Crumpler & Anor v Candey Ltd

A party paying money into court as security for costs or to fortify a cross-undertaking in damages retains a proprietary interest in that money. The payment gives the beneficiary a security interest and places the fund under the court’s control, but does not divest the payer of its equity of redemption.

The payer’s interest is therefore an existing asset capable of being charged before insolvency. Any charge remains subject to the beneficiary’s security and to the requirement for a court order governing payment out.

Peak Hotels and Resorts Limited paid money into court to fortify a cross-undertaking in damages and to provide security for costs. Before entering liquidation, it granted Candey Limited, its solicitors, fixed and floating security over its assets, expressly including money in court.

After the litigation was settled, US$10 million and £1.648 million were released to Peak’s liquidators. On their application for directions, the High Court held that the deed created a floating charge over those sums: [2017] EWHC 1511 (Ch).

The liquidators appealed, contending that Peak had ceased to own the money when it paid the funds into court. The central issue was whether Peak retained a proprietary interest capable of being charged before its liquidation.

1. Appeal dismissed. Peak retained a proprietary interest in the money which it had paid into court. The money therefore remained an existing asset of Peak and was capable of being charged to Candey before Peak entered liquidation.

2. A payment into court for security purposes places the money beyond the payer’s control and makes its ultimate payment dependent upon a court order. It does not transfer away the payer’s entire proprietary interest. The beneficiary obtains a security interest analogous to an equitable charge, while the payer retains the corresponding equity of redemption.

3. Pearlberg v May [1951] Ch 699 was binding authority that a payer may retain an equitable proprietary interest in money held by the court to await the outcome of proceedings. That principle was supported by Halvanon Insurance Co Ltd v Central Reinsurance Corporation [1988] 1 WLR 1122, Cantor Index Ltd v Lister [2002] C.P. Rep. 25 and the obiter reasoning in Emmott v Michael Wilson & Partners Ltd (No 3) [2017] EWCA Civ 367.

4. The statement in W.A. Sherratt Ltd v John Bromley (Church Stretton) Ltd [1985] 1 QB 1038 that a defendant paying money into court parts outright with it was not part of that decision’s ratio. Its ratio concerned the enduring preferential security obtained by a claimant. If the statement meant that the payer lost all property in the fund, it was inconsistent with Pearlberg.

5. The contrary statement in Re Mordant, Mordant v Halls [1996] 1 FLR 334 was unreasoned and unnecessary to its result. The Australian decision in JKB Holdings Pty Limited v de la Vega [2013] NSWSC 501 concerned a fund whose ownership had been disputed from the outset and did not outweigh the English authorities.

6. The Court of Appeal upheld the declaration that the deed created a floating charge over the sums released from court. The alternative argument concerning a purported charge over future property did not require determination. Henderson and Patten LJJ agreed with Sir Colin Rimer.

1. Court of Appeal (Civil Division): The liquidators’ appeal was dismissed. The declaration that Candey held a floating charge over the released funds was upheld: [2018] EWCA Civ 2256.

2. High Court, Insolvency and Companies List: His Honour Judge Davis-White QC declared that, assuming the deed was otherwise valid and enforceable, it created a floating charge over the sums paid out of court: [2017] EWHC 1511 (Ch).