Michael Wilson & Partners Ltd v Sinclair & Ors

A third-party debt order under Civil Procedure Rules 1998, Part 72, can attach only to a debt that is presently payable or will become payable by reason of an existing obligation. Where repayment is subject to a contractual condition precedent, such as service of a repayment notice followed by expiry of the notice period, no debt is due or accruing due until that condition is satisfied. The making of a third-party debt order cannot itself operate as the required notice or place the judgment creditor in a better position than the judgment debtor. Contractual conditions must be construed from the language, context and commercial purpose of the agreement.

Michael Wilson & Partners Ltd appealed against an order of Mr Registrar Kay QC refusing to make final an interim third-party debt order. The order concerned sums advanced by Thomas Sinclair to John Emmott under a deed funding Emmott’s legal costs. Repayment was permitted only after Sinclair gave 30 days’ written notice following expiry or discharge of a freezing order.

The Registrar held that the sums were not a debt due or accruing due for the purposes of CPR Part 72. The central issue on appeal was whether the contractual repayment mechanism created an attachable debt before notice had been given and the notice period had expired.

1. Appeal dismissed. The Registrar was correct to conclude that no debt due or accruing due existed between Mr Emmott and Mr Sinclair, so the interim third-party debt order could not be made final.

2. The deed had to be construed according to established contractual principles. The court considered the natural and ordinary meaning of the words, the other contractual provisions, the overall purpose, the shared factual context and commercial common sense, while disregarding subjective intentions. Clear language had to be applied. The sophistication and quality of the drafting supported a primarily textual approach.

3. Clause 5.1 made service of a repayment notice, followed by expiry of the agreed 30-day period, a condition precedent to Mr Emmott’s obligation to repay. The loan was an arm’s-length transaction, carried interest and was secured. Its terms did not suggest that repayment could be required otherwise than by strict compliance with the clause.

4. Under CPR r.72.2(1), a debt is due if instantly payable, or accruing due if payable in the future by reason of an existing obligation. A debt subject to an unsatisfied condition precedent is neither. Applying Merchant International v Nationalna Aktionerna [2014] EWCA Civ 1603 and Dunlop & Ranken Ltd v Hendall Steel Structures Ltd [1957] 3 All ER 344, no attachable debt existed before notice and expiry of the notice period.

5. The third-party debt order could not itself constitute the contractual repayment notice. That would improperly alter the parties’ bargain and place the judgment creditor in a better position than the judgment debtor. Bagley v Winsome and National Provincial Bank Ltd [1952] 2 QB 236 supported that conclusion. The authorities relied on by the appellant, including Re Brown’s Estate [1893] 2 Ch 300, O’Driscoll v Manchester Insurance Committee [1915] 3 KB 499 and Joachimson v Swiss Bank Corporation [1921] 3 KB 110, did not assist on these facts.

6. It was unnecessary to decide the alternative discretionary issue.

• High Court (Commercial Court): Appeal from the order of Mr Registrar Kay QC dated 14 June 2018. Permission to appeal was granted by Males J on 23 August 2018. The appeal was dismissed.