. Floating charges were introduced and recognised in the second half of the 19 th century. The creation of floating charges was rapidly followed by the introduction of statutory provisions which made the distinction between fixed and floating charges of particular significance.
Initially it was not difficult to distinguish between a fixed and a floating charge. A fixed charge arose where the chargor agreed that he would no longer have the right of free disposal of the assets charged, but that they should stand as security for the discharge of obligations owed to the chargee. A floating charge was normally granted by a company which wished to be free to acquire and dispose of assets in the normal course of its business, but nonetheless to make its assets available as security to the chargee in priority to other creditors should it cease to trade. The hallmark of the floating charge was the agreement that the chargor should be free to dispose of his assets in the normal course of business unless and until the chargee intervened. Up to that moment the charge 'floated'.
Where the chargor and the chargee agree that there shall be immediate restrictions, but not a total embargo, on the manner in which the chargor may dispose of the assets charged it can be less easy to decide whether the charge should be categorised as a fixed or a floating charge. This is such a case.
This appeal concerns a charge granted over book debts by a clause in a debenture. The courts sometimes have problems in identifying whether an agreement to grant a charge over book debts has created a fixed or a floating charge. Two problems can arise. The first is of identifying the degree to which the parties have agreed that the chargor's right to dispose of the book debts or their proceeds are to be restricted. This is a problem of construction of the relevant agreement. The second problem is of determining whether, having regard to the restrictions that the parties have agreed should be imposed on the chargor's rights, the resulting charge is properly to be categorised as a fixed or a floating charge. This is an issue of law.
The charge in issue in this case was granted by the Company over its book debts to secure its obligations to the Bank to repay borrowings under an overdraft facility. There were two stages in the reasoning that led the Vice-Chancellor to conclude that the charge constituted a floating rather than a fixed charge over book debts. (1) If the terms of a debenture entitle a chargor to collect book debts and use the proceeds in the normal course of business, unless and until the chargee intervenes, the charge will necessarily be a floating charge, notwithstanding that the debenture may contain restrictions against particular modes of dealing with or collecting the book debts. (2) The effect in law of the debenture, properly construed, was that, the Company was free to use the proceeds of its book debts in the normal course of its business, unless and until the Bank intervened.
The first stage of this reasoning is in direct conflict with the decision of this court in Re NewBullas Trading Ltd [1994] 1 BCLC 485. In Agnew v Commissioner of Inland Revenue [2001] UKPC 28; [2001] 2 AC 710 the Privy Council held that New Bullas was wrongly decided. The question arises of whether the requirements of precedent permitted the Vice-Chancellor or permit this court to prefer the reasoning of the Privy Council in Agnew to that of this court in New Bullas. Mr Gabriel Moss QC for the Bank has not, however, been anxious, either before the Vice-Chancellor or before this court to take his stand on the reasoning in New Bullas, no doubt through apprehension that any victory on that ground would be ephemeral.
The second stage of the reasoning of the Vice-Chancellor is in conflict with the relevant part of the judgment of Slade J in Siebe Gorman & Co Ltd v Barclays Bank Ltd [1979] 2 Lloyds Reps 142. In that case Slade J had to consider a clause in a debenture that was in essentially the same terms as those in issue in the present case. Slade J held that those terms placed a certain restriction on the freedom of the chargor to use the proceeds of its book debts once these had, as the debenture required, been paid into its account with the chargee bank and that the debenture created a fixed charge. The Vice-Chancellor held that this conclusion was erroneous and that Siebe Gorman had been wrongly decided.
It is with this conclusion of the Vice-Chancellor that Mr Moss has joined vigorous issue. He has submitted that over the last 25 years the wording of innumerable debentures has been based on that construed by Slade J in Siebe Gorman with the intention and belief (1) that the wording carried the meaning found by Slade J and (2) that the effect in law of that meaning was to create a fixed charge over book debts. In these circumstances his submission is that the decision in Siebe Gorman should not be reversed unless it is plainly wrong. He submits that, far from being plainly wrong, it was correctly decided.
This appeal requires a detailed analysis of the decision in Siebe Gorman in the light of the relevant jurisprudence that bears on the essential characteristics of a floating charge.
The relevant facts
The facts found by the Vice-Chancellor are not in issue. They are as follows. 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 of 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 1 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 30 September 1997 and duly registered on 7 October 1997 ("the Debenture") was in a standard form and contained the following material terms:
"1. The Company hereby covenants to pay to 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 6 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 15 October 2001 the Company resolved to go into creditors'...
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