(1) Delphis Bank Ltd (in receivership)
(2) The First City Bank
THE COURT OF APPEAL OF
- - - - - - - - - - - - - - - - -
JUDGMENT OF THE LORDS OF THE JUDICIAL
COMMITTEE OF THE PRIVY COUNCIL
Delivered the 24th January 2008
- - - - - - - - - - - - - - - - -
Present at the hearing:-
- - - - - - - - - - - - - - - -
Aquachem Ltd (“the company”) carried on business making textiles dyes and related products at a factory on Phoenix Industrial Estate,
In 1994 the company served a statement of claim alleging that the appointment of the receiver was invalid and that the receiver had acted unlawfully by inserting the sale advertisements. In consequence, the company claimed to have suffered RS 7m damage. The action was tried by Lam Shang Leen J on various dates between October 1998 and July 2000. On
Of the various points upon which the appellants have relied in the course of the proceedings, only three remain. The first is that the receiver was not entitled to take any steps with a view to selling the company’s property until the floating charge had been formally crystallised within the meaning of Chapter 10 of Title 18 of Book 3 of the Code Napoléon, as amended by the Code Napoléon (Amendment No 2) Act 1983. The second is that the appointment was invalid because the bank failed to give credit for the amounts due under the QTL bills of exchange in its hands. The third is that
The concept of a floating charge is not native to the civilian system of property law which exists in
It is common ground that the bank gave no notice of crystallisation and therefore did not convert the floating charge into a fixed charge. Instead, it appointed a receiver. The power to do so was, at the relevant time, contained in section 188(1) of the Companies Act 1984:
“A receiver, or a receiver and manager of the property of a company may be appointed…by the holder of a…floating charge…where the instrument creating the charge provides for the appointment of a receiver.”
In the present case, the instrument provided in clause 11.1 that the bank
“at any time after the moneys and liabilities intended to [be] hereby secured shall have become payable…may appoint…any person…to be a receiver and manager of the said assets.”
Clause 11.2 contained the usual provision that the receiver was to be the agent of the company and to have extensive powers over its assets including the power to sell them. The bank submits that there is nothing in the Code which requires the charge to be converted into a fixed charge before the receiver can be appointed or exercise his powers. If the bank had been proposing to sell property as mortgagee, that would have been another matter. It would have needed to have a fixed charge over the relevant property. But the bank did not want to exercise any rights over the company’s property. It left it all at the company’s free disposal. It was only the management of that property on behalf of the company and the right to cause the company to sell it which the appointment removed from the board and vested in the receiver.
Their Lordships consider that this submission is correct. Mr Basset SC, on behalf of the company, submitted that Parliament cannot have intended section 188 of the 1984 Act to deprive chargors of the protection which Seetulsingh J said that they were intended to be given by section
One answer to this submission is that section 188 applies only to companies, whereas Seetulsingh J was speaking of the weak position of individuals against approved institutions. Parliament may have thought there was less need to restrict the freedom of contract of corporate bodies. But, be that as it may, it appears to their Lordships that there is no process of statutory construction which enables one to imply into section 188 of the 1984 Act a requirement that there must have been an effective crystallisation under the Code before the receiver can exercise his powers. In agreement therefore with the judge and the Supreme Court, their Lordships would reject the appellant’s first argument.
The second argument is that BCCI were obliged to credit the company with the face value of the bills accepted by QTL as they matured, notwithstanding that QTL had not put the bank in funds and the bank was unwilling to advance it the money. It appears to be the case that in the past, BCCI had been willing to advance money to QTL for this purpose. But an obligation to continue doing so would have required an unusual form of agreement and it is not surprising that the judge found that BCCI had given no such undertaking. The Supreme Court concurred in this finding and there are no grounds upon which their Lordships can disturb it. Mr Basset submitted that although BCCI had no contractual duty to advance to QTL the money to meet its bills, its failure to do so (or to return the bills to the company) was actionable in tort, presumably as some form of negligence. Their Lordships do not understand how it can be negligence not to do something which you have no obligation to do. As for the return of the bills, there was no evidence at the trial that the company asked for them and, on the contrary, an acceptance that the bank held them as security for the company’s indebtedness.
The third and last point concerns the qualification of the receiver. Section 163(5) of the 1984 Act provides that the appointment of a firm as auditor “shall be taken to be an appointment of all persons who are members of the firm.” Price Waterhouse were auditors of the bank and the receiver Mr Mohadeb was a member of Price Waterhouse. So he counted as an auditor of the bank. Section 189 contains a list of categories of people who are disqualified from being appointed as receivers of a company. They include
(d) an auditor of the company; or
(e) an officer of the company or of any corporation which is a mortgagee of the property of the company.”
Mr Mohadeb was not an auditor of the company. He was an auditor of the bank. But Mr Basset submits that an auditor is an officer of the company of which he is auditor and, as auditor of the bank, Mr Mohadeb was an officer of a corporation which was a mortgagee of the company.
Their Lordships would accept that in certain context an auditor may be treated as an officer of the company. Section 2(1) of the 1984 Act contains a non-exhaustive definition of an officer of a corporation which says that it includes a director, secretary or executive as well as a receiver and manager and a liquidator in a voluntary winding up. It says nothing about an auditor. The question is one of construction of the particular provision: see Hobhouse LJ in Mutual Reinsurance Co Ltd v Peat Marwick Mitchell & Co (A firm)  BCC 1010. Section 189 speaks of auditors in paragraph (d) and officers in paragraph (e). Their Lordships consider that this shows an intention to treat them as separate categories. If auditors were officers, paragraph (d) would be superfluous because they would be officers of the company under (e). Their Lordships accordingly consider that auditors are not officers of the company for the purposes of section 189 and Mr Mohadeb was therefore qualified for appointment.
Their Lordships would add that even if the appointment of the receiver was invalid, it does not follow that an invalid appointment, as opposed to acts of trespass or conversion by the receiver, is of itself a wrong for which the company can sue in tort. Nor is there evidence that the only act of the receiver, which was to advertise the property, caused the company any loss.