TMI Blog1963 (7) TMI 53X X X X Extracts X X X X X X X X Extracts X X X X ..... ven at the trial, both counsel having been content with the following statement of facts, which I am told is agreed. [His Lordship stated the facts as set out above and continued :] Certain propositions of law are not in issue and can be stated as follows. First, the defendants are entitled to this set-off, notwithstanding that their title to the debt set Off was derived from an assignment made by the original creditors, if immediately following the assignment the debt claimed and the debt set off existed between the same parties in the same right. Secondly, the existence of a floating charge on the plaintiffs' assets would not in itself amount to' an assignment to the debenture-holders of the debt claimed so as to prevent the claim and set-off from existing between the same parties in the same right; for that proposition see Biggerstaff v. Rowatt's Wharf Ltd. [1869] 2 Ch. 93, C.A. Thirdly, the appointment of the receiver and manager caused the floating charge created by the debenture to crystallise or become fixed upon the assets of the plaintiffs at the date of such appoinment. The debt represented by the first three items in the statement of claim and amounting to some 95 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be paid by the receiver to the debenture-holders, and will not be available for the satisfaction of the company's unsecured creditors; but he says that this result flows from the tact that the conditions of the debenture required the receiver to hold moneys so received upon trust for the debenture-holders, and does not depend upon any notional transfer in the original charge to the proceeds of sale. When the sale of the company's assets is on credit, he contends that there are no proceeds of sale to which the trust created by the debenture can attach, and he says there is nothing in the debenture which subjects the debt due to the company to any such trust, because the debt is not "moneys received" within condition 10. He contends that the debt is due to the company and not due to the receiver, and cannot be subject to any trust of which the receiver is trustee. In result, so ! he argument goes, the debt due to the plaintiffs from the defendants, as a result of trading subsequent to the appointment of the receiver, is a debt in which the debenture-holders have no present interest at all. Consequently, the debt claimed and the debt to be set off exist between the same parties in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rdrafts on its current account with a bank by a debenture dated January 26, 1960, which charged its undertaking and all its property and assets, present and future, to rank as a first charge on its property and lands as a specific charge, and as regards all other property and assets of the company as a floating security. Provision was made for the appointment of a receiver and manager at any time after the principal moneys secured became payable. On July 6, 1961, a receiver and manager was appointed and the charge became effective or crystallised. The company continued to trade under his supervision and continued to sell goods on credit to the defendants so that for goods supplied after May 24, 1961, before the receivership and after, there had arisen a total indebtedness from "the defendants of 1,346 6s. 1d. Between November, 1960, and January, 1961, that is, before the receiver and manager was appointed, English Spinners Ltd., a company associated with the defendants, had sold goods on credit to the plaintiffs and were owed a balance of 852 18s. 4d. in respect of those transactions. This debt was assigned to the defendants by English Spinners Ltd. by deed dated October 6, 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... This provision was to be a temporary one. Six years later, however, in 1735, the Statute 8 George II, c. 24, by section 4, enacted as follows: "And whereas the provision for setting mutual debts one against the other, is highly just and reasonable at all times ; be it therefore further enacted . . . that the said clause in the said first recited Act "(that is section 13 of the Statute of 1729) "for setting mutual debts one against the other shall be and remain in full force for ever." These statutes were nevertheless repealed by the Civil Procedure Acts Repeal Act, 1879, and the Statute Law Revision and Civil Procedure Act, 1883, with a saving, however, for the right of set-off. The matter is now governed by section 39(1)( a ) of the Judicature Act, 1925, and rule 3 of R.S. C. Order 19, which however conferred no new rights of set-off (see Hanak v. Green [1958] 2 Q.B. 9, 22 ; [1958] 2 W.L.R. 755 ; [1958] 2 All E.R. 141 CA). The controversy in the present case turns entirely on the question whether in the circumstances the cross-debts are "mutual debts." The receiver is, admittedly, the agent of Robbie Co. So when he sold goods, to the Whitney Warehouse Co. he was s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he business ? and a floating charge will not defeat the right of set-off. There is little help to be derived from authority as to which of these rival contentions is correct. In Biggerstaff v. Rowatt's Wharf Ltd. [1896] 2 Ch. 93, CA Harvey Brand Co. Ltd., a creditor of Rowatt's Wharf Ltd., was held entitled to set off against what it owed to the Rowatt's Wharf Co., a debt which that company owed to it: although a receiver had been appointed for the debenture-holders of the Rowatt's Wharf Co. The two debts in question had, however, been incurred before the receiver was appointed. Nevertheless it was contended for the debenture-holders that the floating charge on the company's assets was in effect an assignment to them of the debt owed by Harvey Brand Co. and prevented mutuality of the two debts. The Court of Appeal held that the floating charge had no such effect, and that the set-off was permissible. Observations were made in the course of the judgment, however, on which the present appellant relies though they were strictly obiter. Thus Lopes L.J. said [1896] 2 Ch. 93, 103 CA: "But it is said that there is no right of set-off against an assignee of a chose in action whe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cceeded, on the grounds that the receiver had continued to fulfil standing contracts of the Imperial Paper Mills Ltd. for the supply of paper to Messrs. Parsons. He had not entered into new contracts of his own for such supply. Accordingly, the debt for the supply of paper, and the claim for damages, arose out of the same contract and could be set off one against the other. The decision did not, therefore, proceed on the ground that after the receiver was appointed future debts became subject to a fixed charge in favour of the debenture-holders and thus prevented mutuality. The only hint of such a contention is in the argument of counsel for the bank "That paper moreover was not the property of the company, but of its bondholders who, through the receiver, were mortgagees in possession, and the appellants (Messrs. Parsons) had no right to obtain title to that property without payment therefor." This argument, though put forward, did not succeed, though it is not specifically dealt with in the judgment. I do not refer to any of the other cases cited in argument, for none of them bears directly upon the issue. In the last resort, the rights of the debenture-holders in or over th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 10. That involves there being no fixed charge on new debts, or at the most a floating charge which would not prevent the set-off here claimed. A construction of the terms and conditions of the debenture leading to this result does no violence, in my opinion, to the language. Certain practical objections to this solution were urged. Thus, if the present claim succeeded, what is there to prevent some post-receivership debtor of the company taking, perhaps for next to nothing, an assignment of a number of the unsecured dets owing by the company, and then setting his own debt against them ? In this way he would get payment of the debts thus assigned to him in priority to the debenture-holders. The answer would appear to be that there is nothing to stop him unless the terms and conditions of the debenture specifically exclude such a device. This would not be a difficult thing to achieve. Then, again on the assumption that the post-receivership trading debts are not the subject of a fixed charge in favour of the debenture-holders, could some unsecured creditor of the Robbie Co., after getting judgment against the company, levy execution by way of garnishee proceedings, and thus get p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly 6, 1961, under the power contained in the debenture dated January 26, 1960. Secondly : with the exception of 95 worth (as to which no special point is taken) the debts for goods delivered totalling 1,346 now sued upon arose as choses in action after the appointment of the receiver and manager, and the goods sold were all in stock when he was appointed. Thirdly : the debt of 852 due from the company which the defendants as assignees thereof seek to set off, arose before the appointment of the receiver and manager, was unsecured, and was assigned to the defendants after the last of the debts constituting the total of 1,346 came into existence. The first question for consideration is whether on the true construction of the debenture the debt owed by the defendants as it arose became a chose in action of the company subject to an equitable charge in favour of the debenture-holders. I consider that it did. The relevant clauses and conditions of the debenture have already been referred to. Reliance was placed on condition No. 1 as showing that property of the company first coming into existence after the appointment of the receiver and manager in this case the chose in action ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ms that which upon its true construction is to be derived from clause 3. Condition 1 is merely stating in terms the quality of the charge, involving suspense of its full effect for a period : that is its function. To attribute to it the effect of limiting and restricting the field of the agreement to charge is in my judgment wholly to mistake its function. "All other the property and assets of the company" in condition 1 is, I consider, merely a reflection of "all its property and assets present and future" in clause 3. If that be a correct view of the construction of the debenture, then the choses in action consisting of the debts now sued upon became as they arose subject to an equitable charge an equitable assignment to the debenture-holders. It was further argued that the provisions of the debenture conditions designed to facilitate realisation made the conception of a charge on such assets superfluous;' but I cannot see that those arguments are any more plausible in the case of pssets arising after the appointment of a receiver and manager than in the case of assets (for example the 95 part of the 1,346 already mentioned) which existed at the time of the appointment. Ind ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pains to point out the radical difference produced by crystallisation. Thus far, in my judgment, by force of the debenture charge an equitble charge attached in favour of the debenture-holders not only on the 95 debt existing at the date of the appointment of the receiver and manager, but also upon the other debts constituting the total of 1,346 as they came into existence on delivery of goods to the defendants after such appointment. These choses in action belonging to the company became thus assigned in equity to the debenture-holders, at times when the defendants had no cross-claim of any kind against the company and consequently no right of set-off. Before the defendants acquired by assignment this cross-claim the defendants must be fixed with knowledge of this equitable assignment to the debenture-holders (by way of charge) of the debt owed by the defendants to the company. A debtor cannot set off his claim against X against a claim by X against him which the debtor knows has been assigned by X to Y before the debtor's claims arose. Just as an assignee of a chose in action takes subject to an already existing right of set-off, so a debtor with no existing right of set-off ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... embrace a debt due in 1962 to Y and assigned in 1963 to X. I conclude, therefore, that there is in this particular case no right of set-off because there is no "mutuality" in beneficial interest. The claimants are primarily the debenture-holders : the cross-claim is against the company alone, and is indeed one which in its origin could not be met and was not entitled to be met until the debenture-holders had been paid off in fall. If set-off is to be considered as only a procedural matter to avoid the mere pro arid the mere contra in different actions, they do not exit here. If set-off is to be considered as a system designed to keep a debtor out of prison, when in truth he is not a debtor to X at all when his financial relationship with X is fully investigated (which was the original purpose of the statutes of set-off), then the present circumstances are not such as are related to the purposes of that system. The argument for the defendants depended very largely upon the fact that in this case the receiver and manager was appointed by the debenture-holders and that, as is normal, it was provided that the receiver and manager so appointed should be considered to be the agent ..... X X X X Extracts X X X X X X X X Extracts X X X X
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