England and Wales High Court (Chancery Division) Decisions

IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
COMPANIES COURT

IN THE MATTER OF PEAK HOTELS AND RESORTS LIMITED (IN LIQUIDATION)
AND
IN THE MATTER OF THE CROSS-BORDER INSOLVENCY REGULATIONS 2006

		Royal Courts of Justice 7 Rolls Buildings Fetter Lane London EC4A 1NL
		23 June 2017

HH Judge Davis-White QC:

Introduction

1. This is an application by the joint liquidators (the "Liquidators") of a BVI incorporated company, Peak Hotels and Resorts Limited ("Peak"). The application is one to which the company's former solicitor, CANDEY Limited ("Candey"), is the respondent. The application is directed at establishing the efficacy of a charge granted by Peak to Candey.
2. Peak had a comparatively short life. Prior to liquidation its function was one of acting as an holding company. In effect, it held a 32% stake or so, through shares, in a joint venture vehicle. That joint venture vehicle owned the luxury Aman Resorts hotel group, a boutique luxury hotel group operating about 26 hotels internationally (the "Aman Group"). The Aman Group was purchased by the joint venture vehicle for approximately US $358 million in about January 2014. Shortly thereafter, Peak became involved in a plethora of international litigation. The litigation primarily concerned a breakdown of relations between the joint venture partners and control over the Aman Group. There were also disputes in relation to various contractual funding arrangements in relation to the same.
3. Peak was set up to acquire a stake in the Aman Group. Peak's majority shareholder was Peak Investment Limited ("PIL"). PIL is understood by the Liquidators to be beneficially owned by the family trust of a Mr Omar Amanat ("Mr Amanat"). Mr Amanat was a director of Peak until about September 2014. He is said then to have resigned, although there is evidence suggesting that he maintained some connection with Peak's affairs and management after this date.
4. Peak held shares in the joint venture vehicle, Peak Hotels and Resorts Group Limited (the "JVC"). The JVC indirectly owned the Aman Group. Peak's holding in the JVC was about 32.5%. The other joint venture partner was Tarek Investments Limited ("Tarek"). That company is also a BVI company. It is apparently controlled by a Mr Vladislav Doronin ("Mr Doronin"). Tarek held approximately 64.8% of the shares in the JVC.
5. The JVC held 100% of the shares in Aman Resorts Group Limited ("ARGL"). ARGL in turn held 100% of the shares in Silverlink Resorts Limited ("Silverlink"). Silverlink held the hotel assets of the Aman Resorts group.
6. Candey acted for Peak in connection with the litigation that I have referred to. The litigation extended to proceedings in the High Court in England, an arbitration under the Hong Kong International Arbitration rules but whose seat was in London and proceedings in the BVI courts.
7. To assist with Peak's cash flow, in October 2015, Peak and Candey reached an agreement regarding arrears owed to Candey and that, going ahead, Candey would be entitled to a fixed fee of approximately £3.8 million for legal services to be provided (the "Fixed Fee Agreement"). That fee was purportedly secured by a charge. The charge was registered in the BVI. By the time Peak entered liquidation, Candey had carried out substantial work for it. Based on Candey's usual hourly rates, that work would have been charged out at about £1.2 million on a time basis. In the liquidation, Candey claims to be a secured creditor for the full £3.8 million. By these proceedings, the Liquidators do not challenge the fixed fee as such. They do challenge the asserted security.
8. In effect, the applicant Liquidators seek determination of whether, and if so to what extent, certain sums of money are subject to valid charges in favour of Candey, securing its fixed fee. The submissions before me have focussed on three main issues: first, whether certain property is capable of falling, and does fall, within the relevant charge(s) under the charging document. Secondly, to the extent that property does fall within the relevant charge, whether the charge is fixed or floating. Thirdly, to the extent any charge is floating, whether s245 Insolvency Act 1986 applies so as to limit the sums secured. The Liquidators have reserved the right to challenge the charge on other grounds in case they need to do so at a later date.

The Procedural Background and Application of English law

9. Peak was incorporated in the British Virgin Islands ("BVI") on 14 January 2014. Eventually it was placed into liquidation in the BVI on 8 February 2016. The relevant winding up order is that of Bannister J (Ag) sitting as a High Court Judge of the Eastern Caribbean Supreme Court in the Commercial Division in the BVI. The applicants before me, a member of KPMG China in Hong Kong (Ms Bower) and the managing director of KPMG (BVI) Limited (Mr Crump), were appointed joint liquidators.
10. On 24 February 2016, by Order of Registrar Derrett, this court recognised the BVI liquidation proceedings in relation to Peak as a foreign main proceeding under Schedule 1 to the Cross-Border Insolvency Regulations 2006 (the "CBIR"). The CBIR give effect to the UNCITRAL Model Law on cross-border insolvency within Great Britain. The effect is that, subject to certain exceptions which are not relevant in this case, the joint liquidators are entitled to apply under the CBIR to obtain the same relief as if the liquidation were an English liquidation (see CBIR Schedule 1, Article 21 and e.g. In re Atlas Bulk Shipping A/S; Larsen v Navios International Inc [2012] Bus LR 1124 and contrast Fibria Celulose S/A v Pan Ocean Co Limited [2014] Bus LR 1041). It is on this basis that s245 Insolvency Act 1986 potentially comes into play (see Article 23 of Schedule 1 to the CBIR).
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 charge are held by the Liquidators within this jurisdiction.
12. The current application notice is dated 27 September 2016. There has been a number of procedural orders, varying the timetable for evidence initially laid down.
13. The evidence in the form of written witness statements has been extensive. The hearing bundle before me extends to 15 bundles with further bundles of authorities.
14. At the hearing the Liquidators were represented by Mr Robins of Counsel. Candey Limited was represented by Mr de Mestre of Counsel. I am grateful to both of them for their helpful submissions. I also express my thanks to the solicitors for the manner in which the bundles have been organised.
15. After the hearing of this matter I received further written submissions from each of Mr de Mestre and Mr Robins. These came in two tranches. Both tranches related to the issue of the status of payments into court and the ability to charge the same. The first tranche expanded on oral submissions and dealt primarily with Flightline Limited v Edwards [2003] 1 WLR 1200, Cantor Index v Lister [20002] C.P. Rep 25 and JKB Holdings Pty Ltd v de la Vega [2013] NSWSC 501. The second tranche dealt with the Court of Appeal decision in Emmott v Michael Wilson & Partners Limited [2017] EWCA Civ 367.

The Fee Agreement and the charging document

16. The Fixed Fee Agreement is a written agreement described as "Confidential Fee Agreement between CANDEY Limited and Peak Hotels & Resorts Ltd dated 9 October 2015", but signed on behalf of Peak on 10 October 2015 and by Candey on 21 October 2015. By the agreement Candey agreed to continue to act in various pieces of existing litigation and "other matters expressly agreed from time to time (including ongoing general advice). The Fixed Fee Agreement superseded and replaced any previous agreements between the parties in respect of fees (Clause 1). It was subject to an English choice of law clause and an exclusive English jurisdiction clause (clause 9). So far as not inconsistent, Candey's standard terms of business applied.
17. Clause 3 of the Fixed Fee Agreement records that, as a consequence of a number of developments, mainly connected with existing proceedings, Candey's previous estimate of costs:

"has been revised to £5 to £6 million. The actual figure could be significantly higher or it could be substantially lower if an early settlement is achieved."

18. Clause 4 of the Fixed Fee Agreement provides:

"4. [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".

19. Clause 5 of the Fixed Fee Agreement records that Peak would pay Candey's outstanding unpaid invoiced costs of just over £941,000 (the "Outstanding Costs") in tranches. Just over £341,000 was to be paid on signature of the agreement, £300,000 on 1 December 2015 and a final payment of £300,000 on 1 February 2016. Time was to be of the essence in respect of each payment. There was a further explanation of the Fixed Fee. In particular, the Fixed Fee excluded all disbursements for which Peak was to remain liable, including Counsel's fees.
20. Clause 7 provides:

"7. Any monies recovered by [Peak] from the date of this agreement (whether for costs or otherwise) will be applied by [Candey] towards the Outstanding Costs and/or the Fixed Fee and/or disbursements at [Candey's] discretion."

21. Clause 8 provides:

"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."

22. Clause 10 of the Fixed Fee Agreement provides for certain named lead members of the Candey team to be entitled to "Director's discounts" as if they were each a director. This "bonus" is to endure and bind all assignees and successors.
23. Clause 11 provides:

"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….."

24. The "Deed of Charge and Security", a draft of which was annexed to the fee agreement, was also executed by Peak on 21 October 2015 (the "Charging Deed"). It is necessary to set out this document almost in full. For convenience, I have inserted capital letters "A", "B" and "C" before the last three, unnumbered and unlettered, clauses. The key provisions 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;

(2) by way of fixed charge, any and all damages, costs, monies or other sums and/or benefits flowing from all claims including the specific claims set out in the Fixed Fee Agreement (including for the avoidance of doubt those costs orders made by Bannister J in the BVI on 17 October 2014 and 2 February 2015 which have not yet been assessed) together with all related rights title and interest; and

(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).

[A] save for the Deed of Charge dated 25 March 2015 (and related security) in favour of Campion Maverick, [Peak] warrants and agrees that it has not created, and will not create or permit to subsist, any other security or charge over the rights and monies protected by this Deed.

[B] [Peak] irrevocably agrees and instructs [Candey] to act with full powers (and shall instruct any other and or future lawyers to use their best endeavours to assist [Candey]) to ensure that any monies or benefits arising or payable in any Court proceedings in any jurisdiction shall be paid directly to [Candey] towards payment and discharge of any liability pursuant to the Fixed Fee Agreement prior to anyone else save for repayment of any bona fide liability due to Campion Maverick.

[C] in the event that any of [Peak's] rights title or interest in or to any monies or benefits covered by this Deed are assigned (which assignment shall require [Candey's] prior written consent) or awarded to a third party by Court order, or such monies are otherwise paid (contrary to the irrevocable instructions above) to a third party, that third party shall receive such monies subject to this Deed and subject to the discharge of all liabilities to [Candey] pursuant to the Fixed Fee Agreement….."

Assets alleged to be caught by the Charging Deed; the issues on this application

25. The two key assets over which Candey claims to be secured are:

(1) a sum of US $1.5 million (the "SCB Monies"), formerly held on trust for Peak in an account with Standard Chartered Bank ("SCB"); and

(2) a sum totalling approximately US $11,663,000 which has been paid out of court to Peak (the "Court Monies").

26. The evidence concerning the SCB Monies is that some US $3million was held by SCB in an account in the name of Aman Resorts Group Limited. That sum was held on trust for Peak and Tarek, the partners in the JVC, in equal shares. In connection with settlement of the litigation that I have referred to, the Liquidators procured an agreement between Peak and Tarek whereby those companies would co-operate to achieve the release of the US $3 million, with half going to each party. That release duly occurred and the Liquidators now hold US $1.5 million (plus interest) derived from that release.
27. The Court Monies came to be paid out of court and to the Liquidators in proceedings that I describe in more detail later in this judgment. The Court Monies derive from proceedings which have been described, as will I, as the "London Litigation".
28. Those proceedings both reflected and concerned a breakdown in relations between the ultimate joint venture partners and others that I have referred to earlier in this judgment. In the course of those proceedings Peak was ordered to pay sums into court (a) to fortify a cross undertaking in damages given by Peak as the price of interim injunctive relief and (b) to provide security to meet costs of defendants that Peak might be ordered to pay in the future. After their appointment, the Liquidators' assessment was that they could not continue the proceedings. In due course they were able to settle the same. One of the terms of settlement was that the sums paid into court by Peak should be returned to Peak. They have been so returned.
29. The Liquidators accept that the SCB Monies are charged under the Charging Deed. They say that the charge in question is floating, not fixed, and that s245 Insolvency Act 1986 applies so as to limit the scope or effect of such charge. As regards the Court Monies, they say that the same fall outside the Charging Deed on the bases that (a) Peak had no relevant interest in the monies until they were ordered to be paid out of court to Peak and (b) that at that stage, the monies represented the fruits of the labours of the Liquidators and so were not subject to the Charging Deed. If, and to the extent that, they are wrong about this, they say that the charge in question is floating and, for the same reasons as apply in relation to the SCB Monies, the charge is limited in its effect by s245 Insolvency Act 1986.
30. Candey says that there is a valid fixed charge in its favour over both sums of money and that s245 Insolvency Act (which only applies to floating charges) has no operation. If either charge is floating, Candey says that s245 of the Insolvency Act 1986 does not apply on the facts so as to limit the scope or effect of the charge. This primarily turns on the question of whether the condition of insolvency under s245 Insolvency Act 1986 is satisfied.

Other assets covered by the Charging Deed

31. In addition to the SCB Monies and the Court Monies the Liquidators have identified other assets that they might recover in due course and which may be subject to the Charging Deed. They ask that at this stage the Court rule in relation to those assets on the basis that the same sort of issues that arise in relation to the SCB Monies will arise in relation to such assets. The precise nature of these assets is unclear, as is the question of whether the Liquidators will make a recovery in respect of them. The asset appears to be some form of investment in or referable to land in the Turks & Caicos islands. Whether the investment is directly in land or in a company that owns land, and if the latter whether the investment in the company is directly through shares in the company or not and whether the company owns the land or an interest in the land directly or indirectly are all questions to which there appears to be no definitive answer at this stage. While I sympathise with the Liquidators' natural desire to resolve as many issues as possible in one application I do not consider it appropriate to deal with the position of such other putative assets at this stage. If the position is straightforward then, although not in terms dealing with those assets, this judgment (and any further judgment on the application) should provide an answer to the issues that may arise. If, however, the position is more complicated (for example charges in relation to interests in foreign immovable property arise) or raises other issues, then the danger is that any determination now would be found to be irrelevant or based upon incorrect assumptions. The court leans against deciding questions in a factual vacuum for good reasons and I see no reason to extend my determination to putative assets, which may or may not be recovered and about which the factual position is so unclear.

The various legal proceedings

32. There were three major sources of funding to the overall corporate structure of the Aman Group and its joint venture holders.
33. First, on 24 January 2014, Peak borrowed some US $35 million from Jinpeng Group Limited ("Jinpeng"). The borrowing was for the purpose of acquiring the stake in the Aman Group.
34. Secondly, on 31 January 2014, ARGL entered into a loan agreement with Pontwelly Holding Company Limited ("Pontwelly"). Under that agreement Pontwelly lent ARGL sums of approximately US $208 million. As security for the loan, ARGL provided Pontwelly with a pledge over ARGL's shares in Silverlink. Peak later asserted that Pontwelly was controlled by Mr Doronin.
35. Thirdly, on 2 April 2014, Peak borrowed US $50 million from Sherway Group Limited ("Sherway"). I have already described the joint venture between Peak (representing the interests of Mr Amanat) and Tarek (representing the interests of Mr Doronin). Under the joint venture arrangements, Peak was entitled to nominate two of the four directors of the JVC. One of its nominated directors was a Mr Johann Eliasch ("Mr Eliasch"). In about April 2014, Mr Amanat agreed with Mr Eliasch that Sherway, a company controlled by Mr Eliasch, would lend Peak the US $50 million. Related arrangements provided for some 53% of that loan to be converted into shares in a new intermediate holding company. The intention was that the new intermediate holding company would hold Peak's interest in the JVC. The result would have been that Sherway would have acquired an indirect stake of approximately 14% in the JVC. These related arrangements were never implemented.
36. The relationship between the partners in the JVC appears to have broken down very early on. Mr Amanat apparently approached a Candey entity for legal advice in connection with disputes as early as 24 April 2014. Not only that, but litigation occurred at an early stage in relation to the funding that I have referred to.
37. Jinpeng demanded repayment of the US $35 million loan by statutory demand served on Peak on 4 May 2014. Winding up proceedings in the BVI followed in September 2014. Part of the dispute revolved around the issue of whether the loan had been converted into equity in the JVC. There were related arbitration proceedings under the Hong Kong International Arbitration Rules. The winding up proceedings went to the Court of Appeal of the Eastern Caribbean before a winding up order was eventually made by the BVI Commercial Court in February 2016 as I have already mentioned.
38. Peak commenced the London Litigation in June 2014 in the Chancery Division of the English High Court against Tarek, the JVC and Sherway (among others). Further parties were added as defendants later on.
39. In broad terms, Peak's case in the London Litigation was that Mr Doronin, through Tarek, together with Mr Eliasch, had taken various steps to obtain control of Aman Resorts. Breaches of various contractual arrangements and the economic torts of unlawfully inducing breach of contract and conspiracy were relied upon. Sherway, it was alleged, had made misrepresentations to Peak and had induced or procured a breach by Tarek of the relevant shareholders' agreement governing the relationship between the partners in the JVC. One of the modes of seeking to take control was asserted by Peak to involve Sherway having served, improperly, an enforcement notice entitling it to acquire Peak's shares in the JVC at 80% of fair value. The defendants counterclaimed, in effect, that Mr Amanat was also seeking improperly to gain control of the Aman Group at a discount.
40. In the London Litigation, Peak obtained various injunctions in June and July 2014. The return date in relation to such injunctions took place in September 2014. By order of His Honour Judge Pelling QC, sitting as a judge of the Chancery Division, dated 19 September 2014, Peak was required to pay US $10 million into court to fortify its cross-undertaking in damages given to the court.
41. More detail about the BVI proceedings and the London Litigation is set out in judgments in the London Litigation, first of His Honour Judge Pelling QC (sitting as a judge of the Chancery Division), [2014] EWHC 3066 (Ch) and secondly, Henderson J (discussed further below), [2015] EWHC 386 (Ch).
42. In December 2014 Peak discovered that at least US $35 million of the money lent by Sherway had been misappropriated by two entities, Peak Venture Partners LLC and Peak Venture Partners (II) LLC. These entities were connected with Mr Amanat, who had ceased, at least formally, to be a director of Peak in September 2014. This resulted in further proceedings, conveniently referred to as the "Power Capital Litigation".
43. On 20 February 2015, Henderson J made an order in the London Litigation that Peak should provide £3,138,000 by way of security for the Defendants' costs which was paid into court.
44. In July 2015, Pontwelly demanded repayment of the Pontwelly Loan in full from ARGL, relying on an alleged event of default said to have occurred in February 2015. On 13 August 2015, purportedly pursuant to the relevant share pledge, Pontwelly appropriated ARGL's shares in Silverlink, transferring them to another company. In August 2015 Peak amended its claims in the London Litigation to seek relief against Pontwelly and others.
45. It was against this background that the Fixed Fee Agreement and Charging Deed came to be entered into on 21 October 2015. Prior to such agreements, and under its terms of business, Candey's invoices fell due for payment within 7 days. Arrears built up. On 8 October 2015, Candey sent an email complaining that "This firm is now owed in excess of £1.2 million." As I have mentioned the Fixed Fee Agreement in terms dealt with then outstanding unpaid invoiced costs of £941,358.94.
46. When Peak entered liquidation in February 2016, the London Litigation was at a critical stage. 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 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.

Monies in court: the submissions regarding status

47. As I have said, the Liquidators rely on two propositions in combination. First, that Peak, which made the payments into court in this case, had no interest in such sums that it could charge unless and until payment out was ordered. Secondly, that given there was no property interest of Peak in the monies in court, payment out in this case was achieved by the work of the Liquidators and is an asset generated by them in the liquidation, in effect as a liquidation asset, which falls outside any charge of company property. Candey denies both connected propositions.

Monies in court: the authorities

48. As regards the status of monies paid into court I was referred to a number of authorities. It is extremely important in this area not to take descriptive passages in judgments out of the context of the specific issue the court was being asked to decide. There are two rather different threads running through the cases. The first thread is the question of whether a person making a payment into court is entitled to withdraw the same and whether the payment in confers rights or potential rights on other persons which the court will recognise in determining to whom such sums should be ordered to be paid, and if so, to what extent. The second thread is the jurisprudential nature of monies in court. Are they held on trust or is the court in an analogous position to an executor or administrator of a deceased's estate, so that there is an obligation to administer the same according to law, a right of parties interested to seek and obtain such administration but no distinct proprietary interest in the fund on the part of any party unless and until payment out is ordered?
49. In Polish Steam Ship Co. v Atlantic Maritime Co. [1984] 1 Q.B. 41, the Court of Appeal was dealing with a limitation action in relation to a ship owners' liability. Such an action, if successful, limited the liability of a shipowner, pursuant to statute, to a sum calculated by reference to a formula of so many gold francs for each ton of the ship's relevant tonnage. Under the relevant legislation, the conversion rate from francs to pounds Sterling could be set by statutory instrument. That rate could change. To protect against a fall in value of sterling in relation to the gold franc, statute provided a mechanism for payment into court prior to determination of limitation proceedings. Payment into court of the correct sum by reference to the then exchange rate would result in the subsequent ascertainment of the limitation amount, if the limitation action succeeded, not being affected by variations in the specified exchange rate subsequent to the payment in. In the absence of a payment in, the liability would be limited in accordance with the formula, and the then prevailing rate of exchange specified by statutory instrument, together with simple interest thereon from the date of collision to the date of decree.
50. In the case in question a payment into court had been made by the plaintiffs as owner of the relevant vessel. By the time that judgment was given in the action, the sum in court comprised three elements. First, a sum of just over £395,000, being the amount of the limited liability in damages of the plaintiffs as owner of the vessel computed by multiplying the relevant tonnage by the appropriate sum fixed by the statutory instrument in force at the time of payment in. Secondly, simple interest on that sum from the date of collision to the date of payment into court, comprising a sum of just under £297,560. Thirdly, interest accumulated on the first and second sums from the date of payment into court. That interest was substantial and had already reached a figure of just under £535,000 some 15 months before the hearing in the Court of Appeal. Parker J had granted the defendants' application that they were entitled to the entirety of the third sum. The Court of Appeal disagreed.
51. Eveleigh LJ accepted that in other actions,

"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 question was whether, as submitted, there were peculiar features in a limitation action and the jurisdiction of the Admiralty Court which gave a special status to money paid in.

52. Eveleigh LJ then explained that where there was no payment into court prior to trial in a limitation action but the matter proceeded to trial and a limitation decree was made in favour of the plaintiff, the practice was to order that the limitation decree should take effect from payment into court of the ascertained limited sum plus interest thereon from the date of the collision. Thereafter the fund was available to the claimants and so was interest earned upon it. "However, although the funds might then be said to "belong" to the claimants it does not follow that the same can be said of monies paid into court" (emphasis supplied); that is, monies paid into court prior to the limitation decree with a view to removing the threat of currency conversion risk.
53. As is clear from the judgment of Kerr LJ, the defendants abandoned the contention that they had obtained something in the nature of a proprietary interest in the fund in court from the time that payment in was made. However, they submitted that they were entitled to payment out of the whole of the funds in court "as a matter of right". Part of the submissions in this respect appear to have been that the plaintiffs, on making the payment into court, had somehow "walked away" from the fund and "somehow divest themselves from having any right in relation to the funding in court after the payment in". As Eveleigh LJ put it, the argument seems to have been that once the payment into court had been made the plaintiffs had divested themselves of any further interest in it and constituted it a limitation fund which should be dealt with in the same way as the court treated the total fund when paid into court following the making of the limitation decree.
54. This argument was rejected. Considering the matter as one of the court's discretion, Kerr LJ accepted that the defendants remained entitled to part of the interest constituting the third component of the fund in court, namely interest arising between the date of payment in and the date of pronouncement of the limitation decree. The Court decided that the entitlement to interest in question was to simple, rather than compound, interest on the limitation amount and not additionally on the simple interest forming the second element of the fund in court. As Eveleigh LJ put it, "In my opinion, therefore, if we do treat the payment into court as constituting a limitation fund it does so only in relation to the limitation figure and can only be treated as "belonging" to the claimants once the right to limit liability has been established." (emphases supplied).
55. Although the focus was on any entitlement of the defendants to the limitation action in relation to the monies in court, it was also submitted, on behalf of the defendants, that there was no power in the court to make an order for payment out of court to the plaintiffs. This submission was rejected. As Kerr LJ put it, the relevant rule contained "no restriction as to the parties in whose favour payment out may be ordered."
56. The case of W. A. Sherratt Ltd v John Bromley (Church Stretton) Ltd [1985] 1 Q.B. 1038 was decided by the Court of Appeal a matter of months after the Polish Steamship case. In that case money had been paid into court in satisfaction of the plaintiff's claim. In broad terms the question was whether, as determined by Hutchison J, the defendant's application to withdraw the money in court should be permitted. Since the payment in, in that case, the defendant had gone into liquidation. Hutchison J held that the money should be paid out to the defendant, so that, in effect, the plaintiffs were not preferred by being placed in the position of a secured creditor in the defendant's liquidation.
57. The Court of Appeal, in allowing the appeal, held that although the plaintiff had not accepted the payment in it was nevertheless to be treated as a secured creditor to the extent of the payment in and that the court, as a matter of discretion, would not order repayment to the defendant of the sums in court. The court determined that it had to decide between two inconsistent lines of authority. The first, described as being the In re Gordon [1897] 2 QB 516 line of cases, being the line that it endorsed, supported the proposition that "where a defendant pays money into court in satisfaction of the plaintiff's claim, the plaintiff, albeit he has not taken the money out, is nevertheless treated as a secured creditor to the extent of the monies in court in the ensuing bankruptcy of the defendant." (emphasis supplied: see per Oliver L.J. at 1043H). The second, illustrated by Peal Furniture Co. Ltd v Adrian Share (Interiors) Ltd [1977] 1 W. L. R. 464., viewed a plaintiff who had refused a payment in as being "an unsecured creditor who ought not to be allowed to become secured" (see at page 1048H).
58. In rejecting the Peal Furniture case, Oliver L.J., with whom the other two judges agreed, identified two propositions upon which judgments in that case proceeded which appeared to him to be open to doubt (see 1056H). Of these:

"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 this 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 R.S.C., 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 subject entirely 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.

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 defendant's 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."

59. In Halvanon Insurance Co Limited v Central Reinsurance Corporation [1988] 1 W.L.R. 1122, the defendants disputed liability in two actions brought by the plaintiffs, who were claiming damages under reinsurance treaties. On an appeal by the defendants against an award of summary judgment, the Court of Appeal granted permission to defend conditional upon payment of the whole sum in dispute into a joint bank account held in the name of the parties' solicitors "to abide the event of the action". The account was set up and the monies paid in. The plaintiff went into liquidation and appointed new solicitors. The parties applied for the monies to be placed into the joint custody of the plaintiff's new solicitors and the defendant's solicitors. The plaintiff's former solicitors opposed the application and claimed a lien over the fund for unpaid costs. Hobhouse J determined that the sums should be placed into a joint account in the names of the plaintiff's new solicitor and the defendant's solicitor. He held that, although the sums had not been paid into court, the relevant words of the order created a situation equivalent to that where monies were paid into court. "The difference is a ministerial difference for the convenience and benefit of the parties". However, it did not give the two firms of solicitors any rights or interest over the fund. They were simply officers of the court and bare trustees.
60. In considering the nature of a payment into court where monies are paid in to abide the result of an action, Hobhouse J referred to Pearlberg v May [1951] Ch 699 where it was held that a payment into court, pursuant to a court order. by a purchaser of land seeking specific performance gave the vendor equitable rights in respect of the fund. Had the money in the present case been paid into court the position in Hobhouse J's assessment would have been 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" (page 1128E).

Although not referring to Sherratt, Hobhouse J referred to the principle applied in Sherratt and the line of authority identified by Oliver LJ regarding a plaintiff's security interest, in the case of a payment in by a defendant, who later becomes bankrupt, to the credit of an action: "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" (page 1127H). Hobhouse J's explanation of ownership and charges as between the defendant and plaintiff respectively has to be read, however, in context.

61. In the case before him, Hobhouse J said that the sums in the bank account were held on a trust:

" "to abide the event of the actions." The beneficiary of the trust is primarily the defendants but the trustees are also affected by and are bound to have regard to the equitable charge of the plaintiffs. But it is probably not appropriate to discuss the position in terms of beneficiaries since the trustees are, under this form of order, simply holding the account on behalf of the court"

62. As regards a payment into court, having said that the position would have been that the money remained the general property of the defendants but charged with whatever might be found to be the liability of the defendants to the plaintiffs (at 1128E, referred to above), he then went onto say:

"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".

63. So far as the asserted solicitor's lien was concerned, Hobhouse J made clear that the same did not depend in terms upon the solicitor having possession of property, as is the case with a possessory lien. Rather the right enabled the solicitor to have his fees satisfied from recoveries by his client. As regards funds in court therefore:

"So long as the plaintiff's rights in respect of the relevant fund remain unascertained and contingent, the solicitor's indirect rights are equally unascertained and contingent; but it could be said without an abuse of language that, in so far as the plaintiff has an equitable charge on the fund, so also does the solicitor have an equity in the fund to the extent of his relevant fees. However, as I have previously stated, it is not necessary to formalise the situation in such language; the fund is under the control of the court and the court can by its own orders ensure that, at the time any sum is paid out, the payment out takes proper account of whatever equitable rights the solicitor has" (at 1131B).

64. He later described the plaintiff's right as being:

"of the nature of an equitable charge by way of security for his claim and the solicitor also has an equity which attaches to the plaintiff's interest and which the solicitor is entitled to have taken into account whenever it is necessary to do so in order to protect his interests" (at 1133F).

65. In Re Mordant, Mordant v Halls [1996] 1 FLR 334, Sir Donald Nicholls V-C was dealing with the interaction between a lump sum payment order made against a husband in ancillary relief proceedings and the husband's bankruptcy. In the course of a hearing on 22 October 1992 before Rattee J, it had emerged that a sum of £275,000 was standing to the credit of the husband in a bank account in Dublin with the Allied Irish bank. The judge ordered the sum to be paid by the husband to his solicitors. At this stage, the husband owed a substantial sum of money to the Cheltenham & Gloucester Building Society (the "BS"). The BS obtained a freezing injunction against the husband in anticipation of proceedings in the High Court which were later commenced and taken through to judgment, which was not opposed by the husband. The BS initiated bankruptcy proceedings against the husband shortly afterwards. An interim receiver was appointed by the bankruptcy court. His functions included getting in and protecting all the assets of the husband, including the money directed by Rattee J to be paid to the husband's solicitors. On 13 November 1992, Rattee J made an order for a lump sum payment by the husband to the wife.
66. The first question before the Vice Chancellor was whether the money held by the husband's solicitors when the bankruptcy petition was presented in November 1992 was still the husband's "property" for the purposes of section 284 (1) of the Insolvency Act 1986. He found that, on 22 October 1992, the judge had directed that the Allied Irish Bank money should be paid to the solicitors to be held by them "to the order of the court" and that in so doing his purpose was to afford 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. He considered that the judge's order was apt to achieve that purpose. Had the judge ordered payment into court in the view of the Vice Chancellor the case would be indistinguishable in principle from that under authorities such as the Sheratt case: "the money would be earmarked as the source for any lump sum payment just as much as a payment made into court in satisfaction of an order giving leave to defend conditional upon the provision of security". Although there was no absolute certainty that the judge would direct that the lump sum payment should be made from the Allied Irish Bank money held by the solicitors to the order of the court this did not detract from the conclusion that,

"in the solicitors' hands as much as if it had been paid into court, the money was beyond the reach of the husband. It was subject to whatever directions the court might give in the pending family proceedings. Neither in practice nor in law was the husband able to dispose of the sum in question.

Accordingly, in my view when the [relevant sum] 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 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."

67. In the Matter of Cantor Index Ltd v Alan John Lister [2002] C.P.Rep. 25 Neuberger J had to deal with the question of the status of monies paid into court in the following circumstances. C had sued L for the recovery of some £169,000 and on the day of issue of the claim form had obtained a freezing order against L. The freezing order provided that L could discharge the same by providing £200,000 security, either in the form of a payment into court or by another method agreed with C's legal representatives. L's statement of assets made in the compliance with the freezing order identified, among other things, sums in an account with each of M and S. C obtained final judgment against L. To satisfy the judgment debt, C obtained a garnishee order nisi in respect of the monies held in L's accounts with M and S. At the return date, for the making of the garnishee order absolute, and upon hearing representations from SIL and CI, two other companies which had obtained money judgments against L, the deputy master discharged the garnishee order nisi and ordered that all monies held by M and S and owing to L be paid into court. L applied for an order that sums paid into court by M be paid out of court to his solicitors so as to allow him to meet ordinary living expenses and reasonable legal costs as permitted by the freezing order. One issue was the status of the monies paid into court by M and S.
68. As I read the judgment of Neuberger J, the question with regard to the money paid into court was whether the money was to be treated as paid into court simply to secure the claimant's judgment or that it was to be treated after payment in as being the defendant's money that he was free to deal with subject only to the freezing order or, as held by Neuberger J, that it was paid in,

"to protect the interests of the claimant, but also those of [SIL and CI] under their respective judgements, and possibly also to take into account the interests of other creditors of the defendant, and indeed of the defendant himself….

The money was paid into court on the basis of the court having a relatively wide discretion as what to do that, in the event of an application, but, in exercising its discretion, the court must take into account not only the interests of the claimant but also the interests of the defendant and of [SIL and CI] (and, possibly, of others). That's to my mind gives best affect the meaning of the terms of the order of 7 November, and takes into account the very unusual circumstances in which the money was paid into court.

Accordingly…. 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 [SIL and CI] 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."

69. Having considered the question of what sums L was properly to be allowed to claim under the relevant proviso to the freezing order and determined that these were past legal costs, future legal costs, and future living expenses, Neuberger J indicated that if there was no other source of payment he was prepared to consider ordering payment of such sum from the monies in court. However, he would want further argument first. In particular, he considered that C and SIL and CI would potentially be prejudiced by any such payment and that they were entitled to some degree of protection over and above the freezing order given, among other things, the circumstances in which the money was paid into court.
70. In Flightline Ltd v Edwards [2003] 1 WLR 1200 the applicant had obtained a freezing injunction in proceedings brought by it against a company. By a consent order the freezing injunction ceased to have effect on payment, on the company's behalf, of a sum of just over £4.2 million into a bank account in the joint names of the parties' solicitors. By an undertaking scheduled to a further consent order, the company undertook not withdraw or in any way dispose of or deal with or encumber its interest in the monies in the joint account up to a limit of just over £3.3 million until further order of the court or written consent of the two firms of solicitors. Subsequently the company became subject to insolvency proceedings and provisional liquidators were appointed. The applicant sought permission under section 130(2) of the Insolvency Act 1986 to continue its action on the ground that it was a secured creditor in relation to the sum of just over £3.3 million. The judge granted the applicant permission to proceed on the ground that the sum in the joint account up to the amount of £3.3 million was held as security for its claim. The Court of Appeal allowed the appeal. It held that there was nothing in the agreement, express or implied, requiring the company to satisfy any judgment obtained by the applicant out of the sum held in the account; there was nothing in the consent order to indicate the parties intended anything other than continuing interim protection of a freezing nature and the freezing order of itself created no security rights over the assets that were from time to time subject to it. In the absence of security the applicant should not have been granted permission to proceed with its claim.
71. In JKB Holdings Pty Ltd v de la Vega [2013] NSWSC 501, the New South Wales Supreme Court, Equity Division, considered the status of payments into court under the relevant New South Wales law and procedure. In that case the plaintiff claimed to be the equitable mortgagee of a property owned by the defendant. The mortgage was said to secure capital and interest of approximately Aus $780,000 plus daily interest. The predominant purpose of the mortgage was said to have been to finance the purchase of the defendants' residence. The defendants disputed this debt. They wished to proceed with a sale of the property in question. The defendants initially gave an undertaking that $800,000 of the proceeds of sale of the property were to be paid into their then solicitor's trust account, to be held subject to joint instructions from the parties or order of the court. By a court order made on 9 July 2010 the undertaking was discharged and the defendants and their solicitors were ordered to pay a sum of just over $791,000 into court from the sale of the property within seven days of settlement of the sale. Judgment was granted in favour of the plaintiff. Payments out were made from the funds in court. The defendants then made an application for payment out of the residue of the sums paid into court (about$155,000). That application was supported by reference to evidence of charges granted by them to their lawyers over the funds in court. The charges were granted after the payment into court. The defendants sought payment out to enable them to pay sums owing to the lawyers.
72. For present purposes, the first relevant argument was that the sums had been paid into court simply to secure the sums claimed to be secured by the equitable charge, that is the principal debt plus interest, and not the costs of the proceedings. Leaving aside any charge to their lawyers, the defendants asserted an absolute right to return of the residue. As a matter of construction of the relevant court order, Lindsay J disagreed. He followed the approach of Brereton J in an earlier case: "that where… parties [have not given] close attention to the precise scope of what [a fund paid into court] would secure, the preferable view is that it was intended to secure any monetary liability of one to the other that might be established in the proceedings, which includes any costs order." That purpose, said Lindsay J, "continued to govern the retention of funds in court and any prospective payment out".
73. Lindsay J. decided that the funds should remain in court pending determination of any monetary liability of the defendants for costs of the plaintiff. As in England, he held that there was authority for description of funds in court as a form of "security" for payment of monies found to be due by the defendants to the plaintiffs. The defendants, he held, had no property interest in the funds in court but in common with the plaintiffs they had an interest in the due administration of those funds. He held that the charges taken by the defendants' lawyers might operate to charge such, if any, funds as might be paid out to the defendants by future order of the court, but that those charges provided no advantage to the defendants in procuring such an order in their favour and conferred no priority on the defendants, or their lawyers, vis a vis the plaintiffs. If, contrary to his primary finding, the charges might otherwise have effected a charge over the funds in court, then they had to be construed as having an operation subject to orders of the court. That was because their subject matter was "funds in court" and, by its nature, that subject matter was subject to orders of the court in management or disposition of the funds.
74. The status of the funds in court in this case arose, and has been considered judicially, in the London Litigation itself. I have mentioned the security for costs applications already. Some of the defendants in the proceedings launched applications for security for costs against Peak. Peak also cross applied for security for costs. Interestingly, the security sought by Tarek, the Sherway defendants, and Peak, after applying a discount of about 35% to their estimates of the relevant costs, amounted to around £3.77 million, £3 million and £1.3 million respectively. Under CPR r. 25.13, one of the conditions which had to apply before such an order could be made in relation to Peak was that there was "reason to believe that it will be unable to pay the defendant's costs if ordered to do so". The matter came before Henderson J. He gave judgment on 20 February 2015, Peak Hotels and Resorts Limited v Tarek Investments Ltd [2015] EWHC 386 (Ch). As the judge identified, the time when the question of inability to pay costs would arise is when judgment was handed down after trial of the action, and on the assumption that Peak would have failed to make good its claims. The evidence as to such inability or otherwise put forward by Peak was found to be inadequate in a number of respects there being no "accounts, audited or otherwise, nor any other detailed evidence from a person able to speak with first-hand knowledge to its current and probable future financial position."
75. One of the assets relied upon was the US $10 million paid into court, pursuant to the undertaking given to the court in September 2014 to fortify its cross- undertakings in damages.
76. Following the dicta of Oliver LJ in the Sherratt case, Henderson J decided that,

"while the money remains in court, standing as security for [Peak's] cross undertakings in damages, it cannot in my view be treated as an asset currently available to [Peak] for any other purpose….. I am satisfied that the money standing in court cannot be regarded as an acid available to [Peak] unless and until an application is made by [Peak] for some or all of the money to be released to it, and the court accedes to the application. Mr Brisby QC submitted on behalf of [Peak] that US $10 million is now far in excess of any possible exposure of [Peak] pursuant to the cross-undertakings, but the fact remains that no such application has yet been made."

77. The status of monies paid into court has more recently been considered by the Court of Appeal in the case of Emmott v Michael Wilson & Partners Ltd [2017] EWCA Civ 367. In that case the claimant, Mr Emmott, was a judgment creditor of Michael Wilson & Partners Ltd ("MWP"). Judgment on an arbitration award had been made on 26 June 2015, giving leave to Mr Emmott to enforce the award as if it were a judgment of the court. In separate proceedings, Assaubayev v MWP, a sum was standing to the credit of MWP and held by the Court Funds Office. Mr Emmott applied for an order under CPR Part 72 that a sum of £317,000 plus interest paid into court and standing to the credit of MWP be paid out in part satisfaction of his judgment against MWP.
78. The total sum paid into court in the Assaubayev proceedings comprised two elements. The first was a sum paid into court by MWP as security for the costs of appealing a decision of the Costs Master. The second was a sum paid into court by the Assaubayev parties as a condition of the grant of a stay of execution of MWP's judgment pending appeal. On 20 November 2014, the Court of Appeal dismissed the Assaubayev parties' appeal. On 2 December 2014 it made various consequential orders. These included orders for payment out forthwith to MWP of (i) the sum of £100,000 paid into court by the Assaubayev parties and (ii) all sums paid into court by MWP. It was MWP's case that the fund in court was not an asset of MWP because it was subject to a charge in favour of a company called Kazholdings Incoporated ("KHI") to which MWP was said to be indebted in the sum of either just under $28 million or just over $33 million.
79. The judge below, His Honour Judge Waksman QC (sitting as a judge of the Commercial Court), held that once money was paid into court it was the equivalent of unencumbered cash. The right to receive the money did not constitute an asset of MWP. It could not be the subject of a charge in favour of KHI. Assuming the charge otherwise to be valid, there was nothing for it "to bite on" unless and until the court funds were credited to MWP's account.
80. The Court of Appeal accepted the submission of Mr Samek, counsel for MWP, that where money has been paid into court:

"[32]….it is still the defendant's money although the claimant is entitled to treat it as security, see Halvanon and Insurance Co. Ltd v Central Reinsurance Corporation [1988] 1 WLR 122 at 1126H and 1127H, per Hobhouse J. Thus the sum of £150,000 paid into court by MWP was MWP's property, subject to the Assaubayev parties' security interest, and the sum of hundred and £166,000 representing the sum paid into court by the Assaubayev parties 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 in by the Assaubayevs.

[33] ….. As at 2 December 2014 (the date of the Court of Appeals order for payment out to MWP of the money in court), M WP became entitled to that money. It became an asset of MWP or, to use the words of part 72.10, it became money "standing to the credit of the judgement debtor in court. ""

81. The submission of MWP was that Mr Emmott's application should be dismissed and that the money should be paid out to MWP notwithstanding the asserted rights of KHI. The Court of Appeal noted that, even assuming in its favour that KHI had the benefit of a fixed charge over the money in court, it had expressly agreed in writing that until further notice, in order to allow MWP to carry on its business, MWP should be entitled to continue to operate its current bank accounts. It was content that the money from court should be paid into that current account. In those circumstances the charge over such bank account was a floating charge, freedom on the part of MWP to operate its current bank account being inconsistent with a fixed charge over those accounts. Accordingly, KHI "was precluded from asserting any right or interest that could defeat Mr Emmott's claim as a judgment creditor".

Liquidator generated assets: the authorities

82. In conjunction with the authorities relating to the status of monies paid into court, Mr Robins relied upon a series of cases demonstrating the proposition that where officeholders generate assets within the relevant formal insolvency process, such assets are not assets of the insolvent, which fall within any charge the insolvent may have granted, but rather assets generated by the officeholder and falling to be dealt with as part of the insolvent estate. A classic example of this principle in application is the statutory rights conferred on officeholders to challenge past transactions pursuant to, for example, sections 238 (transactions at an undervalue) and 239 (preferences) Insolvency Act 1986. Such rights are conferred on and realised by the officeholder. They are not company assets and will not fall within charges granted by the company prior to entry into the relevant formal insolvency regime. On the other hand, the rights conferred on liquidators by section 212 Insolvency Act 1986, are only a procedural benefit. The rights enforced under section 212 are existing rights of the company. Those rights and all the proceeds of any realisations thereof form part of the company's assets, even though it is the efforts of the liquidator which will have turned them to account.
83. Leaving aside the statutory causes of action specifically conferred on the officeholder, the cases demonstrate that, where the officeholder decides to carry on the business of the insolvent, the profits, although falling to be dealt with as part of the insolvent estate are not themselves assets of the insolvent and accordingly they fall outside any charge granted by the insolvent prior to entry into formal insolvency.
84. In Ex parte Nichols, In re Jones (1883) 22 Ch.D.782 the question was whether an assignment of future receipts of the business made by a trader was inoperative against his trustee in bankruptcy as regards receipts accruing after commencement of the subsequent bankruptcy. The two partners, who subsequently became bankrupt, had been lessees of the Alexandra Palace. They had entered a verbal contract with the Great Northern Railway Company. Under that contract the railway company agreed, in effect, to sell combined tickets for the railway journey and the admission fee to the Alexandra Palace. This was on the basis that they would pay the partnership a proportion of the gross sums so received. The partners, by way of security, subsequently assigned for advances made to them the sums then due and thereafter to become due and owing from the railway company on trust to apply the same in payment of the debt due to the third-party and any surplus to the partnership. Notice of the assignment was duly given. The partners entered into bankruptcy on a liquidation petition. The receiver and manager of the business claimed from the railway company the partnership's share of the relevant ticket proceeds from the date of filing of the liquidation petition. The receiver and manager was subsequently appointed the trustee. He carried on the business of the partnership from the date of his appointment as receiver manager for just short of a month. The secured creditor claimed the partnership's share of the ticket prices that had been claimed by the trustee under the assignment. The Court of Appeal overturned the decision of the Chief Judge in Bankruptcy, Mr Registrar Brougham, and held that the trustee was entitled to the monies in question. Jessel MR rejected the argument that the contract with the railway company had been affirmed by the trustee. Such affirmation as there was was simply an assent to the division of the gross sums in the proportions laid down in the contract, he did not adopt the contract in any other sense. So far as the assignment was concerned, he said as follows:

"Then it is said that the Respondents are claiming under a mortgage or assignment made to them by the bankrupts before the bankruptcy. The answer to that is, that by no assignment or charge can a bankrupt give a good title as against his trustee to profits of his business accruing after the commencement of the bankruptcy. The bankrupts cannot as against the trustee assign these profits; they are not his property….. The case bears no analogy to cases in which the property of a bankrupt has been validly charged by him before his bankruptcy. This sum of money was not the property of the bankrupts, and they could not validly assign it as against the trustee."

85. The other two judges, Lindley LJ and Bowen LJ agreed with Jessel MR. As the former said, this sort of case was to be distinguished from that where an equitable assignment of after-acquired chattels had been held to be valid, as in Holroyd v Marshall 10 H.L.C. 191.
86. I was referred to a number of other cases where the principle in Ex p Nichols was applied. In Wilmot v Alton [1897] 1 QB 17, the facts were similar to Ex p Nichols. The contract in question was one for the supply of dresses for a ballet and thereafter keeping them in repair for a 12 week period. The bankrupt subsequently charged her right and interest under the contract in favour of the plaintiff as security for an advance made by him. The Court of Appeal, affirming the judgment of the Lord Chief Justice, determined that the principle in Ex parte Nichol applied. As Rigby LJ put it:

"Where a person who has entered into contracts in the course of his business ceases to carry on business on account of bankruptcy, there is an important distinction, for the present purpose, between cases in which, the consideration for the contract having been wholly executed by the bankrupt on his part, a sum of money becomes due to him under the contract, and cases of executory contracts in which the money will not be earned under the contract unless the person contracting continues to carry on business and fully performs his part of the contract which has only been partially performed at the date of the bankruptcy. In the latter class of cases the bankrupt cannot create greater rights in favour of an assignee from him then he has himself; it rests with the trustee to say whether the business is to be carried on and the contract performed or not, and, if he elects to perform it, he has a right to the consideration for such performance when it becomes due."

87. These cases were later applied in, for example, In re Collins [1925] 1 Ch. 556 and In re De Marney [1943] 1 Ch 126.

Charge over monies in court: discussion

88. Naturally, Mr Robins focused on passages from the relevant judgments which, taken in isolation, suggest that a person paying money into court thereafter has no interest in the same at all. Mr de Mestre, on the other hand, focused upon words which again, taken in isolation, might suggest that the person paying money into court retains his interest in that the funds, subject only to a possible security interest arising from the circumstances, and purposes of, the payment in. The overall result was that it was submitted to me that some of the cases were inconsistent with others.
89. Having considered the matter carefully, my view is that the cases are entirely consistent. As I said earlier, it is important to distinguish between, on the one hand, a discussion of the rights of the relevant persons making claim to receive payment out in respect of monies in court and on the other hand, the question of whether, while such monies are retained in court, the court or its officials holds such monies as trustee. The differing passages in the cases are, in my assessment, reflective of the fact that at times the court is dealing with one rather than the other of these two areas. At the end of the day I have found the analysis in the New South Wales case of JKB Holding to be of most assistance. I was not taken through the particular provisions governing payments into court in New South Wales, nor any other cases from that jurisdiction. Although I consider that the analysis undertaken by Lindsay J equates, in the end result, to the position under English law that flows from my reading of the English authorities. I have not simply transposed the analysis of Lindsay J to England on the basis that the law is the same. As the English cases make clear, it is dangerous to read across principles and decisions in earlier cases when the applicable rules were different and in this case I do not have that context to enable me to determine the relevance of the New South Wales decision.
90. References in this section of my judgment to paragraph numbers are, unless the context otherwise requires, to paragraph numbers in the JKB Holdings case.
91. In my assessment therefore, the first question when the court is considering a payment out of monies in court is to ascertain the purpose of payment in and who, under the court order, was supposed to obtain protection and of what nature. The circumstances in which money may be paid into court are many and varied (see paragraphs [11]- [14]). As in this case, payments may be made as security to fortify a cross undertaking in damages, or as security for costs. Sometimes, payments in are made to the credit of the action, for example, where the court will only permit the matter to go to trial in the normal way if the defendant pays a substantial amount of money into court, on an application by the claimant for judgment under CPR part 24 (see discussion in Halvanon Insurance Company). Sometimes money is paid into court pursuant to specific statutory provisions such as in the Polish Steam Ship case. The court may order a payment into court when it is just to do so, in particular circumstances, as in the Cantor Index case. In those cases the court had to determine the purpose of the payment in, who it was to protect and in respect of what sum paid in and to what extent (eg if bankruptcy intervened), an issue determined in Sherratt. Similar questions can arise when monies are held pursuant to undertaking or court order outside of court (as in e.g. Re Mordant).
92. As between the parties to proceedings, it is convenient to talk in terms of their respective entitlements as against each other reflecting their respective interests that the court will give effect to in making an order for payment out. However, as Sherratt makes clear, this does not necessarily reflect actual ownership under a trust. Thus, in Sherratt the language is one of the plaintiff being treated as a secured creditor. In Halvanon Insurance there are passages which, at first sight, seem inconsistent with this analysis but they have to be read with the comments by Hobhouse J that "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".
93. Once money is paid into court, in my assessment the court or the agent of the court holding the funds is not a trustee in the full sense. Taking a typical case of payment into court to the credit of an action by a defendant first, the defendant paying money into court will not retain an equitable interest in the funds in court. However, just as a plaintiff may be treated as having a secured interest so the defendant will be treated as owning the funds subject to that security interest, so that he can expect the court to order payment out to him of any balance after satisfying the deemed security of the plaintiff. Thus, the relevant parties have the right to insist that the funds are properly administered and applied for the purposes for which they were paid in and that they be paid out in accordance with those purposes (see paragraph 102). On this analysis, the right is rather similar in nature to that of a beneficiary under a will during the period that the estate of the deceased is being administered.
94. If a plaintiff pays money into court, as in this case, to secure the costs of the defendant or to fortify, and thus provide security for the defendant, as regards the plaintiff's cross undertaking in damages, the court will at the very least treat the plaintiff as having an interest in the fund in court. That interest will entitle the plaintiff to apply for the proper administration of the fund. Further, when the question of payment out arises, subject to the deemed security interest of the defendant in the fund, the plaintiff will be treated as the owner of the fund in question and entitled to receive the same. Whether a party is "treated" as owner of the fund or "treated" as having a security interest in it, the nature of the interest is the same in terms of giving an entitlement to the fund being administered to give effect to the interests "treated" as being in existence when and from the time that the payment into court is made.
95. That interest in administration, or deemed interest in the fund, is one that the courts recognise and that (in the example under consideration) the plaintiff can charge. Through the plaintiff's deemed interest the chargee will also have an entitlement to apply for proper administration of the fund and for an order for payment out. While it may be the case that the plaintiff does not have a property interest in the fund in specie, so that it cannot technically charge a property right in funds in court but only charge future property, that is what it ultimately receives if and when funds are ordered to be paid out of court to it, the entitlement to proper administration and to what it is treated by the court as owning is something that the court recognises. The court will also recognise a charge in relation to such rights and interest. The court does not simply enforce a charge over any proceeds once received by the plaintiff, but takes the charge into account when deciding whether a payment out should be made to the plaintiff or the chargee. The rights of the chargee in a case where the charge was created after payment in, in this respect, have their inception from the time that the charge was created. That this is so is, in my view, the explanation for the approach of the Court of Appeal in Emmott. Vis a vis the Assaubayevs, MWP was treated as the owner of part of the funds paid into court by itself (subject to the Assaubayevs' security interest) and as having security over the funds paid into court by the Assaubeyevs, but an interest in specific identified sums of money only arose when the order for payment out was made.
96. If I am wrong about the limited interest that Peak had in the sums in court, the rights that it would have would be greater, not less, than those that I have identified. The analysis would be that the charge over the funds in court owned by Peak would have an operation subject to orders of the court, and thus subject to the security or deemed security interests of the defendant (see paragraph 128).
97. On my analysis, it follows that although the Liquidators in this case had to take steps to obtain administration of the fund in court, they no more created a new asset than they would in taking steps to enforce, for example, an existing cause of action against a misfeasant director or in taking steps to enforce a right to after-acquired property say arising under a will where the deceased died after the commencement of the bankruptcy. Without liquidation, Peak would have had the right to seek payment out of monies in court so that it received back any balance after satisfying the deemed security interest of the defendants. Peak's entitlement to due administration of the funds in court and to repayment of sums it had paid into court once the defendants' security interests, or deemed security interests, had been satisfied dated from the moment of payment in. The fact that quantification and realisation of Peak's interest was by way of a compromise rather than by application to the court to give effect to the parties' respective rights does not affect the analysis. Liquidators may compromise misfeasance proceedings but that does not mean that they have created a new asset, falling outside any relevant pre-existing charge, in so doing.
98. If I am wrong in my analysis of the limited nature of Peak's interest in the monies in court while they were still in court then the conclusion must be that Peak did have an interest in such funds and accordingly such interest undoubtedly fell within the Charging Deed.
99. It follows that I consider that the monies formerly in court and which have been paid out to the Liquidators are subject to the charge granted to Candey.

s245 of the Insolvency Act 1986

100. Section 245 of the Insolvency Act 1986 provides, so far as material to these proceedings, as follows:

"(2) Subject as follows, a floating charge on the company's undertaking or property created at a relevant time is invalid except to the extent of the aggregate of-

(a) the value of so much of the consideration for the creation of the charge as consists of …services supplied to the company at the same time as, or after, the creation of the charge….

(3) Subject to the next subsection, the time at which a floating charge is created by a company is a relevant time for the purposes of this section if the charge is created-

(a)…

(b) … at a time in the period of 12 months ending with the onset of insolvency….

(4) Where a company creates a floating charge at a time mentioned in subsection (3)(b) and the person in favour of whom the charge is created is not connected with the company, that time is not a relevant time for the purposes of this section unless the company-

(a) is at that time unable to pay its debts within the meaning of section 123 in Chapter VI of Part IV…

(5) For the purposes of subsection (3), the onset of insolvency is-

….

(d) in a case where this section applies by reason of a company going into liquidation, the date of the commencement of the winding up.

(6) For the purposes of subsection (2)(a) the value of any… Services supplied by way of consideration for a floating charge is the amount in money which at the time they were supplied could reasonably have been expected to be obtained for supplying the goods and services in the ordinary course of business and on the same terms (apart from the consideration) as those on which they were supplied to the company".

101. Section 245 of the Insolvency Act 1986 applies in this case by virtue of Article 23 of Schedule 1 to the CBIR. That article further defines the onset of insolvency. It is agreed in this case that section 245(3) is satisfied on the facts of this case so I need not consider those provisions further.
102. For present purposes, therefore, the following elements of section 245 have to be satisfied if there is to be any restriction on the efficacy of the charges over the SCB Monies and the monies in court:

(1) the charge in question must be floating (which includes a charge which, as created, was floating, even if it subsequently became a fixed charge);

(2) the charge must have been created within 12 months of the onset of insolvency (as said, it is common ground that this condition is met);

(3) at the time of creation of the charge the company must have been unable to pay its debts within the meaning of s123 of the Insolvency Act 1986, or to have become so insolvent in consequence of the transaction under which the charge was created and

(4) the value of the services supplied at or after the date of creation of the charge must be less than the sum otherwise secured by the charge.

Fixed or floating charge? The SCB Monies

103. Given the Liquidators' acceptance that the SCB Monies are, under the Charging Deed, charged to Candey, the first issue I have to decide in relation to such monies is whether or not such charge is fixed or floating. In my judgment, it is clear that the charge is floating.
104. There was broad agreement as to the applicable principles to determine whether a charge is fixed or floating. In summary, they are as follows:

(1) The court is not bound by labels used by the parties. The classification of a charge as fixed or floating is determined by the nature of the rights and obligations which, on a true construction of the charging document, the parties intended to grant to each other in respect of the charged assets. Having ascertained such rights and obligations, the court goes on to consider whether such rights are, as a matter of law, inconsistent with the nature of a fixed charge or not. The label of "fixed" cannot be decisive if the rights created by the charging document, properly construed, are inconsistent with that label (see generally e.g. Agnew v Commissioner of Inland Revenue [2001] 2 AC 701 at [32]; In re Spectrum Plus Limited [2005] 2 AC 680 at [141]; Re Beam Tube Products Limited [2006] BCC 615 at [31]).

(2) The defining feature of a fixed charge is the absence of a right of the chargor company freely to deal with the charged assets and to withdraw them from the security without the consent of the holder of the charge. Put another way, to constitute a fixed charge, the charging document must provide that the charged assets are under the control of the charge holder so that it can prevent their dissipation without its consent (see generally e.g. Re Keenan Bros Limited [1986] BCLC 242 at 246; Re Cosslett (Contractors) Limited [1998] Ch 495 at 734; Agnew v Commissioners of Inland Revenue [2001] 2 AC 710 at [22], [23], [32]; In re Spectrum Plus Limited [2005] 2 AC 680 at [111], [138]-[139]).

105. As regards the SCB Monies, they must fall within clause 1 of the Charging Deed. The Charging Deed does not contain any provisions which restrict the dealings that Peak could enter into in relation to the SCB Monies, either whilst they were in the relevant bank account or thereafter. Accordingly, the charge over such assets must be a floating one. I need not consider the question of construction raised by Mr Robins as to whether clause 1 can only confer a floating charge because only a floating charge is possible over some of the enumerated items, and therefore the charge conferred by clause 1 over all of the enumerated items can only be a floating charge.

Fixed or Floating Charge: the monies in court

106. If the charge is properly regarded as charging the right to administration of the funds in court and any balance to which Peak might be entitled after satisfying the charges that the defendants were treated as having, then, in my view, the charge must be a floating one. There is nothing in the charge which prevents dealings by Peak as regards the funds whilst in court and prior to any order for payment out, other than that it must not create any further security interests or assign relevant rights (clauses [A] and [C], as lettered by me). This means that under the Charging Deed, Peak was free to remove the balance of any sums after meeting the sums secured by the payment in (costs and the losses recoverable under the cross undertaking in damages) from the scope of the charge. Further, it was free to agree that, for example, the defendants should receive a larger share of the monies inn court to that which they might strictly be entitled to. In terms of the analysis in Re Spectrum Plus Limited [2005] 2 AC 680 and using it by analogy, it seems to me that the position is as follows. There may be a restriction on use of the proceeds of the monies in court once collected in (or paid out by the court to Peak) (by a combination of clause [B] of the Charging Deed and clause 7 of the Fixed fee Agreement), however there is insufficient control over the collection process (that is, over controlling the making of agreements as to how the sums in court are to be distributed). In my assessment, there was nothing to prevent Peak from agreeing that the entire sums paid into court should be paid out to the defendants as part of a settlement (for example, had they won the proceedings and any counterclaim) and even if the monies in court were not otherwise there to secure the defendants in respect of their wider claims.
107. I have said that there may be a restriction on the use of the sums once an order for payment out to Peak is obtained to prevent use of the proceeds. I say "may" because Mr Robins submits that clause [B] of the Charging Deed relates to clause 2 of the Charging Deed and not clause 1. The monies in court he says can only fall within clause 1. Further, he says that clause [B] only operates as an authority (which was precarious because revoked by liquidation) on Candey and not as a restriction on use. I doubt both these propositions but do not need to decide them. I simply note that the wording of clause [B] is wide. Further, I note that the clause does not simply confer authority on Candey but there is an obligation in relation to subsequent solicitors.
108. I reject the submission of Mr de Mestre that any restrictions contained in the prior charge to Campion Maverick are relevant to restrict the rights of Peak to deal with the monies in court and are to be taken into account in determining whether Peak was free to use such monies vis a vis the charge granted to Candey. The key question is control over the monies by Candey and controls granted to a third party (which the charger and the third party are free to relax) are, in my judgment, irrelevant.
109. Although I accept the submission of Mr de Mestre that the payment out in this case can be seen as a dealing which is not inconsistent with the charge in that the applicants were not disposing of an asset of Peak but were freeing it from the pre- existing claim of the defendants, it seems to me that this is not the real question. The real question is not whether a specific dealing is consistent with a charge being fixed but whether there are sufficient restrictions on dealings, even ones not in fact carried out, that the charge is fixed. It is this freedom which makes the charge a floating one rather than a fixed one. In effect, Peak was free to take out of the scope of the charge its rights in relation to the balance of any sums in court once the defendants' deemed security interest had been satisfied. This freedom was, in my judgment, sufficient to prevent the charge in this case being fixed.
110. Again, in these circumstances I need not consider the submission of Mr Robins to the effect that the charge over the monies in court could fall only within the first charging clause and that clause of its nature could only create a floating charge because of the categories of assets covered by it. I have doubts that the cases that he relies upon in this context apply to this case as it seems to me that the point is one of construction.

Insolvency

111. Section 123 of the Insolvency Act 1986 lays down two tests of insolvency. The first is an inability to pay its debts as they fall due ("cash flow insolvency"), the other is where the value of its assets is less than the amount of its liabilities taking into account its contingent and prospective liabilities ("net asset insolvency").
112. I am satisfied that at the relevant time, that is the time of entry into the charge, Peak was both cash flow insolvent and net asset insolvent.
113. As regards cash flow insolvency, Peak was from a time well before entry into the Fixed Fee Agreement and Charging Deed indebted to Jinpeng and unable to pay that debt. Ultimately, this is why it went into liquidation. Mr de Mestre submitted that the debt was disputed, and initially found to be so, by Bannister J (Ag), though this finding was ultimately overturned by the Eastern Caribbean Court of Appeal. In my assessment in fact and law the debt was always due. The evidence is clear, and it is not contested, that at no relevant time was Peak able to pay that debt. As Mr Robins points out, the test for insolvency is purely an objective one not in any way dependent on subjective assessment. There is no room for knowledge (or reasonable knowledge) of the directors to enter the equation (contrast e.g. s214 Insolvency Act 1986).
114. Furthermore, Peak had not been able to meet its bills from Candey for some time. I have already referred to the sum outstanding as identified in the Fixed Fee Agreement and the larger sum outstanding at an earlier date. The evidence sets out in great detail how Peak was in arrears of certain (but not all) invoices from Candey dating from May 2015 onwards.
115. So far as net asset insolvency is concerned, the Liquidators have filed evidence showing a deficiency in the region of US$21.48 million to US $32.38 million. In response, Candey seeks to rely upon a balance sheet prepared in October 2015. This balance sheet in fact shows a deficiency of US$20 million. On the basis of the evidence filed it seems clear to me that the Company was insolvent also on a net asset basis.

The value of the services supplied

116. As originally presented to me the submissions of the Liquidators were that the value of the services actually supplied was limited to Candey's time costs in the sum of £1,212,839 or such lower sum as might be determined on a solicitor-own client taxation. It appeared to me that while these were possible candidates for valuing the services provided they were not the only ways. First, it is increasingly common for solicitors to charge a fixed fee rather than by time costs. The question might therefore be what on a fixed fee basis is the value of the services provided. I had no evidence on this basis of valuation.
117. Mr Robins accepted at an early stage that a lump sum basis might be an appropriate way of valuing the services provided and that I did not have sufficient evidence to assess the value of the services provided. As I understand it what he had in mind by lump sum was analogous to a lump sum reached by way of a more summary assessment of the costs by the court than a detailed assessment. However, in my view and without determining the point, it seems to me at least arguable that the services in fact provided (on the terms of the Fixed Fee Agreement, other than the term relating to consideration) could be valued on the basis of a lump sum value rather than by way of a court assessment. I am not at this stage convinced that the only way of valuing the services provided is by way of a detailed assessment of costs as if being carried out on a solicitor and own client basis.
118. It was, as I understood it, common ground that if the question of value remained in issue in the light of my other findings then the point would have to be adjourned for further evidence and argument.
119. The second point on which I heard a certain amount of theoretical argument, was the manner in which the service provided are to be identified. In applying s245(6) and valuing the services supplied, how far are terms relating to consideration (such as time of payment, rather than quantum of payment) to be treated as terms ignored as being terms relating to "the consideration" and how far are they relevant terms to be taken into account? Similarly, although the value to be identified is the value of the services supplied, how far is that service to include a facility which the company may not call upon? To take an extreme example, is a repair or advice or bank facility service available for a period and which is provided at a certain cost, a "service supplied" or is the service supplied only that when the company calls down on the facility (by asking for an actual repair or actual advice or drawing on the bank facility). Given that these abstract discussions were, understandably, not tied to the particular facts of this case I have decided that there is nothing I can usefully say as regards the valuation process for the purposes of s245 Insolvency Act 1986. I accept that what has to be valued is the services supplied to the company and not the services contracted to be supplied, but that of course does not determine what services were, for these purposes, "provided".
120. As envisaged therefore, the question for valuation under s245 Insolvency Act 1986 will have to be dealt with separately on further evidence.

Diposition

121. I therefore decide that:

(1) the Court Monies fall within the charge in the Charging Document;

(2) the charges over the Court Monies and the SCB Monies are floating charges;

(3) the other conditions of s245 Insolvency Act 1986 are met in relation to such charges such that the remaining issue is the value of the services supplied by Candey after entry into the Charging Deed which is secured, and whether (and to what extent) it is less than the fixed fee charged in this case.

122. In the time since being provided with a draft of this judgment for the purposes of identifying obvious and typographical errors, the parties have not had time to agree a form of order. Accordingly, I will direct that the time for lodging a notice of appeal does not start to run until the order following from this Judgment is sealed and lay down a timetable for the resolution of that form of order. The order that I make in this respect is in the terms agreed between the parties.