England and Wales High Court (Queen's Bench Division) Decisions

IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION

		Royal Courts of Justice Thursday 31st January 2002

MR JUSTICE JACOB: This is an application by a well-known firm of solicitors, Osborne Clarke, pursuant to section 11(3) of the Insolvency Act 1986. This provides so far as is relevant:

"During the period for which an administration order is in force . . . no other steps may be taken to enforce any security over the company's property, or to repossess goods in the company's possession under any hire-purchase agreement, except with the consent of the administrator or the leave of the court and subject (where the court gives leave) to such terms as the court may impose".

Osborne Clarke were the solicitors to a company called Carter Commercial Developments Limited, which went into administration on 12th October 2001. The application for the order was supported by the usual report pursuant to Rule 2(2) of the Insolvency Rules. At that time Osborne Clarke were owed no less than about £450,000. They had allowed such a large sum to accrue, on the usual basis which many commercial property solicitors rely upon, that they held the title deeds and so had a lien over those. Thus it was safe, they thought, to allow the amount owing to build up, because when the property was sold they would be paid out of that. So, unless and until they were paid, they would hang on to the deeds.

A lien is specifically considered in the Insolvency Act in section 246(2) and (3). 246(2) says:

"Subject as follows, a lien or other right to retain possession of any of the books, papers or other records of the company is unenforceable to the extent that its enforcement would deny possession of any books, papers or other records to the officeholder".

But section 246(3):

"This does not apply to a lien on documents which give a title to property and are held as such".

That is exactly what Osborne Clarke were doing with the deeds in this case.

The application for the administration order did not mention Osborne Clarke's lien. A few days earlier they had actually been asked to hand over the deeds, oddly not by the company, but by the prospective purchaser Tesco. They had refused that. I am told Tesco never conveyed that information to the company or at least it never reached the proposed administrators. I find that a little surprising, but I accept that.

What I find unfortunate is that the question of the workability of the administration, given Osborne Clarke's lien, was not addressed in the application for administration. Administration does not destroy third parties' rights and, as can be seen particularly, the lien is not destroyed. It is true that under section 11(3) the leave of the court is required once the company has actually asked for the documents - which it now has - but the leave of the court is being sought in the context where Osborne Clarke have a legal right to hang on to the documents - a right respected by the Act specifically.

There have been negotiations between the parties. The administrators, on the material before me, say that if Osborne Clarke can enforce their lien then the administration will fail and the company will have to go into liquidation.

So far as I can see, that is as true now as it was when the application for the administration order was made in the first place. Mr Joffe, who appears for the administrators, was specifically challenged on this point and did not suggest that there had been a change in circumstances. If that is right, then the company never should have gone into administration. It seems to me it would be quite unjust for Osborne Clarke to lose such rights as they have in those circumstances.

Reliance was place upon two authorities, Bristol Airport plc v. Powdrill & Ors 1990 Ch. 744, and In re Atlantic Computer Systems [1992] Ch 505. Neither case is remotely concerned with the exercise of a lien of the nature we have here. The Bristol case was concerned with an attempt to exercise a lien over goods, namely aeroplanes, in respect of which a lien was asserted. But the alleged lien related to matters arising after the administration had started. That is a very different situation.

Atlantic Computers was concerned with physical goods - computers - where the problem was whether or not the arrangements which had been in place before the administration should in effect be continued with the ultimate customers paying money to the administrators, who would then pay to the owner of the goods. The Court of Appeal gave general guidance as to what should happen then. But none of that guidance is directly applicable to this case.

What I am being asked to do in this case is, without the consent of Osborne Clarke, to override their statutorily recognised lien. What has been offered is a complicated offer, partly cash and partly security over certain future transactions which may or may not take place. Osborne Clarke say none of that is as good as what they have got. It seems to me that that is essentially a matter for them and not for me.

In that connection it is noteworthy that no bank has put up the money and taken the risk which Osborne Clarke are being asked to take if administrators are not willing to do it and so far nobody else is willing to do it.

This is a close analogy to security case for costs. Such a case was considered recently in the Court of Appeal, AP (UK) Limited v. West Midlands Fire and Civil Defence Authority, 16th November 2001, [2001]EWCA Civ. 1917. In that case the court was concerned with security for costs. A charge on some property was offered. In the court below, there was a dispute about whether the property was worth the amount of security. The judge below held she could not be sure one way or the other and that was good enough to refuse the matter. But in the Court of Appeal, Lord Justice Longmore said one does not go into that. He said this:

"For myself, I would say more broadly that if no bank will lend on the security of proposed property that will mean the proposed security is inadequate unless there is a reason to explain why the defendants should be required to accept security by way of charge on property when no bank is prepared to do just that. Here, there is no such reason offered and there is none.

The Lord Justice then actually did the same exercise as had been done by the judge below, found that she had got it right, and then said this:

"The main point is that the above description shows how problematic the idea of putting up security for costs by way of a charge on a claimant's property in favour of the defendant is likely to be, and confirms me in my earlier view that it was unnecessary for the judge to become engaged in the exercise at all".

I think the position is the same here. If the administrators were able to put up something which would have been attractive to Osborne Clarke, then that is a matter between them and Osborne Clarke. Osborne Clarke had a good interest in this administration succeeding if it was at all possible. They are the solicitors and they continued to be the solicitors to the company. No doubt over the years if it succeeded they would have continued to do well out of the business. But it by no means follows that their strong position - which in effect secures them their £450,000 - should be substituted by some other thing which they find unacceptable and which is altogether more problematical.

This application succeeds. The lien may be inferred