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Cite as: [2019] 1 WLR 2145, [2019] Bus LR 899, [2019] PNLR 8, [2019] WLR 2145, [2018] EWCA Civ 2256, [2018] WLR(D) 628, [2019] BPIR 49

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		Neutral Citation Number: [2018] EWCA Civ 2256
		Case No: A3/2017/2374

IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
INSOLVENCY AND COMPANIES LIST
His Honour Judge Davis-White QC sitting as a Judge of the High Court
[2017] EWHC 1511 (Ch)

Royal Courts of Justice
Strand, London, WC2A 2LL

16/10/2018

B e f o r e :

LORD JUSTICE PATTEN
LORD JUSTICE HENDERSON
and
SIR COLIN RIMER
____________________

Between:

	(1) RUSSELL CRUMPLER (2) SARAH BOWER (Joint liquidators of Peak Hotels and Resorts Limited in liquidation)	Appellants
	- and -
	CANDEY LIMITED	Respondent

____________________

Felicity Toube QC and Stephen Robins (instructed by Stephenson Harwood LLP) for the Appellants
Robert Miles QC and Andrew de Mestre (instructed by Candey LLP) for the Respondent
Hearing date: 21 June 2018
____________________

HTML VERSION OF JUDGMENT
____________________

Sir Colin Rimer :

Introduction

This appeal is against the declaration in paragraph 1(b) of the order made by His Honour Judge Davis-White QC, sitting as a Judge of the High Court, on 17 July 2017 following his reserved judgment of 23 June: [2017] EWHC 1511 (Ch). It was made on an application for directions by the applicants/appellants, Russell Crumpler and Sarah Bower, the joint liquidators of Peak Hotels and Resorts Limited ('Peak'). The respondent to the application and appeal is CANDEY Limited ('Candey'), solicitors, who, prior to its liquidation, acted for Peak in what the judge called a 'plethora of international litigation.'

The declaration related to a Deed of Charge and Security executed by Peak in favour of Candey ('the charge'). The judge declared that 'on the assumption that [the charge] is in all other respects valid and enforceable', it was effective to create a floating (but not a fixed) charge over two sums of US$10m and £1,648,000 paid out of court to Peak upon the settlement of the litigation. The charge had been granted by Peak before its entry into liquidation. The payment out was obtained by the liquidators after such entry.

If a charge was created, the liquidators do not dispute that it was a floating charge. But by their appeal, the liquidators, represented by Ms Toube QC and Mr Robins, assert that no charge was created over the two sums just referred to. The money paid out was part of larger sums that Peak had paid into court prior to the execution of the charge. The charge was purportedly of Peak's proprietary interest in the money paid in. The liquidators say that once Peak had paid the money in, it parted with such interest, with the consequence that it was no longer an existing asset of Peak that Peak was capable of charging. The most that could be said was that the charge was over a future asset of Peak that fell in during the liquidation when the money was paid out; but, say the liquidators, that money was a new asset belonging to Peak in liquidation and not one over which, prior to the liquidation, Peak could create a charge.

Whilst the judge stopped short of holding that Peak retained a proprietary interest in the money it paid into court, he held that Peak did retain an interest in it to the extent that it was entitled to apply to the court for its proper administration. That, in his view, was an interest sufficient to enable Peak to create a charge over the money. If he was wrong that Peak's interest was of such a limited nature, he held that its interest would have been greater, not less.

Candey, represented by Robert Miles QC and Andrew de Mestre, submitted that Peak retained a continuing proprietary interest in the money in court and so was entitled to charge it. The judge's declaration was therefore correctly made. If wrong in that submission, Candey submitted that the charge anyway created a valid equitable charge over the money formerly in court when it was paid out during the liquidation.

The facts

I take these from the judge's judgment. Peak was incorporated in the British Virgin Islands ('BVI') on 14 January 2014. Ten days later, it borrowed some US$35m from Jinpeng Group Limited ('Jinpeng') in order, as it did, to acquire a holding of about 32.5% in a joint venture vehicle, Peak Hotels and Resorts Group Limited ('the JVC'). Its joint venture partner was Tarek Investments Limited, also a BVI company, which held about 64.8% of the shares in the JVC. The JVC indirectly owned the Aman Resorts hotel group, which operated about 26 hotels internationally. In April 2014, Peak borrowed US$50m from Sherway Group Limited ('Sherway').

Peak promptly became engaged in litigation arising out of disputes over the control of the Aman group and as to funding arrangements. There was litigation in the BVI and the Chancery Division of the High Court in England and an arbitration. Peak commenced its Chancery proceedings in June 2014. The defendants included Tarek, the JVC and Sherway. In June and July 2014, Peak obtained various interim injunctions, the price for which was its giving to the court the usual cross-undertaking in damages. On 19 September 2014, His Honour Judge Pelling QC, sitting as a judge of the Chancery Division, ordered Peak, as it did, to pay US$10m into court by way of fortification of its cross-undertaking. On 20 February 2015, Henderson J (as he then was) ordered Peak to provide £3,138,000 as security for the defendants' costs, which sum Peak also paid into court.

The Fixed Fee agreement

Candey acted for Peak in the litigation. To assist Peak's cash flow, Peak and Candey entered into a Fixed Fee agreement which (i) dealt with the arrears of fees owed to Candey, and (ii) provided that, for its future legal services, Candey was to be entitled to a fixed fee of approximately £3.8m.

The agreement was signed for Peak and by Candey on 10 and 21 October 2015 respectively. Candey agreed to continue to act in various pieces of litigation and on other matters agreed from time to time. The agreement included an English choice of law clause and an exclusive English jurisdiction clause. Clause 3 recorded that Candey's previous costs estimate had been revised from £5m to £6m, but could be significantly higher (or lower if an early settlement was achieved). Clause 4 provided:

'[Peak] does not wish to pay [Candey's] invoiced and unbilled costs incurred to date or provide further funds in advance on account on a weekly basis and wishes instead to agree a fixed liability fee payable at a future date. It is therefore agreed that [Peak] will pay [Candey] a fixed fee of £3,860,637.48 (the "Fixed Fee"). It is agreed that to assist [Peak's] cash flow [Peak] is not obliged to pay the Fixed Fee before judgment on liability is handed down or a settlement is agreed in the Tarek proceedings unless [Peak] obtains cash from elsewhere as set out in this agreement. Interest at 8% per annum will accrue from judgment or settlement.'

Clause 5 provided for Peak to pay Candey's outstanding unpaid invoices of just over £941,000 in three tranches, namely on the signature of the agreement, 1 December 2015 and 1 February 2016. The agreement provided that the fixed fee excluded all disbursements, including Counsel's fees, for which Peak was to remain liable. Clauses 8 (termination) and 11 (security) provided:

'8. [Candey] may terminate this agreement at any time for any reason without liability to [Peak]. In those circumstances, or if [Peak] wishes to terminate this agreement, [Peak] will remain liable for the Outstanding Costs, plus the Fixed Fee and all disbursements, subject of course to all its legal rights. The Fixed Fee and Outstanding Costs become immediately due for payment in the event that [Peak] is subject to any bona fide insolvency proceedings or arrangement or insolvency related Court order. …

11. As continuing security for the payment and discharge of all liabilities due from [Peak] to [Candey] pursuant to this agreement [Peak] shall execute a Deed of Charge and Security in the form annexed to this agreement. …'

The charge

On 21 October 2015 Peak executed the required Deed of Charge and Security (i.e. 'the charge'). Neither party made any point turning on its terms. The words of charge and clauses (1) and (3) are as follows:

'As continuing security for the payment and discharge of all liabilities to [Candey] pursuant to the fixed fee agreement of today's date … [Peak] hereby charges to [Candey]:

(1) by way of fixed charge, all assets and undertakings of [Peak], including shares, present or future, and including all monies in Court in all jurisdictions worldwide; …

(3) by way of floating charge, all such or further assets belonging to [Peak] that are not today capable of being charged by way of fixed charge (including any such assets described at (1) or (2) above in the event the fixed charge is defective for any reason).' (My emphasis.)

Peak's entry into liquidation

Jinpeng had, in May 2014, served a statutory demand on Peak for the repayment of its US$35m loan. In September 2014, it commenced winding up proceedings against Peak. On 8 February 2016, Bannister J (Ag), sitting as a High Court Judge of the Eastern Caribbean Supreme Court in the BVI, made a winding up order. The appellants were appointed joint liquidators: Mr Crumpler is the managing director of KPMG (BVI) Limited, Ms Bower a member of KPMG China in Hong Kong.

By the time of Peak's entry into liquidation, Candey had carried out substantial work for it. Based on Candey's usual hourly rates, it would have been charged out at about £1.2m on a time basis. In the liquidation, Candey claims to be a secured creditor for the £3,860,637.48 fixed fee. The liquidators do not challenge the fixed fee. They do challenge Candey's claim that the charge gave it security for the fee over the money in court paid out to them.

When Peak entered into liquidation, the London litigation was at a crucial stage. The liquidators sought the directions of the BVI court as to what steps to take in it. On 26 February 2016, Bannister J directed them to continue the litigation if by 2 March 2016: (a) there were in place agreements to fund the litigation that were reasonably satisfactory to the liquidators and which provided for fortified indemnification in relation to the adverse cost consequences to Peak of adopting the litigation; and (b) terms had not been reached with the defendants to the litigation which, in the liquidators' view, represented a better realisation for creditors. Subject to this, the liquidators were directed to discontinue the litigation on such terms as they could achieve.

The judge explained the outcome thus:

'… There was a liability in respect of Counsel's brief fees and an outstanding obligation pursuant to a court order to pay additional security for costs. There was a risk of adverse costs in respect of the Defendants' costs in the London Litigation, which was covered neither by insurance nor fully covered by the existing sums paid into court. Having unsuccessfully attempted to obtain a third party fortified indemnity in respect of adverse costs, the Liquidators decided that the appropriate course was to seek to settle the London Litigation. Ultimately they were successful in this endeavour. The terms of settlement provided for the release to Peak of the two sums of money paid into court of US $10 million and £1,648,000. These sums were paid to the Liquidators by order of Asplin J dated 7 March 2016.'

The US$10m is the money Peak had paid into court pursuant to the order of Judge Pelling. The £1,648,000 is part of the money Peak had paid into court pursuant to the order of Henderson J: it represented the balance of the money so paid in, together with all accrued interest, after payments out of £750,000 to each of Tarek and Sherway. It is the entitlement, as between the liquidators and Candey, to the two sums of US$10m and £1,648,000 that was in issue before the judge and is in issue before this court.

On 24 February 2016, Registrar Derrett made an order in the English Companies Court recognising the BVI liquidation proceedings relating to Peak as a foreign main proceeding under Schedule 1 to the Cross-Border Insolvency Regulations ('the CBIR'). The CBIR give effect to the UNCITRAL Model Law on cross-border insolvency within Great Britain. The judge explained that its effect is that, subject to certain exceptions, the liquidators are entitled to apply under the CBIR to obtain the same relief as if the liquidation were an English one. He said, at [11]:

'The parties have agreed that the matter is conveniently dealt with by the English court. This is against the background of an exclusive English jurisdiction clause in the Fixed Fee Agreement, the close co-incidence between the English s245 Insolvency Act 1986 and s247 of the Virgin Islands Insolvency Act 2003, the recognition of the BVI liquidation in this jurisdiction and that the assets considered by Candey to be caught by the relevant charges are held by the Liquidators within this jurisdiction.'

The result was that the directions application was argued before the judge on the basis that the questions it raised fell to be determined by the law of England and Wales. The appeal was argued on the same basis.

Did Peak have a proprietary interest in the money it paid into court?

This is the first issue. The judge gave permission to appeal on it. Having paid the money into court, did Peak retain a proprietary interest in it? If yes, as Mr Miles submitted, there is no dispute that Peak created a valid charge over the money: it was Peak's existing property and the payment out represented its realisation. If no, as Ms Toube submitted, the charge created no immediate charge over the money, because it was not Peak's property. It was at most a purported charge over Peak's future property, or an expectancy, that only fell in during Peak's liquidation when the money was paid out. The second issue was whether or not such purported charge was valid against the liquidators. I turn to the first issue. I go straight to the authorities.

I start with this court's decision in Pearlberg v. May [1951] Ch 699, upon which Mr Miles relied. The plaintiff had agreed to buy a property from the defendant for some £34,000 and paid a deposit. The conditions of sale provided for completion on 12 January 1949, when the balance was to be paid; and, if it was not then paid, they provided for it to carry interest at 5% until it was. Completion was consensually deferred. The purchaser had in the meantime been let into possession. She failed to complete on the deferred date, following which the vendor gave notice of his intention to re-sell the property in accordance with the conditions of sale. That prompted the purchaser to sue for specific performance and an injunction restraining any sale. She said that she had always been ready to complete and that the vendor had been in default by failing to give possession of part of the property. By his defence, the vendor also asked for specific performance, alleging default by the purchaser.

At an early stage in the litigation, the vendor obtained an order requiring the purchaser, by 5 July 1949, to lodge in court the balance of the purchase price plus interest on it at the contract rate until the day of lodgement; in default, she was required to give up possession. Such an order was commonly known as a Greenwood v. Turner order (see [1891] 2 Ch 144). The purchaser paid the balance and interest in and abandoned her contention that she had not been given possession of all the property. After that there was no issue in the parties' claims for specific performance save as to whether interest was payable by the purchaser on the balance of the purchase price from the date of her payment into court to the date of actual completion.

On appeal against Harman J's decision that it was (see [1951] Ch 104), the purchaser submitted that, upon her payment into court, the money so paid became in equity the property of the vendor and so no further interest was payable pending completion: it was for the vendor to obtain the investment of the money in court so as to earn him interest at a rate at least corresponding to the contract rate. The vendor's counter-argument was that the money paid in did not become his property but was simply a security for the payment of the purchase money to him, its payment being the price the purchaser must pay to avoid giving up possession; the payment in did not excuse the purchaser from her obligation to pay interest to the date of completion.

The court dismissed the appeal, for reasons given by Sir Raymond Evershed MR with which Jenkins and Hodson LJJ agreed. Sir Raymond declined to accept that when the purchase money was ordered to be paid into court, 'the equitable interest in the money similarly passes to the vendor'. He read the authorities as requiring the payment in by way of the provision of security for the vendor, who was out of both his money and his property: see 709. He expressed his conclusion thus, at 714:

'Mr Pennycuick [leading counsel for the purchaser] is entitled to say that, apart from any authority, no other possible meaning can be put upon the [Greenwood v. Turner] order than that what has to be paid into court is not a sum of money equivalent to the purchase price but is the purchase price or that part of it which remains unpaid; and he says that if the purchase price is paid into court, then, by application of the rule of equity that that must be treated as done which ought to be done, in equity it goes to the vendor and must therefore be a quittance of the purchaser.

I cannot accept that view. On looking at the order and considering its ancestry, I do not think that such a thing was in the contemplation of those who started this convenient practice. The court is doing no more than to take the money into its keeping to abide the result of the action. Both the purchaser and the vendor may fairly say they have equitable interests in it. I certainly do not think it right to say that the vendor has such a paramount equitable interest in the fund as to make it equivalent to the type of equitable interest a purchaser has in the land which the vendor has agreed to sell him. (My emphasis.)

My brother Jenkins, at the end of Mr Pennycuick's reply, asked what would happen if, for some reason, after payment in the contract went off altogether; and Mr Pennycuick was forced to say that, apart from some court rate of interest which the payer-in would get back, any interest on the sum invested would go to the vendor; in other words, it would be wrong to deprive him of the equitable interest which, on that view of it, he acquired by virtue of the payment in. I cannot think that that is right.'

The decision in Pearlberg is therefore that a payment into court by a purchaser pursuant to a Greenwood v. Turner order is not a payment of the balance of the purchase price and interest in satisfaction of the purchaser's obligations on completion. It is no more than a payment by way of the price the purchaser must pay to be allowed to remain in possession, its purpose being also to secure the payment of the purchase price to the vendor on actual completion; and the entitlement to the money in court will depend on the outcome of the action. If the purchase is to be completed pursuant to an order for specific performance, the money will upon completion ordinarily be paid out to the vendor towards satisfaction of the balance of the purchase price and interest due under the contract. If the outcome of the action is that the contract goes off, then ordinarily the money will be paid out to the purchaser.

Sir Raymond observed that both parties had equitable interests in the money in court. Given his rejection of the submission that the money became the vendor's property, I regard it as probable that, as for the vendor, he meant that the security interest that the payment gave the vendor was analogous to an equitable charge over the money and so was best described as an equitable interest.

As for the purchaser, Sir Raymond held that she too had an equitable interest in the money. As the payment in was by way of security for the purchaser's contractual obligations to the vendor, it might be thought self-evident that, subject to such security interest, the purchaser retained a beneficial, or equitable, and thus a proprietary, interest in the money the court was 'keeping to abide the result of the action', and that it was to such an interest that Sir Raymond was referring. If she retained no such interest, and the contract were to go off, by what right could she ask the court for its repayment?

Is the court's holding in Pearlberg that the purchaser retained an equitable interest in the money paid into court part of the ratio decidendi of the case? In my judgment, it is. The ratio is that money paid into court by a purchaser pursuant to a Greenwood v. Turner order does not belong in equity exclusively to the vendor, but is held by the court to abide the outcome of the action; and that both parties have equitable interests in it. The decision is inconsistent with the liquidators' assertion that, upon a payment into court, the payer parts with his property in the money paid in.

The next relevant decision is that of this court in W.A. Sherratt Ltd v. John Bromley (Church Stretton) Ltd [1985] 1 QB 1038. This is regarded by the liquidators as their best case. Before, however, coming to Sherratt, I shall first refer to four authorities central to the discussion in it.

In re Gordon, Ex parte Navalchand [1897] 2 QB 516 was a case in which N sued Gordon to recover a debt of some £119. On N's application for summary judgment, Gordon obtained leave to defend but later paid some £48 into court in satisfaction of the claim with a denial of liability. He also obtained an order requiring N, as he did, to pay into court some £110 by way of security for his costs of the action. Gordon was then adjudicated bankrupt. His trustee declined to be made a party to the action or to consent to the payment out to N of the money in court and so N applied for an order for the payment out to him of the two sums. His counsel's argument was that (i) as to the £48, he was a secured creditor, and (ii) as to the £110, 'the applicant is clearly entitled to have it paid out to him. It is his money'.

Vaughan Williams J held that N was entitled to the payment out of the £110 (subject to any deductions for costs orders in favour of Gordon in interlocutory proceedings). As for the £48, he said, at 519/520:

'… I am clearly of opinion that if the proof is admitted, or to the extent to which it is admitted, the plaintiff is a secured creditor by reason of the payment into court. The money paid into court, even with a plea denying liability, has become subject to the plaintiff's claim by the act of the defendant, who thereby agrees that the sum paid in shall remain in court subject to the conditions of Order XXII., r.6. It is not a question of execution at all, but of the effect of a conventional charge. It is in effect a conditional payment to the plaintiff. The money is to be the money of the plaintiff if he succeeds in establishing his title to it: In re Mojen 12 Ch. D. 26'.

In re Ford, Ex parte The Trustee [1900] 2 QB 211 was to the same effect. The payment in was pursuant to an order of the court by way of a condition for its giving leave to defend. Counsel for the defendant's trustee, in arguing for the payment out to him of the money in court, submitted that 'it remained the property of the defendant unless and until the plaintiffs proved their title to it.' Wright J did not disagree but said, however, at 213:

'… it is settled that where money is ordered to be paid into court to abide the event it must be treated as security that the plaintiff shall not lose the benefit of the decision of the court in his favour: … The very object of such an order is that the plaintiff shall be in as good a position, so far as money paid in extends, against contingencies such as bankruptcy as if he had got an immediate judgment.'

Dessau v. Rowley [1916] WN 238 was a decision of this court to the same effect. I shall not relate its unusual facts. Beyond noting that once again counsel for the defendant similarly submitted that 'The money paid into court with a denial of liability remained the defendant's money, subject to the provisions of Order XXII, r.6,' suffice it to say that in Sherratt this court regarded Dessau as a binding decision that a payment into court results in the plaintiff becoming a secured creditor in the subsequent bankruptcy of the debtor, a decision destined to be in conflict with the 1977 decision of this court to which I now come.

That decision is Peal Furniture Co Ltd v. Adrian Share (Interiors) Ltd [1977] 1 WLR 464. The plaintiff sued the defendant for some £13,500 for goods supplied and services rendered. The defendant defended, counterclaimed for £4,500 and paid £3,967 into court, which the plaintiff did not take out. The defendant's bankers, who had fixed and floating charges over its assets, appointed a receiver, who considered that the defendant's counterclaim had been understated and should be increased to £12,000, and it was amended accordingly. The defendant's consequential application to withdraw the notice of payment into court was allowed by Reeve J and the plaintiff's appeal was dismissed. The then applicable provisions RSC Ord. 22, r. 1(3) provided, so far as relevant, '… but subject to that and without prejudice to paragraph (5), a notice of payment may not be withdrawn or amended without the leave of the court which may be granted on such terms as may be just.'

Shaw LJ's reasoning for dismissing the appeal, at 467/468, was that the receiver's view of the defendant's case, resulting in its amendment, had materially changed the situation between the parties in two important respects, being respects that justified the judge's exercise of discretion to withdraw the notice of payment in. First, far from being a debtor of the plaintiff, the defendant was now asserting that it had come near to being a creditor. Second:

'… if the money were allowed to remain in court, and the plaintiffs succeeded in recovering a judgment in excess of anything to which the defendants might be entitled on the counterclaim, they would be able to satisfy that judgment, in whole or in part, by taking money out of court. To that extent, if it turned out that the company were indeed insolvent, they would be given a preference over the general body of creditors, which would produce a result which in a general sense would be inequitable.'

Roskill LJ gave a judgment to similar effect, saying, at 469:

'Secondly (and for my part I attach a good deal of importance to this), the receiver is acting as receiver on behalf of Lloyds Bank, who are the debenture holders and have a fixed and floating charge upon the whole of the defendant's assets. Any money, therefore, that comes into the hands of the receiver will be applied in accordance with his obligation towards those who appointed him. If the money is allowed to remain in court, and if the plaintiffs recover upwards of £4,000, it is likely that that money would be paid out to the plaintiffs in pro tanto satisfaction of what would be recoverable under the judgment. They would thus become in the position of secured creditors, or preferred creditors, and thus in a far better position than that in which they would be as judgment creditors.'

Megaw LJ gave a judgment agreeing with the result but not focussing on the points made in the two quoted passages.

The problem with Peal is that its reasoning reflected in the quoted passages conflicted with the views in Gordon, Ford and Dessau, none of which were cited in Peal, that a payment into court in respect of a creditor's claim does make the creditor a secured creditor in a subsequent insolvency and does entitle him to preference as such over the general body of unsecured creditors. The different view of Shaw and Roskill LJJ was that, whilst a creditor with the benefit of a payment into court may de facto be in the position of a secured creditor, such a position would give him a preferential entitlement of which he should be stripped in the event of the debtor's insolvency: all unsecured creditors must be equal and a creditor secured by a payment into court must not be more equal than the others.

The opportunity for this court to resolve the clash between the authorities arose in Sherratt. The plaintiff sued the defendant for some £36,000. The defendant defended and counterclaimed for a sum exceeding the plaintiff's claim and paid into court £13,000, stated in the notice of payment in to be in satisfaction of the plaintiff's claim after taking into account the counterclaim. The plaintiff did not take the money out and the action proceeded. The defendant went into liquidation, following which it applied for leave to withdraw the money in court. The Registrar refused the application, but Hutchison J on appeal allowed the application so that the plaintiff was not placed in the position of a secured creditor in the liquidation. He was referred to all the relevant authorities but applied the guidance provided by Peal. The plaintiff's appeal to this court was allowed.

Oliver LJ (as he then was) gave the very scholarly leading judgment. He considered the line of cases supporting the view that a payment into court made in favour of a plaintiff makes the plaintiff a secured creditor in the subsequent insolvency of the defendant; and he considered Peal, to the effect that it was in the interests of the creditors generally that such a plaintiff should not be, or be allowed to become, a secured creditor. His conclusion was that Peal could not stand with Dessau and that the court was bound to decide which of the two to follow. Oliver LJ favoured following the Dessau line of cases. I must set out the two key paragraphs of his judgment. They are not numbered in the report but I shall number them for ease of later reference:

'1. The Peal Furniture case proceeds upon two propositions which, if I may respectfully say so, appear to me to be open to doubt. The first is that in exercising the discretion as to payment out to a defendant it is right to have regard to matters occurring right outside and having no connection with the litigation, that is to say the interests of some person who is a stranger to the litigation and whose relationship with the defendant in no way affects the dispute between plaintiff and defendant. The second is that the money in court remains, as it were, an asset of the defendant which, on his bankruptcy, forms part of his property available for distribution. Speaking entirely for myself, I question that approach. That the money in court may become such an asset is unquestionable if an order is made for payment out. But in my judgment a defendant paying into court under RSC, Ord 22, r.1, parts outright with his money. I doubt whether it can be said that the Accountant-General is a trustee in whose hands his money can be traced. Nor is there a "debt" or chose in action in the accepted sense of the word. The money becomes entirely subject to whatever order the court may see fit to make and to treat it as the defendant's property available for distribution in his bankruptcy is to assume, for the purposes of exercising the court's discretion, the very situation which will only arise if the court exercises its discretion in a particular way.

2. In my judgment the principles emerging from the In re Gordon line of cases are still applicable to money paid in under the current rules. The plaintiffs are therefore secured creditors to the extent of that money in the defendants' liquidation and that event cannot, by itself, constitute a change of circumstances which can properly be regarded as justifying the court in exercising its discretion to order repayment. While, therefore, I appreciate the dilemma with which the judge was faced, I am forced to the conclusion that in adopting the starting position that the plaintiffs were unsecured creditors, he misdirected himself. I would allow the appeal and restore the order of the registrar.'

Robert Goff LJ (as he then was) said he entirely agreed with Oliver LJ's judgment and delivered a concurring judgment, and Sir John Donaldson MR also agreed that, for the reasons given by Oliver LJ, the court should not follow Peal. He too delivered a concurring judgment. Neither referred expressly to Oliver LJ's observation that 'a defendant paying into court under RSC Ord 22, r.1, parts outright with his money.'

Ms Toube, in support of the liquidators' appeal, fastened on the quoted words. Sherratt's embrace of this assertion is the mainstay of the liquidators' case that, once Peak had paid the two sums of money into court, it retained no proprietary interest in it that it was capable of charging to Candey.

Mr Miles, for Candey, was politely critical of Oliver LJ's observations in this respect. After noting that Pearlberg had not been cited in Sherratt, he said, first, that it was unnecessary for Oliver LJ to say what he did in the relevant part of his paragraph 1. All he needed to say in deciding Sherratt was that the principle applied in the Gordon line of cases was the correct one. In any event, the passage relied upon by the liquidators was not part of the ratio decidendi of Sherratt. Its ratio was in paragraph 2 of the quoted passage. Mr Miles also submitted that Oliver LJ's statement was anyway contrary to principle. If the status of the plaintiff in the Gordon line of cases is that of a secured creditor, he is in the position of an equitable chargee under a charge created by the defendant by paying the money into court. Yet according to Oliver LJ, upon the creation of the charge, the chargor parts with his entire interest in the money, namely his equity of redemption. Why should he? A chargor does not lose his proprietary interest in the property charged. The property is his before and after the charge. All that has happened is that it is encumbered by the charge. Why should the court recognise the plaintiff's interest in the money in court as giving him the status of a secured creditor, but deny the existence of the defendant's equity of redemption?

The premise of Ms Toube's reliance on the last four sentences of Oliver LJ's paragraph 2 and of Mr Miles's responsive criticism of what Oliver LJ there said is that they amounted to a holding that the payer of money into court thereupon disposes of his property interest in it. If the premise is correct, then, with respect to Oliver LJ, I consider that there is much force in Mr Miles's criticisms. For my part, however, I have reservations as to whether it is correct.

The first thing to note about Oliver LJ's statement in his paragraph 2 is that it is advanced in response to his criticism of this court's approach in Peal to the effect that '… the money in court remains, as it were, an asset of the defendant which, on his bankruptcy, forms part of his property available for distribution.' I would respectfully regard that criticism as mistaken. I do not understand that to have been the court's approach in Peal. The court's point was that, so long as the money remained in court, it was not available for such distribution, but gave the plaintiff a security, and a potential preference in an insolvency. It regarded that situation as potentially unfair and considered that its avoidance justified the judge's decision to order the payment out of court to the defendant. By reference to what Oliver LJ said in the last sentence of paragraph 1, the court was simply exercising 'its discretion in a particular way', so resulting in the money becoming an asset of the defendant potentially available for distribution in its liquidation (more accurately, the court upheld the judge's exercise of such discretion).

Second, by way of underlining his criticism of the court's approach in Peal, Oliver LJ's observations in the key passage in paragraph 2 were directed at showing why money paid into court is not, unless and until paid out to the payer, available for distribution in the payer's bankruptcy. Ms Toube's submission is that those observations contain a holding that, upon making a payment into court, the payer parts finally with his property interest in the money paid in. I of course recognise that Oliver LJ's 'parts outright with' may be said to lend support to that submission, as may his following sentences. But Oliver LJ nowhere said expressly that the payer parts with his 'property' in the money; and if Oliver LJ was holding that he does, I would regard it as a surprising holding for him to have made. My reasons are these.

Oliver LJ was a meticulous and thorough judge, who gave full reasons for his decisions. In this short passage he is said to have decided – apparently for the first time in our jurisprudence – that the payer of money into court thereupon disposes of his property in it. The report of the argument in [1985] 1 QB 1038 does not suggest that any such submission was made to the court. That is not surprising because it would have been irrelevant to the issues in the appeal. If, therefore, Oliver LJ was deciding in paragraph 1 what is attributed to him, he was deciding a point that was not in issue and was doing so of his own initiative and without giving any explanation of, or justification for, the principle he was propounding. He cannot have overlooked that in each of Gordon, Ford and Dessau counsel submitted that the money in court remained the payer's property. If he was here saying they were all wrong, I would have expected him to have explained why.

As I have said, Mr Miles submitted that Oliver LJ did not need to decide what is attributed to him by the liquidators. No, he did not; and, for reasons given, I have reservations as to whether he in fact did so. I am provisionally more attracted to the view that all that he was here saying (and correctly saying) was that upon making a payment into court the payer puts his money wholly out of his own control and exclusively into that of the court (which I also understand to be the substance of what Mr de Mestre submitted in paragraph 37 of his skeleton argument). That is enough to put the money beyond the reach of a trustee in bankruptcy, who will only be able to access it for the benefit of creditors if he can first obtain an order for its payment out. At the end of the litigation, and in light of its outcome, the court will exercise its discretion as to whom, and/or in what proportions, the money is to be paid out, whether to the claimant, defendant or both. The default position will be that, to the extent that it is not paid out to persons other than the payer (an outcome to which the payer can be taken to have consented upon making the payment in), it will be repaid to the payer. One view is that his right to have the money so returned to him is because it always was, and still is, his property. If so, there is in my view a real question as to whether, in the context he was discussing, Oliver LJ's 'parts outright with his money' can confidently be read as meaning more than 'parts with the control of his money'. It may of course be said that his two following sentences lend support to the view that they can. But in my view there is at least an argument that the liquidators may have misinterpreted what Oliver LJ was saying in his paragraph 2.

All that said, in the oral argument counsel were apparently agreed that the key passage in Oliver LJ's paragraph 1 means what the liquidators say it means. In those circumstances, having expressed my own reservations, I consider that I ought not to express a different view as to what he was saying and shall proceed on the basis of counsel's agreed interpretation. I shall, therefore, say no more about Oliver LJ's observations in paragraph 1 beyond (i) repeating my recognition of the force of Mr Miles's criticisms of them, and (ii) agreeing with Mr Miles that they were anyway not part of the ratio decidendi of Sherratt. The ratio is in paragraph 2 and is exclusively as to the enduring preferential security entitlement enjoyed by a claimant in respect of money paid into court in circumstances such as those in Gordon, Ford, Dessau and in Sherratt itself. It is not about the proprietary interest, if any, in the money retained by the defendant. That was irrelevant to the decision in Sherratt.

The next authority is Halvanon Insurance Co Ltd v. Central Reinsurance Corporation and Another [1988] 1 WLR 1122, a decision of Hobhouse J (as he then was). Pearlberg was cited but Sherratt was not. In Halvanon, the defendants obtained from this court leave to defend the plaintiff's claims conditionally upon paying the whole sum in dispute into a joint bank account in the names of the parties' solicitors 'to abide the event of the action.' The fund was established, following which the plaintiff went into liquidation. The liquidator appointed new solicitors for the litigation, following which both sides' solicitors applied to have the fund put into their joint names. The plaintiff's former solicitors objected, asserting that it was by their work that the fund had been established, and they claimed a particular lien over it for unpaid costs. Hobhouse J granted the application for the fund to be put into the names of the parties' current solicitors.

Hobhouse J said, at 1126E, that the first matter to consider was the status of the fund and the relationship of the solicitors to it. He said it was 'appropriate to start by stating what is the character of a fund which has been paid into court as a condition of that defendant being given leave to defend under RSC Ord. 14, r.4'. I set out the material parts of what Hobhouse J then said about such a fund:

'Any such sum will normally be paid into court "to the credit of the action." It is thereafter governed by RSC, Ord. 22, r.8 which among other things provides that it shall not be paid out except in pursuance of an order of the court. However that rule also provides that where the party who has paid money into court has done so in pursuance of an order made under RSC Order 14 he may by notice to the other party in the action appropriate the money, or any part of it, to a particular claim made in the writ or he may plead tender and by his pleading appropriate the whole or part of the money to that tender, and in either case the money is thereafter to be treated as if it had been paid into court in accordance with Ord. 22, r.1 and/or Ord. 18, r. 16. The provisions of Ord. 22, r. 8 reflect the fact that the money although paid into court is still the defendant's money. The defendant has the general property in that money. Referring to the ordinary position where money has been paid into court under Order 22, Eveleigh LJ in Polish Steam Ship Co. v. Atlantic Maritime Co. [1985] QB 41, 50, said:

"generally money in court was not treated as belonging to the person claiming damages. He could take out the money in court, although if he delayed in doing so leave was required. He did not at the same time take out any interest which had accrued: the interest, if any, belonged to the person who had paid the money in."

…

The status of the money in court as the defendants' money and the nature of the rights which the plaintiffs have in respect of that money are further confirmed by cases concerning defendants who have gone bankrupt after making the payment into court. A plaintiff is still a creditor of the insolvent defendant but to the extent of the payment into court he is a secured creditor. The leading cases on the subject were followed and applied by Wright J in In re Ford, Ex parte The Trustee [1900] 2 QB 211 [from whose judgment Hobhouse J cited, after which he continued as follows]. The money in court has not ceased to be the property of the bankrupt but the plaintiff in the action has acquired the right to treat it as security for his claim. The right of the plaintiff is thus analogous to having an equitable charge on the money. The precise nature of the plaintiff's interest in the fund may depend upon the cause of action which he is asserting and the claim that he is making in the action. Where he is claiming in debt, or claiming an identified sum, there may be some basis for treating him as if he was in the position of asserting a title to the sum in court. Where the plaintiff's claim, as in the present action, is a claim for unliquidated damages no such proprietary interest could arise, and the plaintiff's interest can at best be of the nature of an equitable charge giving him a right after judgment to have recourse to that fund to satisfy his judgment.

The decision in Pearlberg v. May [1951] Ch 699 is consistent with these conclusions. [Hobhouse J then summarised the issue in Pearlberg, cited from the headnote in the report at [1951] 1 All ER 1001, which referred to the decision in the case that both vendor and purchaser had equitable interests in the fund and continued as follows.] In other words, even in such a case the payment in did not transfer the title to the money to the vendor or discharge the purchaser's liability. But it did give the vendor equitable rights in respect of the fund.

Therefore if this money had been paid into court to the credit of the present actions the position in my judgment would be that the money remained the general property of the defendants but was charged with whatever may be found to be the liability of the defendants to the plaintiffs. When the money is in court it is not necessary or profitable to consider the relationship of the court or its officials to that fund. The fund can only be dealt with in accordance with orders or authorisations of the court.

In the present case the money has not been paid into court but into a joint account in the names of the parties' then solicitors "to abide the event of the action." I consider that the use of this phrase is intended to create a situation which is equivalent to that where the money has been paid into court. The difference is simply a ministerial difference for the convenience and benefit of the parties. …'

Hobhouse J's explanation of the status of money paid into court by a defendant 'to the credit of the action' supports Candey's case and makes for unhelpful reading for the liquidators. Ms Toube submitted that the explanation was obiter because the money had not in fact been paid into court. I doubt that, because Hobhouse J's holding was that the payment to the solicitors was intended to create an equivalent situation and so his analysis of the character of a fund paid into court was directly material to his decision. Ms Toube also submitted that what Hobhouse J said about such character was wrong because it was inconsistent with what Oliver LJ said Sherratt.

Halvanon is an important decision. It was the product of a very distinguished judge and his observations are directly in point on the issue in the present appeal. The payment into court that Peak made was not of the same nature as that in Halvanon, but if property in the money paid into court in the typical case that Hobhouse J was discussing remains in the defendant, it must be even plainer that the property in the money paid into court by Peak for the two particular security purposes remained in Peak.

The liquidators do, however, derive support from Re Mordant, Mordant v. Halls [1996] 1 FLR 334, a decision of Sir Donald Nicholls V-C (as he then was). It arose in the wake of ancillary relief proceedings following a divorce. Rattee J, following a hearing in the Family Division on the wife's application for financial relief, made an order in October 1992 requiring £275,000 standing to the husband's credit in a Dublin bank account to be paid to the husband's solicitors, as it was. He directed that it was to be held 'to the order of the court', his intention being that it was to be so held pending his reserved judgment on the wife's claim for a lump sum payment. Sir Donald held, at 341, that the judge's purpose was to give the wife 'protection in respect of her claim similar to the protection she would have enjoyed had he ordered payment of the money into court.' Had it been paid into court, the wife's claim would have been regarded as secured by the payment, and Sir Donald referred to the Gordon, Ford and Sherratt line of cases. On 13 November 1992, Rattee J delivered his judgment and ordered the husband to pay the wife £385,000.

The wife claimed to look to the £275,000 held by the husband's solicitors towards payment of that sum. The issue before Sir Donald arose because immediately after the payment of the £275,000 to the solicitors, a building society creditor of the husband engaged in some swift footwork by which it sought to pre-empt the wife's claim to the money. It obtained a judgment against the husband on 9 November, served a statutory demand on 10 November, presented an expedited bankruptcy petition on 11 November and procured the appointment of an interim receiver on 12 November, who claimed the money held by the solicitors. A bankruptcy order followed on 8 December. The question for Sir Donald was who, as between the trustee in bankruptcy and the wife, was entitled to the money held by the solicitors.

Sir Donald's answer in the wife's favour, at p. 341, was that:

'… when the £275,000 odd … reached the husband's solicitors, it ceased to be part of the husband's own estate. Thus the interim receiver had no right to claim this money when he was appointed. He was no more entitled to claim this money than he would have been if this had been a sum of money in court.'

Sir Donald did not explain the reasoning for his first quoted sentence, but he had earlier made it clear that he was proceeding on the basis that the money held by the solicitors had the same character it would have had if it had been paid into court. His approach was therefore akin to that of Hobhouse J in Halvanon, although the report of Mordant does not record that Halvanon was cited. Sir Donald had earlier referred to Sherratt (as an authority for the security interest obtained by a claimant in respect of a payment into court) and it may be that he was here drawing on Oliver LJ's observations in what I have called his paragraph 1, although he did not say so. If he was, he was apparently interpreting such observations as carrying the width the liquidators attribute to them. Falling from a judge as distinguished as Sir Donald, his statement commands high respect. However, it appears that neither Pearlberg nor Halvanon was cited to him. The unanswerable question about Mordant is whether Sir Donald would have said what he did in his first quoted sentence if they had been. I add that, even if Sir Donald overstated the position in that sentence, it would not undermine his decision. I would, with respect, regard the final sentence of the quoted passage as plainly right: it reflected the security interest that the wife had in the money, which, in line with Gordon, Ford, Dessau and Sherratt, would prevail against the husband's trustee.

Cantor Index Ltd v. Alan John Lister [2002] C.P. Rep. 25 is a decision of Neuberger J (as he then was). He had to decide, in complicated circumstances, the status of money paid into court by the defendant. He was referred to Pearlberg and Halvanon, but not to Sherratt or Mordant, and so it is not surprising that his conclusion was that (p. 8):

'… the money in court is the defendant's property, but it is subject to a relatively flexible control of the court, which, on any application, must take into account the interests and rights and duties of the claimant, the defendant, and of Sporting and City and, at least arguably, of others, such as any Trustee in Bankruptcy of the defendant if he is made bankrupt, or the equivalent, strikingly called en desastre in Guernsey, or possibly any other creditor.'

The decision in Cantor is, so far as it goes, therefore favourable to Candey and adverse to the liquidators.

JKB Holdings Pty Limited v. de la Vega [2013] NSWSC 501 is a decision of Lindsay J in the Equity Division of the New South Wales Supreme Court. The application before the court was by the defendants for the payment out of money it had paid into court. The case has a parallel with this one in that the defendants had purportedly charged the money in court to their lawyers as security for fees owed. The money paid into court was the proceeds of sale of land of which the defendants were the registered proprietors. The original (and only) plaintiff claimed to have had an equitable charge over the land but its claim was disputed. The judge, at [17], described its claim as one 'in debt, coupled with a claim to an equitable charge over land by way of security for the alleged indebtedness of the defendants'. He said, at [18], that both sides claimed ownership of the disputed funds that were paid into court and, at [20], that:

'Even if, with the benefit of the Court's final judgment, the funds could, in retrospect, be said to have been owned by one side of the record or the other, or in particular proportions, the fact is that ownership of the whole was in dispute at the time the funds were paid into court, and neither side could be said, at that time, to have had more than rights contingent upon the Court's determination of their dispute…'.

Those facts distinguish the present case from JKB Holdings: there is no dispute that Peak paid its own money into court. In JKB Holdings most of the money in court had earlier been paid out to the plaintiffs following orders of September 2012 made after the trial. Just under $155,000 remained in court, which the defendants wished to have paid out to them so that they could pay their lawyers. Lindsay J explained his decision at [97]ff:

'97. My decision not now to make an order for payment out of the disputed funds has three bases. First, the funds in court were paid into court, and are retained in court, as "security" for any monetary liability that might be established in the proceedings, including a liability for costs. Secondly, the defendants, and their lawyers, have no property interest in the funds in court that mandates that they have "priority" over the plaintiffs in the due administration of the funds in court. Thirdly, as the plaintiffs' costs entitlements have yet, in the ordinary course, to be quantified in the pending assessment process there is no compelling reason to do other than await the completion of the process.

98. The defendants' application is no stronger for presentation in terms of a claim to a charge over funds in court granted to their lawyers. Even if the defendants had a proprietary right to payment out, any charge in favour of their lawyers was taken with notice of the fact of payment in and subject to orders of the Court for disposition of the funds. The defendants cannot dictate the fate of the funds in court by an ex post facto grant of a charge.

99. At least in proceedings in which parties have agreed that moneys be paid into court "to abide the order of the Court" in circumstances in which there is no pre-existing trust, the right of the claimant of funds in court may, generally, be a right to due administration of the funds in court, and a right to be heard about disposition of those funds, rather than a right of property: Harmer v. Federal Commissioner of Taxation (1991) 173 CLR 264, at 272-274.

100. Four points of present interest can be drawn from Harmer's case.

101. First, if funds paid into court are the subject of a pre-existing trust, the funds paid in remain (as between competing claimants to the fund) subject to the pre-existing trust notwithstanding the payment in: 173 CLR 272, 272-273 and 274.

102. Secondly, if the funds paid into court are not the subject of a pre-existing trust but are the subject of a disputed liability in debt, no party has an interest in the funds that is vested in interest or possession; each party has no more than an interest contingent upon orders of the Court; and competing claimants have an interest in the funds in the sense that they are entitled to insist that the funds be properly administered and applied for the purposes for which they were paid in: 173 CLR 272-273.

103. Thirdly, insofar as funds in court may be held on trust pursuant to legislation governing court practice and procedure, the trust may be regarded (subject to the terms of the legislation) as a trust for statutory purposes … and the interest of contributors to the fund (vis-à-vis the trustee) is an entitlement in equity to have the trust fund duly administered rather than a property interest in the fund in specie…

111. Fourthly (and by inference from the first three of these propositions), funds paid into court for a particular purpose associated, as it must be, with the administration of justice by the Court, are dedicated to that purpose and orders made by the Court in pursuit of that purpose. It is not open to claimants to the funds, by private agreement unattended by an order of the Court, to divert the funds away from a purpose to which they are dedicated or to override orders of the Court.'

Finally, I should refer to Lindsay J's statement, at [114], that:

'… a party cannot create or charge a property right to funds in court that does not exist; it can only deal with what it has or, as discussed in Norman v. Federal Commissioner of Taxation (1963) 109 CLR 9 at 24-34, by a contract to deal with "future property", what it might ultimately receive when funds are paid out of court. …'

I have cited from JKB Holdings at some length because Judge Davis-White QC said that it was the authority he found of most assistance. For my part, I have found it of little assistance. First, it is at most only of persuasive authority. Second, it includes no reference to the English authorities. Third, whilst Lindsay J concluded that the defendants had no property in the money in court, that decision appears to have been based on the fact that, as he explained at [20], the entitlement to such money as between the defendants and the original plaintiff was, from the outset, a matter of dispute such that neither had more than rights in it that were contingent upon the court's determination of their dispute, a point he made again at [102]. Fourth, his statement at [114] probably followed from his prior holding that the defendants had no property interest in the money paid in: and, as they did not, they had nothing over which they could create a present charge. Fifth, insofar as Lindsay J's judgment does contain dicta supportive of the liquidators' case, I do not regard them as outweighing what, as I shall explain, I regard as the clear thrust of the English authorities pointing the other way.

The next case is Peak Hotels and Resorts Limited v. Tarek Investments Limited and Others [2015] EWHC 386 (Ch), a decision of Henderson J (as he then was). It was a decision made in the course of the very litigation ultimately resulting in the present appeal and by which Henderson J ordered Peak to provide security for the costs of Tarek and Sherway in the total sum of £3.138m. One question Henderson J had to consider was whether any part of the US$10m that Peak had paid into court pursuant to Judge Pelling's order (in fortification of its cross-undertaking in damages) was available to Peak for making provision for the requested security for costs. Henderson J said, at [41], that while the US$10m remained in court, standing as the security aforesaid, 'it cannot in my view be treated as an asset currently available to [Peak] for any other purpose.' He said he agreed on this point with the analysis of Oliver LJ in Sherratt and he summarised the issue in that appeal. He then said:

'For present purposes, the relevant part of Oliver LJ's judgment begins at 1056G, where he expressly doubted the proposition (upon which the Court of Appeal had proceeded in an earlier case) "that money in court remains, as it were, an asset of the defendant which, on his bankruptcy, forms part of his property available for distribution.'

Henderson J then cited the material part of paragraph 1 of the passage from Oliver LJ's judgment that I have set out at [39] above. His conclusion, at [43], was that the money standing in court could not be regarded as an asset available to Peak unless and until the court made an order for a release to Peak of some or all of the US$10m. Henderson J's decision was, if I may say so, obviously correct but it does not advance the issue of whether the money in court was or was not money in which Peak had an existing proprietary interest. He was not required to answer that question and did not do so.

I come finally to the decision of this court in Emmott v. Michael Wilson & Partners Ltd (No 3) [2017] EWCA Civ 367; [2017] 1 WLR 4330. Of the cases cited to us, this is closest on its facts to the instant case and, mirabile dictu, it appears to be the first case concerning a payment into court in which the court was referred both to Sherratt and to Halvanon. Mr Miles submitted that Emmott binds us to decide this appeal in favour of Candey. Ms Toube submitted that the ratio of the case is narrower than Mr Miles would have it and that we are not so bound. I must explain the facts of the case, which I take from the judgment of court (to which all members of the court contributed), delivered by Simon LJ, who sat with David Richards and Hickinbottom LJJ.

Mr Emmott is a former director of Michael Wilson & Partners ('MWP'), a BVI company. In December 2013, he obtained an arbitration award against MWP for a sum exceeding £4m. MWP was also engaged in separate litigation in England with clients, or former clients, over the level of its fees: they were the Assaubayev parties ('the AP'). Sums were paid into court in that litigation by each of MWP and the AP. I derive from [32] of Simon LJ's judgment that MWP paid in £150,000 and that the AP paid in £166,000, the total thus being £316,000. Simon LJ explained at [7] and [8] that, on 20 November 2014, this court dismissed the AP's appeal and, on 2 December 2014, made orders for the payment out of court forthwith to MWP of: (i) the money paid into court by the AP as a condition of the grant of a stay of execution pending its appeal, and (ii) the money paid into court by MWP by way of security for the AP's costs on MWP's appeal from the costs master to the High Court. On the same day, 2 December, MWP completed form CFO 200, identifying (i) the sum ordered to be paid out as £316,000, plus interest, (ii) MWP as the payee and (iii) an MWP HSBC bank account reference to which the payment was to be made.

Three days later, on 5 December, Judge Mackie QC, in the Commercial Court, made a freezing order against MWP (I presume on Mr Emmott's application). The consequence was that none of the money in court ordered to be paid out on 2 December 2014 was actually paid out to MWP.

On 26 June 2015, Mr Emmott obtained a judgment on his arbitration award, which entitled him to enforce the award as if it were a judgment of the court. On 4 November 2015, he applied under CPR Part 72.10 for an order for the payment to him of the money standing to MWP's credit in court pursuant to this court's order of 2 December 2014. His application was heard by His Honour Judge Waksman QC. MWP opposed it. Its case in doing so, and also on the appeal, was that the money in court was not an asset of MWP because it was subject to a charge in favour of Kazholdings Inc ('KHI') to which MWP claimed to be indebted for at least $27m odd: see [14].

Simon LJ explained, at [15] to [21], that the origin and nature of the KHI charge, and the claimed indebtedness, were investigated before Judge Waksman and on the appeal. The authenticity of the loan documentation had been questioned by Mr Emmott and had been in issue for some time. The documentation showed that MWP had purported to give KHI a fixed and floating charge dated 23 November 1998, as amended by a debenture dated 9 January 2009. KHI's letter of 14 November 2014 asserted that Mr Emmott's application to appoint a liquidator of MWP had caused KHI's security interest over the charged assets to crystallise; and its letter of 24 November 2014 purported to give notice to MWP that it now had a fixed charge over all the money in court, which it said totalled about £316,000 plus interest accrued and accruing.

Simon LJ turned to, and explained, the court's decision on the first issue in the appeal, one as to the interpretation of CPR Part 72.10 which is not material for present purposes. He then turned to the second issue, which he explained in the following four paragraphs, which are of central relevance to the present appeal. They read:

'30. Having set out his views as to the proper approach to rule 72.10, the judge held, at paras 22–25, that once money was paid into court it was the equivalent of unencumbered cash. It followed, in the judge's view, that the right to receive the money did not constitute an asset of MWP and could not be the subject of a charge in favour of KHI. On this basis, even if the charges relied on by KHI were valid, there was nothing for them to "to bite on" unless and until the funds were credited to MWP's account; and that would not happen if Mr Emmott were able successfully to assert a claim under rule 72.10.

31. This conclusion gives rise to the second issue that arises on the appeal.

32. Mr Samek [leading counsel for MWP] submitted that where money has been paid into court it is still the judgment debtor's money, although the judgment creditor is entitled to treat it as security: see Halvanon Insurance Co Ltd v. Central Reinsurance Corpn [1988] 1 WLR 1122, 1126, 1127, per Hobhouse J. Thus the sum of £150,000 paid into court by MWP was MWP's property, subject to [the AP's] security interest, and the sum of £166,000 representing the sum paid into court by [the AP] remained their property, subject to MWP's security interest. Once the Court of Appeal made the order for payment out, MWP retained the interest in the fund it had paid in and acquired an interest in the sum paid by [the AP].

33. We accept this submission. As at 2 December 2014 (the date of the Court of Appeal's order for payment out to MWP of the money in court), MWP became entitled to that money. It became an asset of MWP or, to use the words of rule 72.10, it became money "standing to the credit of the judgment debtor in court".'

Those paragraphs require a bit of unpacking. Judge Waksman's view, as reflected in [30], was apparently that money paid into court is money in which no one has a property interest; MWP therefore had no such interest in it; and so, even if KHI's claimed charges were valid, as they were charges only over MWP's property they could not have given KHI any security over the money in court, which was not MWP's property. The earliest point at which KHI might be able to assert a claim to security over such money was when it was actually paid out to MWP; and that would not happen if Mr Emmott's claim to the money in court under Part 72.10 was upheld. We were not shown Judge Waksman's judgment but it appears this was the primary basis on which he upheld Mr Emmott's claim. I do not know whether his reasoning was influenced by Oliver LJ's observations in Sherratt.

Having set out Judge Waksman's approach, Simon LJ then said, at [31], that such approach gave rise to the second issue on the appeal. That issue was whether Judge Waksman was right in his view that the money in court, so long as it remained in court, was not an asset of MWP and so could not be caught by the KHI charge; and that it could only become so caught when actually credited to MWP's bank account.

The court considered that issue at [32] and [33]. Its conclusion at [33] was that Judge Waksman's view was wrong and that all the money in court became an asset of MWP as 2 December 2014, when this court made the order for the payment out to MWP. At that point, the money was also 'standing to the credit of the judgment debtor in court' within the meaning of Part 72.10.

There was a difference between Mr Miles and Ms Toube as to what the court had decided at [33]. One might think the obvious answer to that is that the court's statement at [33] that 'We accept this submission' meant that it was accepting the whole of Mr Samek's submission summarised at [32]. Ms Toube, however, disagreed. She said that, despite the first four words of [33], the court had not accepted all of Mr Samek's submissions, which she said were at odds with what this court had decided in Sherratt. Ms Toube submitted that all that the court was deciding at [33] was that the money in court did not become an asset of MWP until the date of the order for payment out, 2 December 2014, a conclusion which she said was consistent with Oliver LJ's observations in Sherratt and inconsistent with Mr Samek's submissions.

I respectfully disagree with Ms Toube. If she were right, it would follow that the court had in fact accepted none of Mr Samek's submissions, and one would expect it to have said so, and explained why, rather than saying the reverse. When the court said that it accepted 'this submission' it is in my view apparent that it was referring to the whole submission set out at [32]; and, therefore, that it meant precisely what it said.

Ms Toube is right that, in the second sentence of [33], the court held that, on the date of the order for the payment out of the money in court, 'MWP became entitled to that money'. It is, however, important to note that its reference to 'that money' is to all the £316,000 in court, including the £166,000 paid into court by the AP; and it is certainly the case that MWP did not become entitled to that £166,000 of the money in court before the order for payment out. What, however, Ms Toube's submission ignores is that the second sentence in [33] is in substance merely a repetition and restatement of the final step in Mr Samek's submission set out in the last sentence of [32]. That sentence carefully explains that, upon the order for payment out, 'MWP retained the interest in the fund it had paid in and acquired an interest in the sum paid in by [the AP]' (my emphases). The order for the payment out certainly made all the money in court an asset of MWP. But the court was clearly also accepting that the £150,000 paid in by MWP that formed part of it was already its property and therefore did not only become such upon the order for payment out. If, as is in my view plain, the court was accepting Mr Samek's submission in the final sentence of [32], it must also have accepted his prior submissions in [32], which led inexorably to his submission summarised in that sentence.

In my judgment, therefore, [32] and [33] reflect a clear acceptance by this court that the payer of money into court by way of security for the other party's costs retains the property in the money, although of course such interest is subject to the security interest that the payment in gives to the other party. The report in [2017] 1 WLR 4330 records that Sherratt was cited to the court but the judgment makes no mention of it. It is inconceivable that the citation of Sherratt did not include the two paragraphs of Oliver LJ's judgment quoted at [39] above. If so, the inference is that the court in Emmott did not regard them as relevant to its consideration of Mr Samek's submissions summarised in [32].

One may, though, perhaps wonder why Mr Samek, who was leading counsel for MWP, was advancing an argument that led to a conclusion at [33] that was apparently adverse to MWP's case on the appeal. The answer is that we know from [14] that MWP's case was that 'the fund in court was not an asset of MWP because it was subject to a charge in favour of … [KHI]'. I presume, therefore, that whilst Simon LJ's summary of Mr Samek's submission in [32] is accurate as far as it goes, the submission in fact went rather further, namely that although the money was 'standing to the credit of [MWP] in court', it should not be paid out to Mr Emmott because (a) it was MWP's existing property and so was subject to the KHI charge, and (b) KHI's interest in the money as a chargee was a factor which MWP was entitled to draw to the court's attention and of which the court was bound to take account.

That presumption is borne out by the remainder of Simon LJ's judgment. As for point (a), whilst the court was apparently suspicious of the validity of the claimed charge, it approached the appeal on the basis of an assumption that KHI did have a valid charge over the money in court: see [39]. As for point (b), this reflects what Simon LJ said at [51]. The reason why the court nevertheless rejected MWP's case that KHI's charge gave it a priority interest in the money in court sufficient to defeat Mr Emmott's claim was because KHI had shown, by its letter of 14 November 2014, that it was content for the money in court to be paid to MWP's HSBC current account and that 'until further notice … in order to allow MWP to carry on its business, MWP shall be entitled to continue to operate its current accounts …'. In light of that, the court held, at [41], that:

'By acquiescing in the payment of the moneys in the CFO to MWP's current account with HSBC, which would be subject to no more than a floating charge, KHI was precluded from asserting any right or interest that would defeat Mr Emmott's claim as a judgment creditor.'

Thus, whatever its suspicions, the court did not decide that KHI's claim to have a fixed and floating charge over MWP's assets was unfounded. On the contrary, for the purposes of the appeal, it assumed it did have such a charge.

As to whether the court's acceptance of the submissions summarised at [32] were part of the ratio decidendi of the court's decision, I doubt it. The court was ultimately concerned only to decide whether a charge that was assumed to cover the £316,000 standing to MWP's credit in court pursuant to the order of 2 December 2014 was a factor preventing an order under Part 72.10 for the payment out of that money to Mr Emmott. The decision was that it was not. The fact that, as the court held, MWP had always had a property interest in £150,000 of the £316,000 was not material to that decision. Nevertheless, the judgment of the court provides solid obiter support for Candey's case that MWP retained the property in the money it paid into court for the two prescribed security purposes.

Discussion and conclusion

The state of play on the authorities is in my view as follows. Pearlberg is a decision of this court that money paid into court by a purchaser under a Greenwood v. Turner order is (a) no more than in the nature of a security for the vendor's rights under an uncompleted contract of sale, and is money in which (b) the vendor acquires an equitable right under what is in substance an equitable charge, and (c) in which the purchaser also retains an equitable interest, probably to be explained by reference to his entitlement to the equity of redemption under the charge. I regard it as a binding decision of this court that the payer into court in such a case retains the property in the money so paid. That appears to be how Hobhouse J interpreted it in Halvanon. There is in my view no sound reason for regarding the present case as relevantly distinguishable.

Halvanon is cogent first instance authority that money paid into court as a condition of being given leave to defend remains the defendant's property subject to the security interest the payment in gives the claimant. Cantor is a decision in which Neuberger J took his lead from Halvanon and held that the money paid into court in that case remained the defendant's property. Emmott is a decision of this court providing express obiter support that the property in money paid into court by way of security for costs remains in the payer, subject to the security interest it gives the other party. It is wholly consistent with the decisions in Pearlberg, Halvanon and Cantor.

Sherratt is said to be authority to the effect that a payer of money into court thereupon parts with his property in it. I have expressed my own doubts that Oliver LJ was in fact saying that in his paragraph 1 quoted at [39] above. But, assuming that he was saying that, I would anyway not regard his observations in that respect as part of the ratio decidendi of Sherratt; and I would also regard them as inconsistent with the binding decision of this court in Pearlberg. Sherratt was not cited in Halvanon or in Cantor and, although it was cited in Emmott, the court made no reference to it even though it was deciding a point which is said to have been the subject of clear guidance in Sherratt. The inference I draw is that the court in Emmott did not regard Sherratt as having decided, or opined upon, the point.

Mordant is probably the only authority that can be said to provide clear support for the liquidators' case: it is to be found in the first sentence from the passage from Sir Donald Nicholls V-C's judgment quoted at [55] above. As a decision of Sir Donald Nicholls, it commands high respect. The view he expressed was, however, an unreasoned one, it was expressed in a decision that is not binding on this court, and I would, with great respect, not regard it as outweighing the binding and different effect of the decision of this court in Pearlberg and the clear, and also different, opinion expressed by this court in Emmott based on the cogent analysis by Hobhouse J in Halvanon.

As for JKB Holdings, for reasons given I do not regard it as of persuasive, let alone decisive, influence in deciding this appeal. The court has sufficient English authority to steer it to the correct answer.

In my judgment, the current of that authority flows firmly in favour of Candey and against the liquidators; namely, that the payer of money into court by way of providing security for the two purposes for which Peak paid in its money retains its property in the money, although of course (a) such interest is subject to the security interest that the payment gives to the defendants, and (b) the ultimate payment out of the money to one or other party (or both) is dependent on the making of a court order.

I would also regard such current as flowing in the correct direction. I regard it as counter-intuitive and contrary to principle that, upon the making of a payment into court by way of security for costs or by way of a fortification of a cross-undertaking in damages, the court should regard the party in whose favour such payment is made as obtaining a security interest in the money whilst regarding the payer as parting with his property in it, namely his equity of redemption. I do not understand why that should be so and it makes no sense that it should. If it is the position, we were shown no authority explaining why. If the payer does so part with his property interest, where does it go? It was not suggested that the court becomes a trustee of the money; nor would I accept that the court, or any other emanation of the State, becomes its beneficial owner. If the payer does so part with his property in the money, on what basis, when he wins the action, is he entitled to claim its repayment? He would at that point have no title to it. As I have noted, counsel in each of Gordon, Ford and Dessau supported the payer's case for the repayment to him of the money by submitting that it was the payer's money. According to the liquidators, each submission was wrong.

In my view, therefore, the various decisions of the court that support the view that the payer retains a property interest in the money have favoured a correct and principled view. I recognise that the payment in also gives the other party a security interest in the money and that the ultimate entitlement to the money in court is subject to an exercise of the court's discretion. If I may respectfully say so, however, Oliver LJ's statement in Sherratt that 'the money becomes subject entirely to whatever order the court may see fit to make' appears to me to be perhaps a slight overstatement of the uncertainties, if any, as to the ultimate destination of the money in court. In, for example, a case in which money is paid into court by way of security for a defendant's costs, such destination will be a simple binary choice: if the defendant wins, and recovers costs, he will be entitled to the money, or part of it; subject to that, it will be paid back to the claimant. Some cases may be more difficult, and even the seemingly easy cases might become so. But the ultimate destination of the money is not dependent upon anything akin to an unpredictable judicial lottery. In the light of the outcome of the litigation, it will in most cases be obvious what payment out orders the court ought to and will make.

Judge Davis-White QC concluded that Peak had an interest in the money in court in the sense that it was at least entitled to insist that the money in court was properly administered and that 'the court will at the very least treat the plaintiff as having an interest in the funds in court.' He regarded such an interest in the money as sufficient to entitle Peak to charge it. If he was wrong that Peak's interest was so limited, he held that its rights would be greater, not less. On either basis, Peak was able to and did grant Candey a valid charge over its money paid into court: see [93] to [99] of his judgment.

I regard the answer to the question raised by liquidators as simpler than the one the judge provided. I would hold that Peak retained the property in the money that it paid into court, the money thus continued to be one of its existing assets and so it was able to, and did, charge its interest in it to Candey by the charge. Having reached this conclusion, it is unnecessary to consider the alternative argument that was advanced to us in case the correct position is that the money in court was not an existing asset of Peak.

Disposition

I would uphold the judge's declaration in paragraph 1(b) of his order and dismiss the liquidators' appeal.

Lord Justice Henderson :

I agree.

Lord Justice Patten :

I also agree.