Celtic Contractors Ltd. v Infinite Environmental Services Ltd. & Anor

A payment arrangement under which a contractor is paid from a controlled account does not, without more, create an equitable charge over the account or a general proprietary interest in its funds. The arrangement must be construed according to its terms, including any limit requiring sums to be mutually agreed. A freezing injunction is not a means of securing an unadjudicated claim. Where ordinary American Cyanamid principles apply, the court must assess the balance of convenience, including the defendant’s need to deal with its creditors and the wider consequences of restraining the account.

Celtic Contractors Ltd sued Infinite Environmental Services Ltd for sums said to be due under a construction sub-contract. An earlier letter proposed that Celtic would be paid monthly from an account controlled by Barclays Bank, after sums due to SAS International Ltd had been paid. Celtic argued that the signed arrangement was binding and gave it an equitable interest or charge over funds in the account. It also sought relief under ordinary freezing-injunction principles.

On the return date, His Honour Judge Bradbury, sitting as a High Court Judge, refused to continue an interim injunction. He accepted that there was a serious issue concerning the amount due, but rejected the remaining submissions. Celtic appealed.

1. Appeal dismissed. The court accepted that the judge had been wrong to conclude that there was no serious issue to be tried as to whether the letter of 20 August 2002 was binding. Mr Whyte’s evidence and the parties’ substantial performance supported that issue.
2. That conclusion did not affect the result. Even if the letter constituted an agreement, its terms did not create an equitable charge over the controlled account or a general charge over its funds. The proposed monthly payments related to work done in the previous month. The arrangement did not guarantee payment beyond that contractual mechanism.
3. The fifth paragraph of the letter, providing for payment of sums mutually agreed by Celtic and IES, further restricted any obligation to make payments from the account. It did not confer the equitable interest asserted by Celtic.
4. Once the application was considered under ordinary American Cyanamid principles, the balance of convenience was against relief. A freezing injunction is not intended to provide security for a claim. IES had to consider the position of its other creditors, and continuation of the injunction would effectively halt the construction work, with adverse consequences for others.
5. The court would in any event be slow to interfere with the judge’s exercise of discretion on the balance of convenience. The injunction was therefore not continued. The appellant’s costs were summarily assessed at £10,781.45.

• Court of Appeal (Civil Division): Celtic appealed and the appeal was dismissed.
• Queen’s Bench Division: His Honour Judge Bradbury, sitting as a High Court Judge, refused on 12 March 2003 to continue the interim injunction.