Response Engineering Ltd v Caherconlish Treatment Plant Ltd

Factual and Procedural Background

The Plaintiff company obtained a judgment against the Defendant company for a sum of €225,351.00 plus costs. The Defendant was owed approximately €220,000 by a local council for construction work performed on a water treatment plant. The Defendant had no other assets subject to execution except this debt owed by the council. The council held the funds pending the court’s determination of priority between the Plaintiff and a bank that claimed an equitable charge over the debt. The Plaintiff obtained a conditional garnishee order over the €220,000, which the bank contested by asserting a prior equitable charge based on a solicitor’s undertaking given by the Defendant’s solicitor in 2006. The bank had not registered this charge as required by statute. The primary legal issue was whether the solicitor’s undertaking constituted a registrable charge over book debts under the Companies Act 1963, affecting priority.

Legal Issues Presented

1. Whether a solicitor’s undertaking regarding future payments to a client company constitutes a charge over the company’s book debts within the meaning of section 99(2)(e) of the Companies Act 1963.
2. Whether the sum owed by the council qualifies as a "book debt" under section 99(2)(e).
3. Whether the solicitor’s undertaking creates a security interest in the book debt or is merely an assignment of debt.
4. Whether the court’s granting of a garnishee order under Order 45 is a discretionary remedy and, if so, whether discretion should be exercised to refuse the order in this case.

Arguments of the Parties

Plaintiff's Arguments

• The Plaintiff contended that the solicitor’s undertaking did not constitute a registrable charge over book debts and therefore the bank’s claim lacked priority due to non-registration.
• The Plaintiff sought to have the garnishee order made absolute to recover the debt owed by the council.

Defendant's Arguments (Bank’s Arguments)

• The bank argued that it held an equitable charge over the sum owed by the council arising from the solicitor’s undertaking, which gave it priority over the Plaintiff’s claim.
• The bank contended that the garnishee order was a discretionary remedy and that it would be unfair and inequitable to allow the Plaintiff to recover funds that the bank claimed as security for its debt.

Table of Precedents Cited

Court's Reasoning and Analysis

The court first analyzed whether the debt owed by the council constituted a "book debt" under section 99(2)(e) of the Companies Act 1963. Applying established definitions, the court concluded that the council’s debt was indeed a book debt because it was future income accruing from the Defendant’s provision of goods and services in the ordinary course of business.

The critical issue was whether the solicitor’s undertaking created a registrable security interest (charge) over that book debt or was merely an assignment of the debt. The court reviewed relevant case law, including English and Irish authorities, to distinguish between assignments and security interests. It noted that in ordinary banking relationships, there is a presumption that the client retains an equity of redemption unless there is clear evidence of an outright assignment.

The solicitor’s undertaking, while providing irrevocable instructions to lodge cheques into the company’s account with the bank, did not displace this presumption. The court reasoned that the undertaking was given as security for the bank’s overdraft facility and did not amount to a sale or assignment of the debt. The bank had not registered this security interest as required, rendering it void against creditors.

Regarding the bank’s argument that the garnishee order is discretionary and should be refused on equitable grounds, the court acknowledged the discretionary nature of garnishee orders but emphasized that such discretion is rarely exercised to refuse an order where the judgment creditor has met the proof requirements. The court found no special circumstances to withhold the order, especially since the bank could have protected its position by registering the charge.

Holding and Implications

The court MADE ABSOLUTE the garnishee order sought by the Plaintiff.

The solicitor’s undertaking was held to constitute a security interest over book debts requiring registration under section 99(2)(e) of the Companies Act 1963. Due to the lack of registration, the security interest was void against creditors, including the Plaintiff. Consequently, the Plaintiff’s claim took priority over the bank’s equitable charge. The court’s decision directly affects the parties’ rights to the funds held by the council but does not establish new legal precedent beyond the application of existing principles concerning charges over book debts and the registration requirement under the 1963 Act.