Re Lines Brothers. Ltd

JurisdictionEngland & Wales
Judgment Date11 February 1982
Judgment citation (vLex)[1982] EWCA Civ J0211-2
Docket Number82/0041
CourtCourt of Appeal (Civil Division)
Date11 February 1982
In the Matter of Lines Bros. Limited


In the Matter of the Companies Act 1948

[1982] EWCA Civ J0211-2


Lord Justice Lawton,

Lord Justice Brightman


Lord Justice Oliver


No. 002842 of 1980


COURT OF APPEAL (Civil Division)

(On appeal from Mr. Justice Slade sitting in the Companies Court)

Royal Courts of Justice

Mr. WILLIAM STUBBS, QC, and Miss MARY ARDEN (instructed by Messrs. Cameron Markby) appeared on behalf of the Appellants, Lloyds Bank International Limited.

Mr. DAVID GRAHAM, QC, and Mr. ROBIN POTTS (instructed by Messrs. Simmons & Simmons) appeared on behalf of the Respondents, Paul Frederick Marten Shewell and Michael Anthony Jordan, Joint Liquidators of Lines Bros. Limited.


The issue in this appeal is this: when a creditors' voluntar liquidation carried on within the jurisdiction of the Supreme Court takes a long time and some of the company's debts are in a foreign currency and claimed in that currency, should the liquidator pay dividends in sterling at the rate of exchange prevailing at the date of the resolution to wind-up or at the rates prevailing when any payments are made? If, as in this case, dividends are paid in sterling and that currency depreciates against the foreign currency between the date of the winding-up and the date of payment, the creditors in the foreign currency on converting their sterling dividends into the foreign currency in which the debts were incurred and the claims made, will get a smaller proportion of their claims in that currency to what their claims bore to the other claims at the date of the winding-up resolution.


The experienced joint liquidators of Lines Bros. Ltd. ("the company") thought that the rate of exchange was fixed at the date of the resolution to wind-up the company, which was the 28th September 1971. From time to time thereafter they paid dividends to the creditors in foreign currencies at the rate of exchange then prevailing. One of those creditors was Lloyds Bank International Ltd. ("the bank"). They had lent the company 18,500,000 Swiss francs repayable in the same currency on the 5th November 1971. It was admitted before us that the proper law of the contract was Swiss. On the 28th September 1971 the £was worth 9.836 Swiss francs. Thereafter sterling began to depreciate against the Swiss franc. Four interim dividends were paid, the first on the 10th November 1972 when the rate of exchange was 8.81 Swiss francs to the £. The second was paid on the 2nd January 1975 when the rate was 6.025; the third on the 13th February 1976 at a rate of 5.17; the fourth on the 6th August 1976 at a rate of 4.435 and a final dividend on the 20th June 1978 at a rate of 3.4725. All the dividends were paid in sterling.


The liquidation had been fairly satisfactory for some of the creditors: the sterling creditors had been paid the amount of their claims; but the creditors in foreign currencies had been paid their claims in their sterling equivalents on the 28th September 1971. After paying these dividends the liquidators now have available about £2,000,000 which, after deducting the expenses of the liquidation, they propose to distribute in part satisfaction of the post-liquidation date claims for interest arising under contract. The bank have such a claim.


The bank, however, are dissatisfied with this distribution. Had Swiss francs been bought with their sterling dividends on the dates when they were paid they would have received not 100 per cent of their claim as the sterling creditors did but 58.776 per cent. In sterling terms they had lost about £1,800,000. The bank have not been the only losers. An English merchant bank which lent the company DM 1,183,533 have received in that currency 66.049 per cent of their claim. An Italian bank, however, which lent 40,000,000 lire have received more or less the whole of their claim in that currency because it has depreciated at about the same rate as sterling against Swiss francs and Deutschmarks. The bank claimed that when the liquidators were ready to pay a dividend they should, before doing so, have worked out the proportions between the claims and have paid the bank either in Swiss francs or in sterling calculated at the prevailing rate which would then have bought in Swiss francs the fraction of the claims which they intended to pay. If, for example, they had intended to pay a dividend representing 10 per cent of the total claims, they should have paid 10 per cent of the bank's claim, that is, 1,850,000 Swiss francs, or its sterling equivalent at the date of payment.


The bank accepted in this court, and I assume they did so in their negotiations with the liquidators before proceedings started, that in paying dividends in the way they did the liquidators had followed a practice which had been recognised as correct in law from the 1860s onwards. The bank's argument was, and has been in this court, that the old practice has been invalidated by the decision of the House of Lords in Miliangos v. George Frank (Textiles) Ltd. (1976) AC 443. Since that case, it was submitted, all liquidators, whether acting under a winding-up order of the court or a resolution to wind-up should either pay dividends in the foreign currency in which the debt had been incurred or in the sterling equivalent at the date of payment. It was in these circumstances that the liquidators decided to ask the court for directions. They issued an originating summons on the 8th July 1980. In it they asked the court to direct them as to which of a number of dates was the correct one for fixing the rate of exchange. This was because of obiter dicta in the speeches in the Miliangos case. The experienced counsel who appeared for both sides in this court accepted that there were only two possible dates, either the date of the winding-up, which in the case of a compulsory winding-up would be the date of the court's order and in the case of a voluntary winding-up the date of the resolution, or at the close of business on the last practical day before making payment. After hearing argument for 11 days in February 1981, Mr.Justice Slade delivered a reserved judgment on the 15th April 1981 whereby he adjudged that for the purposes of the payment of dividends in the liquidation under consideration the bank's foreign currency debt was properly converted into sterling as at the date of the commencement of the voluntary winding-up, namely, 28th September 1971. In. deciding as he did he followed a judgment of Mr. Justice Oliver (as he then was) in In re Dynamics Corporation of America (1976) 1 WLR 757. The bank have appealed to this court against Mr. Justice Slade's judgment.


In the course of his submissions to this court, Mr. Stubbs on behalf of the bank on a number of occasions reminded us that justice should be done to his clients. Of course it should; but when rates of exchange fluctuate from day to day, sometimes from hour to hour, every variation means that someone gains and another loses. Had sterling appreciated against the Swiss franc, the sterling creditors would probably have made the same complaint as the bank have done. The practice which went unchallenged for over a hundred years had this advantage. After the creditors, including those in a foreign currency, had seen the statement of affairs prepared by the liquidators they knew what their financial prospects of getting anything out of the liquidation were and they could plan accordingly. If the Miliangos case has changed liquidation practice, the certainty of the past will be replaced by the uncertainty of the future. Administrative convenience, however, does not entitle us to disregard decisions of the House of Lords which are binding on us.


The solution to the problem before us lies, in my opinion, in the answers to these questions: first, what did the Miliangos case decide relevant to a liquidation; and secondly, do the provisions of the Companies Act 1948 stop the application to liquidations of whatever the Miliangos case did decide? Both before Mr. Justice Slade and this court reference was made to many authorities. Most of them, in my opinion, were only of marginal, if any, help. I intend to rely on very few.


I start with the Miliangos case. The facts and the history leading up to the decision are so well known that I need not repeat them in this judgment The House decided (Lord Simon of Glaisdale dissenting) that the Swiss plaintiff could in an action brought in England ask for judgment in the currency of account which was Swiss francs. The House recognised, however, that there would have to be provision for converting the foreign currency into sterling if the judgment was to be enforced here. There was discussion as to what the conversion date should be. As Lord Fraser of Tullybelton pointed out (at page 501 G) theoretically it should be the date of actual payment of the debt. He went on to say that theory must yield to practical necessity to the extent that, if a judgment has to be enforced here, it must be converted before enforcement. All their Lordships, other than Lord Simon of Glaisdale, agreed that the conversion date should be when the court authorised enforcement in terms of sterling.


Following this decision, as Lord Wilberforce had expected (see page 469 E a Practice Direction was issued (see (1976) 1 WLR 83) setting out the practice to be followed in relation to the making of claims and the enforcement of judgments expressed in a foreign currency. Paragraph 9 directed how judgments in a foreign currency were to be entered. The sum in foreign currency in which judgment had been ordered was to be set out followed by the words "or the sterlin equivalent at the time of...

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