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

LORD JUSTICE KENNEDY: Lord Justice Mantell will give the first judgment.

LORD JUSTICE MANTELL: Celtic Contractors Ltd ("Celtic") are currently suing Infinite Environmental Services Ltd ("IES") for £500,808.33 plus VAT and interest said to be due under a construction sub-contract.

At a hearing without notice on 26 February 2003 Celtic were granted an interim injunction restraining IES from dealing with monies held in a certain bank account, save as authorised by the order or in so far as any such dealing would not reduce the remaining balance below £336,104.17.

The return date hearing, originally fixed for 5 March, eventually took place before His Honour Judge Bradbury sitting as a High Court Judge on 12 March. The judge refused to continue the injunction.

This is an appeal by Celtic against that refusal.

The background facts are a little complicated. I shall attempt to state them in their simplest form. Clifford Chance, the well-known firm of solicitors, are having new premises built in the Canary Wharf area of London. The main contractors entered into a contract for fitting out with IES who in turn entered into what may be termed a mobilisation and supply contract with SAS International Ltd ("SAS"). This contract was not only for the work required at Clifford Chance's new premises but also work for with another company called Lehman Brothers. The terms of the agreement between IES and SAS provided for German bond holders to pay amounts certified as due from the main contractors to IES into an account controlled by Barclays Bank from which IES would be able to withdrew monies only after payment of sums due to SAS.

But IES also required a labour force. To that end IES approached Celtic. Celtic had had previous dealings with another company controlled by the directors of IES. Those dealings had gone sour, with Celtic claiming that they had not been paid all that was due to them. Celtic wished to avoid the same thing happening in the proposed contract with IES and sought some guarantee of payment. Mr McElhinney, the Managing Director of SAS, no doubt anxious to oil the wheels, came forward with a suggestion which he set out in a letter dated 20 August 2002 and addressed to a Mr Pither, a director of IES, and a Mr Whyte, a director of Celtic. As it is central to the present appeal it is necessary to refer to the terms of the letter in full. The letter reads:

Mr McElhinney never received the letter back duly signed as requested, but it is apparent from the document itself that it was signed both on behalf of IES and Celtic. There is a dispute whether the letter thus signed constituted a binding agreement or was to be regarded merely as a method of proceeding pending the drawing up of "a formal legalised version". There is a further issue about the effect of the agreement, if such it was, and in particular whether it conferred on Celtic some equitable interest in the monies held in the Barclays account.

Nevertheless in about August 2002 Celtic did start work at the site and continued to supply labour until about the end of January 2003 during which period they were paid in accordance with the terms proposed in the letter of 20 August.

At about the end of January 2003 there was disagreement between Celtic and IES as to the value of work done and sums due under the sub-contract. In consequence Celtic have not carried out any work since 7 February 2003.

On 21 February 2003 solicitors for Celtic wrote to Mr McElhinney of SAS insisting that sums due to be paid into the controlled bank account on 27 February 2003 should not be disbursed without first taking account of Celtic's interest in the sum of £286,046 plus VAT. The letter enclosed a copy of the agreement by this time signed both by Mr Whyte and Mr Pither.

On 24 February Ms Matthews replied on behalf the SAS, asserted that a duly signed copy of the letter had not been returned to SAS as requested and continued: "to date SAS when instructed by IES have made a number of payments to Celtic but logically have no authority to make payments unless instructed by IES", and on that basis declined to accept instruction from Celtic to see Celtic paid out first.

The consequence was that Celtic immediately issued its application for an injunction both against IES and SAS claiming by this time a total sum of £585,000-odd. It was upon the basis of that application that Elias J made the order of 26 February 2003.

When Judge Bradbury came to consider the application on notice Celtic were no longer seeking any order involving SAS. That was because, as had been recognised by Elias J, whatever the position may have been between Celtic and IES, SAS had a prior claim to Celtic's over the Barclays Bank account.

I should mention that whereas at one time it seemed that IES were accepting that a substantial sum was owed to Celtic, though not as great as the sum claimed, by the time the injunction proceedings had been lodged IES was claiming that Celtic had been overpaid and, as I have noted, Celtic's claim against IES had been raised to just short of £600,000.

Before His Honour Judge Bradbury it was submitted by Miss Brown who appeared for Celtic then, as she does now, that there was a serious issue to be tried as to whether Celtic was owed a substantial sum. That proposition has always been accepted. Next it was asserted that the letter of 20 August represented a binding agreement between Celtic and IES. Then that the agreement was such as to confer upon Celtic an equitable interest in any monies held in the Barclays account. Finally, whether or not Celtic had such an equitable interest nevertheless the principles set out by the House of Lords in American Cyanamid v Ethicon Ltd [1975] AC 396 justified the making of a freezing order pending final determination of the issues at trial.

Save as to the first and uncontested proposition the judge rejected all of Celtic's submissions.

As to the contention that the letter of 20 August represented a binding agreement he held that there was no serious issue to be tried. He pointed to the matters, which I have identified earlier in his judgment in support of that conclusion. He went on to say (page 14 of the transcript of his judgment):

It followed from that finding that he was bound to reject the submission that Celtic were entitled to an equitable charge over a specified amount as was at that time being claimed pursuant to Civil Procedure Rule 25 sub-rule 1L or, as the matter has been reformulated, to a general charge over any of the funds in the account. As to the application based on ordinary American Cyanamid principles he held that the balance of convenience did not require relief to be granted to the applicants. He reminded himself that it is not the purpose of a freezing injunction to provide a claimant with security for its claim, and then noted that it was necessary for IES to have regard to the position of their other creditors and further that to continue the injunction would effectively bring the construction contract work to a standstill with unhappy consequences for parties other than those involved in the litigation.

For my part and for the purposes of this appeal I am prepared to accept that the judge was in error in holding that there was no serious issue to be tried as to the binding nature of the August 20 letter. There was evidence from Mr Whyte as to his understanding and further the terms of the letter had been acted upon for a substantial period of time. However, I am entirely in agreement with the judge that any such agreement was insufficient to create the equitable charge for which Celtic contended or for a general charge over any funds in the bank such as might justify an order restraining IES from using the fund for its own purposes. I note the letter of 20 August in providing for payment on a monthly basis was not contemplating that Celtic should be guaranteed payment other than for work done in the previous month. In so concluding I am agreeing with the judge that the fifth paragraph does not create the equitable interest for which Miss Brown contends. I also agree with the judge that once it becomes necessary to have recourse to general principle, and more particularly to the balance of convenience, everything points away from the making of the order. Even if I were not so firmly of that view I would think long and hard before interfering with the judge's discretion in a matter of that kind.

For those reasons I would dismiss this appeal.

LORD JUSTICE KENNEDY: I agree.