High Court of Ireland Decisions

THE HIGH COURT

2003 No. 124 Cos

IN THE MATTER OF MACKS BAKERIES LIMITED (IN VOLUNTARY LIQUIDATION)

AND IN THE MATTER OF THE COMPANIES ACTS, 1963-2001

BETWEEN

MACKS BAKERIES LIMITED (IN VOLUNTARY LIQUIDATION)

and JAMES LUBY

Applicants

and

PATRICK O'CONNOR

PRACTISING AS P O'CONNOR & SONS SOLICITORS

Respondent

NOTE OF EX TEMPORE JUDGMENT delivered by Mr Justice Kelly on the 9th day of April, 2003.

On the 11th December, 2002 Mr Luby was appointed liquidator of Macks Bakeries Limited. That was done pursuant to a resolution of the members passed at an extraordinary general meeting of the company. That appointment was confirmed at a meeting of the creditors held later that day.

On the 13th December, 2002 the liquidator wrote to the respondent asking for details of all matters in respect of which the respondent had acted as solicitor for the company. He also

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requested details of title deeds, outstanding fees due to the respondent and "confirmation or any lien or other security which you claim".

On the 20th December, 2002 the respondent provided the details requested. The fees payable by the company amounted to a total of € 32,307.70. On the 29th January, 2003 the respondents claimed fees in respect of work done in relation to the liquidation of the company amounting to a total of € 2,625.70.

The respondent asserted and continues to assert a solicitor's common law retaining lien over folio MY20399 Co. Mayo and files and documents relating to the company in the respondent's possession as security for those fees. I should note for the sake of completeness that the respondent also holds folios MY4433F and MY4434F Co. Mayo. These are held on accountable trust receipt and a lien is not asserted in relation to these documents.

The present application is made pursuant to section 244(A) of the Companies Act, 1963 as amended by the Companies Act, 1990 which insofar as it is relevant provides

"Where the court has appointed a provisional liquidator or a company has been wound up by the court or by means of a creditors' voluntary winding up, no person shall be entitled as against the liquidator or provisional liquidator to withhold possession of any deed, instrument, or other document belonging to the company, or the books of account, receipts, bills, invoices or other papers of a like nature relating to the account or trade, dealings or business of the company, or to claim any lien thereon provided that -

(a) where a mortgage, charge or pledge has been created by the deposit of any such document or paper with a person, the production of the document or paper to the liquidator or provisional liquidator by the person shall be without

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prejudice to the person's rights under the mortgage, charge or pledge (other than any right to possession of the document or paper) ..."

The applicants contend that the wording of this section is crystal clear. They say that the effect of the section is to unambiguously disentitle the respondent to rely upon the lien so as to avoid handing over possession of the documents in suit to the applicant.

This statutory provision was introduced for the first time in the Companies Act, 1990. It was not part of Irish law prior to then.

Attention was drawn to the equivalent section in the United Kingdom which is s.246 of the Insolvency Act, 1986 but that differs significantly from the section in suit and is of little assistance.

The applicants contend that the court is obliged to give effect to the plain and unambiguous words of the section by making the order sought. They call my attention to the commentary on this section which is contained in Lynch Marshall and O'Farrell's work on Corporate Insolvency Law at paragraph 7.24 where the authors comment as follows

"Finally, certain liens may not be enforceable against a liquidator in a compulsory or creditors voluntary liquidation under s.244(a) of the 1963 Act, an amendment inserted by the 1990 Act. Such liens are liens over documents belonging to the company or 'other papers of a like nature relating to the account or trade, dealings or business of the company'. These liens are not enforceable against the liquidator, in that such documents cannot be withheld by any person. However, where a charge has been created, the production of documents 'shall be without prejudice to the person's rights under the mortgage charge or pledge...' For example, where a bank has title documents in its possession by way of equitable deposit these documents

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must be surrendered but this will be without prejudice to the existence of the deposit itself. It is not possible for solicitors to retain title documents of a company in liquidation as security for payment of fees, nor is it possible to retain the books of account of a company to ensure payment".

It is argued that that passage accurately describes the meaning and effect of the section.

For the respondents it is correctly pointed out that the solicitor's lien at common law was expressly recognised by the Supreme Court in Re Galdan Properties Limited (In Liquidation) [1998] IR 213. There McCarthy J. said

"A solicitor holds a general or retaining lien; in that respect it differs from the ordinary lien derived from possession of the article to which value has been added and to which there attaches a lien for payment of the charges in respect of that added value. A solicitor's lien attaches to all documents and other personal property in his possession as such solicitor and relates to all outstanding charges, as solicitor, not merely those in respect of the particular documents over which the lien is claimed. The lien entitles the solicitor to retain the documents, or the personal property, until payment of the full amount of the bill, subject to taxation if required and if the bill is still liable to taxation".

This is the form of lien which is asserted here. There is no doubt but that the lien provides an enhanced status as against other creditors to the holder of it.

The respondent points out that pursuant to the provisions of s.284(1) of the Companies Act, 1963 the law of bankruptcy is to be applied in an insolvent liquidation in order

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to establish the rights of creditors of the insolvent company. Section 3(l) of the Bankruptcy Act, 1988 defines a secured creditor as meaning "any creditor holding any mortgage charge or lien on the debtor's estate or any part thereof as security for a debt due to him".

The respondent asserts that if s.244(A) has the meaning attributed to it by the applicant it will leave the applicant with no security in respect of the fees payable to him by the insolvent company and that this will be to give the section an effect which it ought not to have. It is contended that the intended effect of the section is not to extinguish the legal rights of persons in the position of the respondent. Whilst reference is made to the decision in Kelly v. Scales [1994] 1 ILRM 42 it is clear that the issue in that case was whether or not s.244(A) had retrospective effect and so has little relevance to the question in suit.

It is said by the respondent that if s.244(A) has the meaning attributed to it by the applicants it has brought about a change in the law of insolvency which was not intended or alternatively resulted from an oversight which gives rise to an implicit amendment to s.3(1) of the Bankruptcy Act, 1988.

Reliance was placed upon the judgment of Henchy J. in Minister for Industry & Commerce v. Hales [1967] IR 50 where Henchy J. applied a presumption which avoids an interpretation of an Act which would result in "radical and far reaching changes in the law of contract".

The respondent submits that the law of lien is well established and to interpret s.244(A) in the manner sought would give effect to radical and far reaching changes. To justify such a result the statutory provision relied on would have to be clear and unambiguous as to the amendment of the position of lienees under s.3(1) of the Bankruptcy Act, 1988. It is said that the section is not sufficiently clear and unambiguous to merit such application.

The object of all statutory interpretation is to discern the intention of the legislature. That has to be done by reference to the language which is used in the section.

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I have come to the conclusion that the language which is used in s.244(A) is clear and unambiguous and allows of no other interpretation but that the legislature intended that the holder of a lien would not be entitled to claim such as against a liquidator in the position of the applicant. I do not think that it can be said that the legislature had brought about this result by inadvertence or oversight. In fact it appears to me that s.244(A) demonstrates a quite sophisticated approach to the issue because of, in particular, the saver which is to be found in subsection (a) thereof in respect of the holder of a mortgage charge or pledge.

It appears to me to be clear and unambiguous that the legislature intended that the rights of holders of consensual securities would be preserved in the manner specified. On the other hand the holder of a lien which comes into effect by operation of law and not by the consent of the parties is not so protected.

There is little doubt but that this section has brought about a change in the law of insolvency insofar as the holders of liens are concerned. However, having regard to the clear wording used ("no person shall be entitled as against the liquidator ... to claim any lien thereon") such a change cannot be regarded as unintended. Neither is it ambiguous. This conclusion is, in my view, fortified by the legislative protection or comfort given to holders of consensual securities.

In these circumstances I am of opinion that the effect of the section is to render it impossible for the respondent solicitors to retain the title documents of the company in liquidation as security for payment of fees. Accordingly there will be the appropriate declaration and order.