Re Gray's Inn Construction Company Ltd
| Jurisdiction | England & Wales |
| Judge | LORD JUSTICE BUCKLEY,LORD JUSTICE GOFF,SIR DAVID CAIRNS |
| Judgment Date | 05 December 1979 |
| Judgment citation (vLex) | [1979] EWCA Civ J1205-4 |
| Docket Number | No. 001437 of 1077 |
| Court | Court of Appeal (Civil Division) |
| Date | 05 December 1979 |
[1979] EWCA Civ J1205-4
In The Supreme Court of Judicature
Court of Appeal (Civil Division)
On Appeal from The High Court of Justice
Chancery Division
Companies Court
(MR. Justice Templeman)
Lord Justice Buckley
Lord Justice Goff
and
Sir David Cairns
MR. DAVID OLIVER (instructed by Messrs. W.F. Prior & Co., Solicitors, London EC4Y 1AA) appeared on behalf of the Applicant, Mr. Richard Eaglesfield Floyd (Appellant).
MR. PHILIP HESLOP (instructed by Messrs. Wilde, Sapte & Co., Solicitors, London EC4V 3BB) appeared on behalf of the Respondent, National Westminster Bank Limited, (Respondent)
This is an appeal from an order of Mr. Justice Templeman (as he was at the time) under the Companies Act 1948, section 227, validating all transactions on the current banking account of the company, Gray's Inn Construction Co. Limited, between 3rd August 1972, when a petition for the compulsory winding up of the company was presented by a creditor, and 9th October 1972, when an order was made on that petition for the winding up of the company.
The company, which was incorporated in 1969, carried on a building business. It maintained a current account with the National Westminster Bank at its Tavistock Square Branch in London. It seems that the company did not engage in large building projects or in speculative building on its own account, but mainly undertook relatively small contracts of which it seems to have secured a considerable number. The company's current account appears to have been normally overdrawn. At any rate it was in debit throughout the period covered by the evidence, and it is apparent that the company found difficulty in keeping within the overdraft limit of £5,000 imposed by the bank. The overdraft was unsecured by the company, but was guaranteed by Mr. Chapman, the Managing Director, whose guarantee was secured.
The company was indebted to another company, named Field-Davis Limited, of which it had at one time been a subsidiary, In a sum of over £4,000. The origin of this debt does not appear from the evidence, but it seems possible that it may have been a loan made by Field-Davis Limited to the company to provide working capital in the company's early days. On 3rd August 1972 Field-Davis Limited presented a petition for the winding-up of the company founded upon that debt. The petition was advertisedon 10th August 1972 and came to the notice of the Manager of the Tavistock Square Branch of the bank on 17th August. It is, however, evident that it must have come to the notice of the head office of the bank before 17th August, though on what date is not clear. On 9th October 1972 the court made a compulsory winding-up order. The bank continued throughout the period 3rd August to 9th October 1972 to accept payments into the account, mainly if not entirely in the form of third parties' cheques paid in by the company and collected by the bank; it also continued to honour cheques drawn on the account, making sure, so far as it was able to do so, that all such cheques were drawn in the ordinary course of the company's business but without attempting to distinguish between pre-liquidation debts and post-liquidation debts. In so doing the Branch Manager was acting in accordance with an internal directive issued by the bank's head office to all branches. This dealt as follows with the action to be taken on notice of presentation of a petition: "Normally the account whether overdrawn or in credit may be continued for all bona fide transactions which are in the normal course of business, i.e. wages' and current purchases until a winding-up order is made. The Bank is accepting some risk in adopting this course as the winding-up will, if pursued, commence from the date of the petition and the Bank is relying on the Court to confirm those transactions which are allowed on the account after notice of the petition and before the winding-up order is made. Managers must therefore advise the Area Manager as soon as notice is received. All entries on the account during this period must be scrutinised very carefully and where there are unusual transactions, further reference should be made to the Area Manager".
Immediately before 3rd August 1972 the account was overdrawn to the extent of £5,322 (I ignore pence). At 9th October 1972 it was overdrawn to the extent of £4,464. Sums amounting to £25,313 had been paid in during this period: sums amounting to £24,129 had been paid out and the bank had debited the account with sums amounting to £326 for interest and bank charges. The amount of the overdraft during this period fluctuated, the highest figure being in excess of £7,000 and the lowest less than £3,600.
On 27th October 1976 the liquidator issued a summons for a declaration that the receipt by the bank from the company between 3rd August and 9th October 1972 (inclusive) of the amounts credited to the account during that period constituted dispositions of the property of the company which were void pursuant to the Companies Act 1948, section 227, and an order that the bank should pay the amount of those sums to the liquidator with interest; alternatively, a declaration that the amounts debited to the account during the period constituted dispositions of property of the company which were likewise void, and an order that the bank should pay the amount of those sums to the liquidator with interest. At the hearing, however, the liquidator did not press for this relief in full; he limited his claim to the amount which the company lost by remaining in business after the presentation of the petition, which the liquidator calculated to amount to £13,260. The learned judge said that reconstruction (and I think he was referring to reconstruction of the trading figures during the relevant period) was difficult on the information before the court; that it was not possible to be certain that harm was caused by the company continuing in business after3rd August 1972; that the probability was that creditors were worse off by not less than £4,000 or more than £8,000; and that for the purposes of the summons he assumed and found that the creditors were worse off to the extent of £5,000. That finding is not now sought to be disturbed. It was, I think, a finding that there had been a trading loss of £5,000.
The Companies Act 1948, section 227, is in the following terms: "In a winding up by the court any disposition of the property of the company, including things in action, and any transfer of shares or alteration in the status of the members of the company made after the commencement of the winding up shall, unless the court otherwise orders, be void".
The learned judge proceeded on the basis, which he held to be the position in law, that payment of monies to the credit of a company's account, whether it is in credit or not, do not constitute a disposition of the company's property. That is a view with which, with deference to the learned judge, I feel unable to agree. When a customer's account with his banker is overdrawn he is a debtor to his banker for the amount of the overdraft. When he pays a sum of money into the account, whether in cash or by payment in of a third party's cheque, he discharges his indebtedness to the bank pro tanto. There is clearly in these circumstances, in my judgment, a disposition by the company to the bank of the amount of the cash or of the cheque. It may well be the case, as Mr. Heslop has submitted, that in clearing a third party's cheque and collecting the amount due upon it, the bank acts as the customer's agent, but as soon as it credits the amount collected in reduction of the customer's overdraft, as in the ordinary course of banking business it hasauthority to do in the absence of any contrary instruction from the customer, it makes a disposition on the customer's behalf in its own favour discharging pro tanto the customer's liability on the "overdraft. Mr. Heslop was constrained in the course of the argument to accept that this is so. In the present case the company's account with the bank was overdrawn, so I need not consider what the position would have been if any cheque had been paid in when the account was in credit, but I doubt whether even in those circumstances it could be properly said that the payment in did not constitute a disposition of the amount of the cheque in favour of the bank.
Mr. Heslop does net dispute that all payments out of the company's account to third parties, not being payments to agents of the company as such, are dispositions of the company's property; but he contends (as I understand his argument) that they are only relevant for the purposes of section 227 to the extent that payments out during the relevant period exceed payments in. That all such payments out must be dispositions of the company's property is, I think, indisputable, but I cannot accept Mr. Heslop's contention. The section must, in my judgment, invalidate every transaction to which it applies at the instant at which that transaction purports to have taken place. I cannot see any ground for saying that the invalidation can be negatived by any subsequent transaction.
It follows, in my judgment, that unless validated under the section all the payments into and all the payments out of the company's account during the period 3rd August to 9th October 1972 were invalid. No one, however, suggests that the bank should repay to the liquidator £25,313 and that all therecipients of the £24,129 should repay to the liquidator the sums so received by them. The problem is how in these circumstances the discretionary power of the court under the section to validate dispositions which would otherwise be invalid should be exercised.
Mr. Justice Templeman said in the course of his...
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