Smith v Bridgend County Borough Council

The House of Lords held that clause 63(1) of the ICE Conditions created a security interest consisting of a floating charge over constructional plant and materials brought on site, which was registrable under section 395 of the Companies Act 1985. Because the company was placed in administration before registration, the unregistered charge was void against the company acting by its administrator. The council's subsequent purported disposal of the contractor's washing plants under a later continuing contract amounted to conversion. The administrator (acting for the company in administration) was entitled to bring the claim for conversion and recover damages. Equitable set-off was not available to the council to defeat the conversion claim where the statutory avoidance rule rendered its security ineffective.

The appellant was the administrator of Cosslett (Contractors) Ltd; the respondent was Bridgend County Borough Council (successor to Mid-Glamorgan County Council). The parties contracted under amended Institution of Civil Engineers conditions providing (in clauses 53 and 63) that plant brought on site would be deemed to be the employer's property while on site, that removal required the engineer's consent, and that on certain defaults the employer could enter, use and, "at any time", sell constructional plant on site and apply proceeds towards sums due.

The company abandoned the works in August 1993 and an engineer certified abandonment; the council entered and allowed a replacement contractor to use the company's washing plants. The company went into administration on 8 September 1993. The administrator sought recovery of the plants (initially by summary application under section 234 Insolvency Act 1986 and later by a writ claiming damages for conversion). The central legal issues were:

• Whether clause 63(1) created a registrable floating charge (section 395 Companies Act 1985) or some other interest;
• the effect of failure to register such a charge where the company is in administration (including whether an administrator may sue in his own name or must sue in the name of the company in administration);
• whether the council's disposition to the replacement contractor under the continuation contract amounted to conversion;
• whether the council could rely on equitable set-off or other defences to defeat the conversion claim.

The House of Lords held (i) clause 63(1) was properly characterised as creating a floating charge over a fluctuating body of plant and materials, (ii) an unregistered floating charge is void against the company in administration (that is, void against the company acting by its administrator) under section 395, (iii) the disposal under the continuation contract was an unauthorised disposition amounting to conversion, and (iv) equitable set-off could not be used to resurrect the effect of the unregistered charge. The court restored the judgment for the administrator awarding damages for conversion, adjusted to reflect the employer's contractual rights of user.

Appeal allowed. The House of Lords held that clause 63(1) of the ICE Conditions created a floating charge registrable under section 395 Companies Act 1985; the unregistered charge was void against the company in administration; the council's disposal of the washing plants amounted to conversion; the administrator (suing for the company in administration) could recover damages for conversion; equitable set-off could not be relied on to defeat the claim.

First-instance contest over the plant and the operation of ICE clauses; at first instance the judge held clause 63 created a charge and treated it as fixed (so registration unnecessary) and dismissed the administrator's summary application. The Court of Appeal (first hearing) held the right to use was contractual but the power of sale was a floating charge ([1998] Ch 495). The administrator then obtained a conversion judgment at first instance from Judge Toulmin QC. On the council's further appeal the Court of Appeal (Lord Woolf MR, Ward and Laws LJJ) set aside that judgment on different grounds. The administrator appealed to the House of Lords, which allowed the appeal and restored Judge Toulmin QC's judgment. Final authority: Smith v Bridgend County Borough Council [2001] UKHL 58.