Petroleo Brasilieiro SA v ENE Kos 1 Ltd

One of the questions raised by this appeal is: what is the effective date of a payment into court where payment is made by cheque? Is it when the cheque is received in the court office, or is it when the funds have been cleared? Does it make any difference if the cheque is in a foreign currency? Perhaps surprisingly, it seems that there is no previous authority on this point.

This case arises out of a long term charter dated 2 June 2006 under which the claimant (as owner) chartered the MT KOS to the defendant (as charterer). The charter was in standard form requiring payment of hire to be made monthly in advance, failing which the claimant was given the express right to withdraw the vessel. The vessel was delivered into the chartered service in July 2006 and thereafter performed various voyages pursuant to the instructions of the charterer for nearly 2 years. The advance hire payment for June 2008 was due by the latest on Saturday 31 May 2008. It was not paid by that date. After checking that no hire had in fact been paid on the next banking day (2 June 2008), the claimant withdrew the vessel at 14.41 GMT on that day.

The claimant started these proceedings and claimed inter alia a declaration that the withdrawal was valid and lawful. The defendant put the claimant to proof that it was entitled to withdraw the vessel. It also advanced a counterclaim on the basis that, if the claimant failed to prove that the withdrawal was valid and lawful, then it was liable in damages for breach of the charter.

The claimant applied to the court for summary judgment for a declaration that the withdrawal was valid and lawful and for an order that the counterclaim be dismissed.

On that application, the defendant adduced evidence from Juan Alegre, a partner in Messrs Thomas Cooper, the defendant’s solicitors, that the defendant might be able to assert that the claimant had lost the right to withdraw the vessel by operation of waiver. Mr Alegre accepted that, in order to do so, the defendant would have to show that the claimant knew that it had failed to pay the hire by 31 May. Mr Alegre said that the defendant could reasonably expect further evidence to be available by the time of the trial to support such a case.

Field J conditionally refused the application for summary judgment on 13 February 2009. He said:

Para 1 of the court order dated 13 February was in these terms:

At 11.18 hrs on 27 February, Thomas Cooper sent an email to the claimant’s solicitors, Ince & Co in these terms:

At 13.56 hrs on the same day, Ince & Co replied saying that the claimant was not willing to agree that the funds be held against a solicitor’s undertaking and that the defendant should comply with the terms of the order of 13 February. The defendant therefore chose to pay into court. Thomas Cooper completed Court Funds Office Form 100 (Request for Lodgment) and before 16.30 hrs on 27 February lodged in the Court Funds Office a cheque in the sum of US$ 500,000 payable to the Accountant General of the Supreme Court. The cheque was drawn on Thomas Cooper’s US$ client account. On the same day, the Court Funds Office sent Thomas Cooper a temporary acknowledgement of receipt of the cheque, stating “once our bank confirms the payments, we will write to notify you of the exact amount that has been received”. The letter also stated that the standard procedure for cheque clearance by the Royal Bank of Scotland usually takes between 6 and 8 weeks.

Thomas Cooper’s US$ client account statement shows that the cheque cleared on 6 March and the Court Funds Office confirmed to the defendant that it had received the cleared funds by a letter dated 10 March.

In the meantime, Ince & Co wrote to the court asking the judge to restore the claimant’s application and to enter summary judgment against the defendant on the ground that it had not complied with paragraph 1 of the order of 13 February. The claimant’s contention was that delivery of the cheque before 17.00 hrs on 27 February was not sufficient to comply with the order.

After receiving written submissions from both parties, on 8 April 2009 the judge granted the order sought by the claimant. The heart of his reasoning is at para 5 of his ruling:

The defendant appeals with the permission of the judge.

The defendant says that the judge erred in that (i) by lodging the cheque in the Court Funds Office before 17.00 hrs on 27 February, it complied with paragraph 1 of the order of 13 February; alternatively (ii) if the defendant did not comply with paragraph 1 of the order, then the judge should have exercised his discretion under CPR 24.2 not to grant summary judgment; alternatively (iii) the judge should have relieved the defendant from the sanction set out in paragraph 1 of the order by making an order under CPR 3.9 by granting a short extension of time for compliance with the order.

The general provisions regarding payments into court are in CPR 37 and the Practice Direction supplementing that rule. CPR PD37 provides:

send to the Court Funds Office –

serve a copy of the form 100 on each other party; and

file at the court –

Funds in court are regulated under section 38 of the Administration of Justice Act 1982 and by the Court Fund Rules 1987 (“the CFR”) made thereunder. Rule 16 of the CFR provides:

The lodgement of foreign monies is dealt with in Rule 38 of the CFR which provides

The Court Funds Office website provides:

Mr Bernard Eder QC submits that the true meaning of paragraph 1 of the order of 13 February does not depend on the proper interpretation of the CFR. He says that it is clear from the terms in which the judge expressed himself in his judgment of 13 February that he intended that payment would not be made until the funds were cleared. Mr Eder places particular reliance on the fact that the judge said that he refused the application for summary judgment “on strict terms that the charterers pay into court…the sum of $500,000” (emphasis added): the use of the phrase “on strict terms” indicates that the mere lodging of a cheque (which is no more than a conditional payment) would not constitute a payment into court within the meaning of paragraph 1 of the order of 13 February.

Alternatively, Mr Eder has a number of submissions on the true meaning of the CFR. First, he submits that, as a matter of ordinary language, “payment” involves the transfer of funds which give the transferee the unconditional right to the immediate use of the funds. He relies on The Brimnes [1994] 2 Lloyd’s Rep 241, 248. He submits that the tendering of a cheque and the completion of Form 100 are no more than steps on the way to providing security, but until funds have been received into court the claimant is not secured and payment is not made.

Secondly, he submits that rule 16(6)(ii) of the CFR has no application to a payment into court of a foreign currency, because the effect of CFR 38 and what is stated on the Court Funds Office website is that the lodging of a cheque is not an approved method for making a payment into court of a foreign currency.

Thirdly, the reference in rule 16(6)(ii) to the date of “its receipt” is a reference to the date of the receipt of the “money” referred to in rule 16(6). This means that the effective date of lodgement of the money, where payment is by cheque, is the date when the cheque clears. Mr Eder submits that the terms of the temporary acknowledgement of receipt of the cheque “Once our bank confirms payment, we will write to notify you of the exact amount that has been received” are inconsistent with any actual payment having been made or being regarded as having been made until the funds have been cleared.

I cannot accept these submissions largely for the reasons advanced by Mr Christopher Hancock QC.

I accept that it is necessary to determine the true meaning of paragraph 1 of the order of 13 February. In my judgment, the words “shall pay into court….the sum of US$ 500,000” do not bear a “special meaning”. Field J intended to refuse summary judgment if by 17.00 hrs on 27 February the defendant made a payment into court which satisfied the relevant rules. Mr Eder submits that the alternative permissible method of satisfying paragraph 1 of the order of 13 February (“or provide….security for the sum of $500,000”) indicates that the judge intended that what had to be paid into court was money which provided the claimant with security. I do not agree. The order provided for two distinct ways in which the defendant could avoid summary judgment. I do not consider that the existence of the alternative of providing satisfactory security sheds any light on what is meant by “shall pay into court”. It is an insufficient reason for concluding that the judge did not intend the meaning and effect of a payment into court to be determined in accordance with the relevant rules.

Nor do I consider that the fact that the judge said that summary judgment was refused “on strict terms” that the defendant made the payment into court by 17.00 hrs on 27 February bears the weight which Mr Eder seeks to place upon it. Orders for payments into court are routinely made by civil courts week in and week out. When the words “pay into court” or “payment into court” are used by a judge, they are intended to refer to payments into court whose meaning and effect are governed by the CPR and the CFR. I doubt whether there is power in the court to make an order for a payment into court whose meaning and effect differs from that prescribed or permitted by those rules. But if a judge does have such power, he will not be taken to have exercised it unless it is clear, whether by the use of express language or by necessary implication, that he intended that it should have that different meaning and effect.

There is nothing in his judgment or the order itself to suggest that Field J intended the meaning and effect of the payment into court to be judged other than by reference to the relevant rules. I turn therefore, to consider the meaning and effect of the relevant rules. Since the judge drew no distinction between sterling cheques and foreign cheques, his ruling is of application to cheques generally. I shall start with sterling cheques.

The language of CFR16(6)(ii) is clear and unequivocal. The rule could have said that, in the case of a cheque, the effective date of lodgement is the date when the cleared funds are received, but it does not do so. Instead, it says that the effective date of lodgement is the “date of its receipt in the Court Funds Office”. As a matter of syntax, “its” receipt can only be a reference to the receipt of the cheque itself. It is not a reference to the receipt of the cleared funds. This conclusion is further supported by the fact that, although the cheque is received in the Court Funds Office, the cleared funds are not received in that office, but in the bank account of the Accountant General. For the purposes of determining the effective date of lodgement of money in court, the rules draw a clear distinction between the Court Funds Office and the account of the Accountant General. Rule 16(6)(ii) provides that the effective date of lodgement in the case of a cheque is the date of its receipt in the Court Funds Office [or such later date as the Accountant General may determine]. Rule 16(6)(iii) provides that the effective date of lodgement in the case of a lodgement of money which is not required to be paid into the Court Funds Office under (5) (payments of money by litigants in person into a District Registry or County Court) is the date certified by the Bank as that on which the money was placed to an account of the Accountant General.

I would add that there is a good reason for saying that the effective date of lodgement in the case of a cheque is the date of receipt of the cheque and not the date when the funds are cleared. It is important that there should be certainty as to the effective date of lodgement. As the present case shows, the consequences of a payment into court being made on one day rather than another may be very significant. If the effective date were to be the date on which the cleared funds are received by the court, the date of payment would be taken out of the control of the paying party. In that event, even if the paying party were to deliver a cheque to the Court Funds Office in good time to enable the funds to be cleared by the date prescribed in a court order, he or she could not be sure that the payment had been made by that date. That would be a most unsatisfactory state of affairs and is unlikely to have been intended by the draftsman of the rules. It is not at all fanciful to conceive of the possibility of a delay in the presentation of the cheque for clearance, or even the cheque being mislaid in the Court Funds Office.

I see no reason not to give effect to the plain and ordinary meaning of the language of rule 16(6)(ii). It avoids uncertainty and the real possibility of injustice to the paying party.

It is also consistent with the general law as to the effective date of payment where payment is made by cheque. The question of when payment is to be treated as having been paid where it is made by cheque is not free from authority. In Homes v Smith (Court of Appeal unreported 2 February 2000), one of the questions was whether the obligation to make payment of a certain sum by 14.00 hrs on 25 September 1998 had been discharged by the delivery of a cheque between 11.00 and 12.00 hrs that day. Lord Woolf MR said:

It is clear, therefore, that if the defendant had been under a contractual obligation to pay the claimant US$500,000 by 17.00 hrs on 27 February and payment by cheque had been a contractually permissible mode of payment, the delivery of a cheque in that sum before that time on 27 February would have been a valid and effective conditional discharge of that obligation even if the funds did not clear until after that time. The condition would have been satisfied if the cheque was honoured.

Payment by cheque is a permissible means of making a payment into court: see PD 37 para 1.1(1)(a) and CFR rule 16(6)(ii). Far from finding anything in the CFR which indicates an intention to depart from the general rule as to the date when payments by cheque take effect, for the reasons that I have given they are entirely consistent with that rule.

Accordingly, if paragraph 1 of the order of 13 February had required a payment into court of £X by 17.00 hrs on 27 February, the lodging of a cheque for £X before that time on that date would have complied with the terms of the order if the funds were eventually cleared.

Does it make a difference that the cheque was for a sum in US$? As I have said, Mr Eder submits that payment into court cannot be made by a foreign currency cheque, since such payment is not payment in a manner approved by the Accountant General.

It is true that the Court Funds Office website refers to a number of methods of foreign currency lodgement and that the lodging of a cheque is not included: see [17] above. But it is clear from other material that has been placed before the court that payment by means of a foreign currency cheque is payment in a manner approved by the Accountant General.

First, the facts of the present case show that payment into court can be made by a foreign currency cheque. The fact that the Court Funds Office accepted the cheque which was lodged on 27 February and that the cheque was presented to the bank for payment and the funds were cleared is the best evidence that payment in this manner is approved by the Accountant General. The temporary receipt sent on 27 February by the Court Funds Office to Thomas Cooper expressly acknowledged that the payment would be made by cheque and that the amount was US$ 500,000.

Secondly, after the hearing of the appeal with the agreement of Thomas Cooper and at the request of the court, Ince & Co wrote to the Court Funds Office and asked for clarification of various matters. Following an initial response from the Court Funds Office, the Court itself wrote a further letter seeking additional clarification. By a letter dated 6 October 2009, Kevin Carlin replied on behalf of the Court Funds Office as follows:

The first paragraph of this reply could not be clearer. Payment into court by foreign currency cheque is an approved method for making a payment into court in a foreign currency. It is unclear why payment by cheque is not mentioned on the website. But the website does not say that the specified methods of payment are the only approved methods of foreign currency payment.

There remains the separate question: when is the effective date of lodgement of a foreign currency cheque? The answer is not provided by CFR rule 38 which is silent on the subject. But the question of the effective date of lodgement of cheques is dealt with by rule 16(6)(ii). There is no reason for reading that provision as being limited to sterling cheques. Accordingly, the effective date of lodgement of any cheque is the date of its receipt in the Court Funds Office unless the Accountant General has determined that it is a later date. It is clear from Mr Carlin’s letter that the Accountant General has not made a determination of a later date in respect of either sterling or foreign currency cheques.

For all these reasons, I conclude that the effective date of lodgement of the cheque for US $500,000 was the date when the cheque was lodged in the Court Funds Office (27 February 2009) and that accordingly the defendant satisfied the condition imposed by Field J. I would, therefore, uphold the first ground of appeal.

I have read in draft the judgment of Arden LJ and the interesting suggestions that she makes. Since these points were not the subject of argument before us, I would prefer to express no opinion on them. At the very least, however, I think that her ideas are worthy of consideration by the Civil Procedure Rules Committee.

I take these grounds together because they raise the simple question whether, in the circumstances of this case, the judge should have exercised his discretion to relieve the defendant of the consequences of paragraph 1 of the order of 13 February. It is said on behalf of the defendant that this could have been done under CPR 24.2 or by granting relief from sanction under CPR 3.9 by extending the time for compliance with the order. In view of my conclusion on the first ground of appeal, these grounds do not arise. I shall therefore deal with them briefly.

Mr Eder points out that the defendant did not ask the judge to modify or provide relief against paragraph 1 of the order and submits that it is impermissible to ask this court to do this now. He also submits that, once the judge concluded that the defendant had failed to comply with paragraph 1 of the earlier order, there was no further discretion to exercise under CPR Part 24.

I would accept that in their letter to the Commercial Court dated 3 March 2009, Thomas Cooper submitted that the defendant had complied with the order of 13 February and did not in the alternative ask the court to exercise its discretion in the defendant’s favour. That is not, however, necessarily an end of the matter. The judge could have acted of his own initiative under CPR 3.3(1). But in my judgment, he cannot be criticised for failing to exercise the court’s discretion in favour of the defendant in circumstances where (i) the defendant was represented by experienced solicitors and did not ask him to exercise discretion in its favour and (ii) the judge had said in his judgment of 13 February that he had refused the application for summary judgment “with a very considerable degree of reluctance” and that he was refusing summary judgment “on strict terms” that the payment into court was made by 17.00 hrs on 27 February.

I would, therefore, have rejected the second and third grounds of appeal if they had still been alive.

Although I would uphold the first ground of appeal and declare that the judge should have held that the defendant had made a payment into court in accordance with paragraph 1 of the order, I would nevertheless dismiss this appeal.

As we have seen, the judge refused the application for summary judgment with a very considerable degree of reluctance. He was just persuaded that the defendant might be able to show at trial that the claimant had lost the right to withdraw the vessel by waiving the claimant’s breach. He said that it was arguable that the defendant might be able to show that the claimant knew by midnight on 31 May, or shortly thereafter, that there had been non-payment of the hire and that its subsequent conduct amounted to an affirmation of the contract and waiver of the right to withdraw.

Since the hearing before the judge, Roger Green, director of operations at Andros Maritime Agencies Ltd (“Andros”), the London agents of the claimant’s Greek managers, has made a witness statement. He explains the method of payment of hire and the means of knowledge of the dates of payment available to Andros and others acting on behalf of the claimant. The defendant has not suggested that there is any prospect that it could disprove the accuracy of this statement. With characteristic candour and fairness, Mr Hancock realistically accepts that there is nothing in the material that has been disclosed by the claimant to support the defendant’s case on waiver and no basis for challenging the evidence of Mr Green. In these circumstances, it seems to me that there is no reasonable prospect that the defendant would be able to establish that the claimant had waived its right to withdraw the vessel.

No useful purpose would, therefore, be served in allowing this appeal, since the claim is bound to succeed at trial. Thus, although I have reached the conclusion that the judge erred in holding that the defendant had not complied with the order of 13 February, I would nevertheless dismiss this appeal. There would be no point in allowing the appeal. If we were to allow the appeal, there would be likely to be a further application for summary judgment which would succeed. And even if there were no such application, the claimant would be bound to succeed at trial. In either event, the parties would incur further costs for no good purpose.

I agree, but I would like to add some observations relevant to the outcome of ground 1 of this appeal and to the point made by Lord Justice Dyson in the penultimate sentence of paragraph 25 of his judgment. Lord Justice Dyson there expresses doubt as to whether the court has power to make an order for a payment into court whose meaning and effect differs from that prescribed or permitted by the CPR or CFR. We did not hear argument on the matters covered by my observations (or indeed the subject on which Lord Justice Dyson expresses doubt), and accordingly these observations represent my provisional views.

The circumstances of a particular case may make it just for the court to craft a special form of order. In many situations the paramount interest will be that of the maker of the payment in knowing for certain the time when his payment into court is made. But there may be cases where that interest has to be balanced against the interests of the other party. Suppose for instance that the claimant is ordered to make a payment into court in order to provide security for costs to be incurred by the defendant. It might be very unfair to the defendant, especially in the current economic situation, if he has to incur substantial costs at a time when the cheque by which payment into court was made is still in the process of being cleared because he is then forced to take the risk of the cheque not being cleared.

How can this practical problem be met? In my judgment, neither the CPR nor the CFR require the court to give the maker of the payment every option for making a payment into court available under the CPR or CFR. It is open, as I see it, to the court in an appropriate case to restrict the options open to the maker of the payment and to specify the mode or modes of payment which the maker of the payment must adopt, provided that - and this is the point made in the penultimate sentence of paragraph 25 above - the specified mode of payment is one permitted by the CPR and the CFR. Thus the order of the court could provide in an appropriate case that the payment in should be made either in cash or by banker's draft, as these methods would seem to offer the best chance of shortening the period otherwise required for clearing a cheque, particularly a non-sterling cheque.

I further consider that it is also open to the court to specify that any payment in should not be effective for the purposes of its order unless the payment is for value received by a certain date. Obviously any such order would have to give the maker of the payment a reasonable opportunity of making the payment in by that date and it would have to be clear and unambiguous. But under this form of order it would be the maker of the payment who would take the risk of the cheque or other instrument representing payment not being met on presentation. He would have to make sure that he made the payment into court sufficiently quickly to meet the conditions in the order. If the date specified in the order is exceeded without any fault on the maker's part, I would expect the court to extend the time. Otherwise an order would have to be made for payment out of any funds actually paid into court. The Court Funds Office would not be required to take any step not otherwise required to be taken by it and thus it would not be for them to secure the implementation of any special term in an order requiring a payment into court to be for value received by a certain date.

In other words, I consider that the courts will be able to address problems that may arise from this court's decision without the necessity of any amendment to the CPR or the CFR.

The Court Funds Office website states that a payment by electronic transfer takes 4 to 5 days to clear. This is at first sight surprising and I would expect that period to be shortened as electronic payment systems are improved.

I agree that for the reasons given in the judgment of Dyson LJ this appeal should be dismissed. I have noted the interesting suggestions that Arden LJ makes. As Dyson LJ has said, these points were not the subject of argument before us, and I too would prefer to express no opinion on them. I, however, support the suggestion that her ideas are worthy of consideration by the Civil Procedure Rules Committee.