Cofacredit SA v Clive Morris & Mora UK Ltd

A factoring agreement must be construed according to its language and the common intention of the parties. Where the agreement clearly covers only export debts, subsequent conduct cannot enlarge its scope, although separate transactions or ratification may have independent legal effect. Under French law, conventional subrogation requires payment by a third party, made contemporaneously with an express subrogation accepted by the creditor. A factor’s rights against the contracting company are governed by the law of the factoring contract, while personal obligations of an English office-holder arising from collecting debts are governed by English law. The court declined to determine the ultimate restitutionary liability where the pleadings, facts and accounting evidence were incomplete.

The claimant, a French factoring company, alleged that debts of Mora UK had been transferred to it under a French-law factoring arrangement. After Mora UK entered administration and liquidation, Mr Morris collected payments from its debtors as administrator and liquidator. The claimant sought recovery from Mr Morris and Mora UK.

The court tried preliminary issues concerning whether UK domestic debts fell within the factoring agreement, whether recovery was available under French law, and whether English law governed recovery against Mr Morris. The court also considered whether separate quittances could effect subrogation and whether the restitutionary claim could properly be determined on the preliminary issues.

1. Construction. The General and Particular Conditions had to be read together with the Contract of Mandate and the group financing arrangements. Their wording was clear and precise. In that contractual context, “export debts” and “foreign customers” referred to Mora UK, so UK domestic debts were outside the Factoring Agreement. Subsequent conduct could not alter that construction, although it might support a separate collateral contract, estoppel or ratification.
2. Subrogation. Under Article 1250 of the Civil Code, conventional subrogation required payment by a third party, contemporaneous subrogation, acceptance by the creditor and an express statement. The agreed accounting entries constituted payment, and the signed quittances satisfied the contemporaneity and express-subrogation requirements for debts within the Factoring Agreement.
3. The court could not decide whether quittances relating to domestic debts were independently effective. That question depended on ratification, for which the evidence and factual foundation were inadequate.
4. Governing law. The mutual rights of Mora UK and Cofacredit were governed by French law. The status and assignability of individual debts, and formalities affecting them, were governed by the law applicable to those debts. Any personal liability of Mr Morris arising from his functions as administrator or liquidator was governed by English law, at least where payment was received in England.
5. The court declined to determine whether a restitutionary claim in fact existed. The account balance, the operation of the revolving factoring arrangement, the effect of the tender, the tracing of payments and the possible security character of the transaction remained unresolved. The preliminary issues were therefore answered only to that extent.