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1. The Plaintiff is a limited liability company incorporated in Northern Ireland which provides factoring facilities for clients. The first named Defendant (the Company) was incorporated in this jurisdiction under the Companies Acts, 1963 to 1986 on 16th November, 1988 and subsequently carried on an advertising business trading as Holland Callan Annesley Quinn Advertising. The second named Defendant (the Liquidator) is the Liquidator of the Company in a creditors' voluntary winding-up which commenced on 31st August, 1991.

2. By an agreement dated 7th April, 1989 made between the Plaintiff of the one part and the Company of the other part (the Agreement), the Plaintiff agreed to provide factoring facilities for the Company and, in particular, it was agreed that during the continuance of the Agreement the Company would assign all its debts to the Plaintiff by way of absolute purchase by and sale and assignment to the Plaintiff and that the Company would request, when required, any payment and that the Plaintiff would, on such request, make payment "to or to the order of" the Company of a sum not exceeding the Availability Balance, as therein defined. It was further provided that the Plaintiff would be entitled to a "Factor's Discount" at the rate of 2% per annum above either the prime rate specified from time to time by the National Irish Bank or 8% per annum, whichever should be the higher, charged on the debit Cleared Balance, as therein defined, on the Company's current account with the Plaintiff calculated daily and debited to the current account at the end of each month.

3. By a letter dated 6th April, 1989 from the Plaintiff to the Directors of the Company, the method of operation of the Agreement was set out. It was stipulated that the Company would advise the Plaintiff as to which officers of the Company had been nominated "to call off Factor's funds". The terms of the letter of 6th April, 1989 were accepted by the Company as evidenced by the signatures thereon of Lionel A. Annesley (Mr. Annesley) and Alan Tolerton, the two directors of the Company who witnessed the affixing of the seal of the Company to the Agreement. In Clause 8(a) of the Agreement, the Company agreed to inform the Plaintiff and to provide the Plaintiff with the names and specimen signatures of all persons authorised to sign documents on behalf of the Company relating to the Agreement. No instructions or mandate in writing as to the formalities to be complied with in relation to draw-down of funds by the Company was ever given by the Company to the Plaintiff.

4. The evidence establishes that during the continuance of the Agreement between April 1989 and August 1991 all but three transactions whereby money due to it was drawn-down by the Company involved payments to the Company directly. The established procedure was that an officer of the Company telephoned the Plaintiff's office in Belfast in the morning and ascertained the amount available for draw-down. Later in the day, the Plaintiff received a request by telephone or by fax indicating the amount which the Company wished to draw-down. The amount in question was paid to the Company either by a credit transfer to a bank account in the name of the Company in Dublin or, alternatively, by cheque in favour of the Company, the cheque sometimes being collected from the Plaintiff's offices in Belfast. All such draw-downs were authorised by one officer of the Company either by telephone call or by fax communication. A telephone request was not required to be verified in writing.

5. On three occasions draw-down was effected by payments to third parties. The first of these occasions occurred shortly after the Agreement came into force. By a faxed letter of 10th May, 1989, on the letter-heading of Holland Callan Annesley Quinn Advertising, which was signed by Mr. Annesley, who was described as the Managing Director, and by John Holland (Mr. Holland), who was described as the Financial Director, the Plaintiff was instructed to issue a cheque for the equivalent of IR£40,000 in sterling to Mr. D. Tolerton trading as C.D.C. and to debit the Company's account accordingly. The second occasion, which has given rise to the dispute the subject of these proceedings, occurred on 21st June, 1990 at a time when the Agreement had been in operation for over a year. The evidence establishes that on the morning of 21st June, 1990, Mr. Holland, who at the time was a director of the Company, its financial director and also the company secretary, telephoned Mr. Bill Murray (Mr. Murray) of the Plaintiff in the normal way to find out what amount the Company could draw-down. Before 9.00 a.m. that morning, the Company transmitted to the Plaintiff by fax on the letter-heading of Holland Callan Annesley Quinn Advertising instructions to make a cheque payable to "King & Goddy Solicitors" for £35,000 sterling, which would be collected by 11.00 a.m. This instruction was signed by Mr. Holland. Mr. Murray knew of a firm of solicitors in Belfast known as King and Gowdy, although he did not know the firm. On receipt of the first fax, he telephoned Mr. Holland and pointed out the mistake in the name of the firm. The Plaintiff received a second faxed communication from the Company, again on the letter-heading of Holland Callan Annesley Quinn Advertising, instructing the Plaintiff to amend the name to "King and Gowdy Solicitors" and to change the Company's account accordingly. This instruction was signed by Mr. Holland. The two faxed letters and the two fax covering sheets which accompanied them each bore the date 22nd June, 1990. However, it is absolutely clear that the date was incorrect on each document and that all four documents were transmitted by fax to and received by the Plaintiff on 21st June, 1990. The third occasion occurred on 1st March, 1991. At that time, the Plaintiff's officers were aware that a dispute between David Tolerton and Alan Tolerton, on the one hand, and the Company, on the other hand, had been settled by an agreement made on 21st February, 1991 under which the Company was to pay the sum of IR£100,000 to David Tolerton and Alan Tolerton by staged payments. By a faxed letter of 1st March, 1991 to the Plaintiff, which was signed by Mr. Annesley, who was described as Managing Director, and Ronan Callan, who was described as Director, the Plaintiff was authorised to discharge the scheduled payment for March 1st, 1991 of IR£30,000 to the Tolerton brothers by draw-down from the Company's account in favour of either or both David Tolerton and Alan Tolerton.

6. The Plaintiff complied with the instructions received by fax from Mr. Holland on 21st June, 1990 and on that day issued a cheque for STG£35,000 to King & Gowdy which was marked "For H.C.A.Q. A/c". At the beginning of July 1990, the Plaintiff sent to the Company a statement of the transactions on the Company's current account with the Plaintiff for the month of June 1990 which showed a debit of IR£37,839.83 on 21st June, 1990, which represented the payment of STG£35,000 to King & Gowdy. The debit was not queried at that stage. Subsequently, by faxed letter dated 14th January, 1991, which was signed by the then company secretary, Susan Morgan, the Company requested, inter alia, -

7. The evidence establishes that this request was made in the context of the Company's auditors endeavouring to reconcile inter-company accounts with the Tolerton brothers. By letter dated 15th January, 1991, the Plaintiff confirmed that it had charged to the Company's current account on 21st June, 1990 the sum of IR£37,839.83 " representing the punt equivalent of a sterling cheque issued to Messrs. King and Gowdy Solicitors ". The Company did not query the debit of IR£37,839.83 on 21st June, 1990 further and continued to do business in accordance with the Agreement with the Plaintiff until the commencement of the winding-up. Moreover, as I have indicated, at the beginning of March 1991, the Plaintiff, having been apprised of the terms of the settlement with the Tolerton brothers, was instructed to make a payment in partial implementation of that settlement.

8. These proceedings were initiated by Plenary Summons which was issued on 13th February, 1992. At that time, the Plaintiff's claim was that there was a balance of IR£207,462.23 due to it by the Company on foot of the Agreement. Contemporaneously with the issue of the Plenary Summons, the Plaintiff issued a Notice of Motion seeking a Mareva injunction, in consequence of which the Liquidator released the sum of IR£165,000 to the Plaintiff. What remained in issue between the Liquidator and the Plaintiff, and what was in issue at the hearing of the action, was a sum equivalent to the payment made by the Plaintiff on 21st June, 1990 to Messrs. King and Gowdy, that is to say, the sum of IR£37,839.83, which the Liquidator contended was not properly paid. In essence, the Liquidator's stance is that he is entitled to withhold that sum so as to, in effect, reverse the debit on 21st June, 1990 of that sum on the Company's current account with the Plaintiff. The Plaintiff also claims that it is entitled to its "Factor's Discount" on the sum withheld in accordance with the terms of the Agreement.

9. The case made by the Company and the Liquidator in their Defence and Counterclaim is that payment of IR£37,839.83 was made by the Plaintiff to Messrs. King and Gowdy without the authority or mandate of the Company or, alternatively, that the Plaintiff has failed to establish that it was duly mandated to make the said payment. In their replies to particulars sought by the Plaintiff, the Company and the Liquidator broadened their case for withholding the sum of IR£37,839.83 in that they contended as follows:-

10. So the Company and the Liquidator justify the reversal of the debit on the current account on 21st June, 1990 on two grounds: that the payment reflected in the debit was ultra vires the Company and that the payment was made without the authority of the Company.

11. The basis of the contention that the payment to Messrs King & Gowdy was ultra vires the Company is that under its memorandum and articles of association the Company had no power to pay the debts of a third party. The payment by the Plaintiff to Messrs King & Gowdy, it was contended, constituted the use of the Company's money to pay the debt of a third party and, accordingly, on the authority of the decision of the Supreme Court in In Re Frederick Inns Limited (1994) 1 I.L.R.M. 387 the payment was ultra vires and was not saved as against the Plaintiff by Section 8 of the Companies Act, 1963. While the Liquidator testified that from his examination of the books and records of the Company he was not able to establish that the Company received value for the payment to Messrs. King & Gowdy, and while Mr. Annesley testified that Messrs. King & Gowdy were not creditors of the Company and he does not know what the payment was for, in my view, the evidence does not establish why the payment was directed to be made to Messrs. King & Gowdy or who ultimately benefited from the payment nor does it establish that the payment constituted the use of the Company's monies in the discharge of debts owed by a third party. Moreover, in my view, the Liquidator's reliance on the decision of the Supreme Court in In Re Frederick Inns Limited in support of its argument that the Plaintiff would not be protected by Section 8 is misplaced. The ratio decidendi of that decision was that the Revenue Commissioners were not entitled to rely on Section 8 because the companies by whom the payments in issue in that case were made to them were insolvent and known to the Revenue Commissioners to be insolvent when the payments were made. In this matter, there is no evidence nor has there been any suggestion that the Company was insolvent on 21st June, 1990.

12. Even if the Liquidator had established that as between the Company, on the one hand, and Messrs. King & Gowdy, on the other hand, the payment made on 21st June, 1990 was ultra vires the Company and the Plaintiff was not protected by Section 8, the Liquidator has not established any basis on which the Plaintiff, which was merely the medium through which the payment was made, should be required, in effect, to make restitution for the ultra vires payment. The Liquidator sought to rely on the principle enunciated in Belmont Finance Corporation Limited -v- Williams Furniture Limited

13. Under the Belmont principle, as applied by the Supreme Court, what renders the recipient of or the dealer with funds which are being misapplied in breach of the fiduciary duties of the directors of a company liable as a constructive trustee is knowledge, actual or constructive, of the breach of trust. The factual position in this matter is that on the morning of 21st June, 1990 the Plaintiff acknowledged that it held at least IR£37,839.83 which, in accordance with the terms of the Agreement, was payable at the request of the Company to the Company or to its order and, later that morning, the Plaintiff received a request on the letter-heading of the Company showing its trading name and signed by a director of the Company, who was also the financial director and secretary of the Company, to make a payment equivalent to IR£37,839.83 to Messrs. King & Gowdy and the Plaintiff duly made that payment. Even if the payment was ultra vires the Company and in breach of the directors' fiduciary duties, it is clear from the evidence that Mr. Murray did not have actual knowledge of the purpose for which the payment was being made or of the breach. The Agreement specifically provided that the Plaintiff was obliged to make payments to third parties at the request of the Company. There was no obligation on the Plaintiff to enquire as to the purpose for which any payment which the Company requested the Plaintiff to make to a third party was being made or to satisfy itself that the payment was intra vires the Company and, even if the payment was ultra vires, constructive knowledge of a breach of trust cannot be imputed to the Plaintiff for failure to make such enquiries.

14. I turn now to the contention of the Liquidator and the Company that the payment made to Messrs. King & Gowdy on 21st June, 1990 was made without the authority of the Company. Mr. Annesley, who was the Managing Director of the Company at all material times, testified that Mr. Holland had no authority to direct payments of funds of the Company to third parties on his own: his authority was as one of two signatories, the other signatory originally being any director of the Company and subsequently being Mr. Annesley. However, Mr. Annesley accepted that the Company had never communicated to the Plaintiff that two signatories were required to authorise a payment of company funds to a third party. On the evidence, I am satisfied that Mr. Holland on his own did not have actual authority to direct the payment to Messrs. King & Gowdy.

15. However, the case made by the Plaintiff is that Mr. Holland had ostensible authority to bind the Company and that the Company and the Liquidator are estopped from denying the existence of such ostensible authority. On the evidence, I am satisfied that the four conditions laid down by Diplock L.J. in Freeman and Lockyer -v- Buckhurst Park Properties (Mangal) Limited (1964) 2 Q.B. 480 for the successful invocation of the doctrine of ostensible authority have been fulfilled in that -

16. The representation on which the ostensible authority of Mr. Holland, as a director and as company secretary, was founded was a tacit representation. The Agreement specifically provided for monies due to the Company being drawn-down either by payment to the Company directly or to a third party. The Agreement itself and the terms and conditions contemporaneously agreed to by the Company in relation to the method of the operation of the Agreement required the Company to advise the Plaintiff as to which officers of the Company had authority to draw-down funds due to the Company. The evidence establishes that in the early stages of the operation of the Agreement it was verbally agreed, in the context of a draw-down of funds into the Company, that draw-downs would be advised by the directors and the company secretary. In the operation of the Agreement prior to 21st

17. June, 1990, subject to one exception, every draw-down was requested by one officer of the Company only. In failing to communicate to the Plaintiff that draw-downs to the order of the Company were to be authorised in a different manner to draw-downs into the Company, in my view, the Company tacitly represented that all draw-downs were to be authorised in the same manner - by one officer of the Company. Moreover, the fact that the first authorisation to make a payment to the order of the Company, that is to say, the authorisation date of 10th May, 1989, was signed by Mr. Annesley, as Managing Director, and Mr. Holland, as Financial Director, in my view, did not negative that tacit representation. That authorisation was made in the early stages of the operation of the Agreement and authorised a payment to a director of the Company, which might well have been perceived as being a special category of payment.

18. I think it is also of significance that although the payment to Messrs. King & Gowdy was queried in January 1991 and the particulars of it were given to the then company secretary, the regularity of the payment was never impugned until it was impugned by the Liquidator after the commencement of the winding-up. The regularity of the payment to Messrs. King & Gowdy was at least tacitly acknowledged by the Company in the first quarter of 1991.

19. The Liquidator having failed to justify withholding payment of the sum of IR£37,839.83 on either of the grounds advanced by him, in my view, the Plaintiff is entitled to judgment in that sum. Moreover, as a matter of contract, the Plaintiff is entitled to its "Factor's Discount", as defined in the Agreement, under the terms of the Agreement from the date on which the said sum was withheld to the date of this judgment. The Plaintiff has conceded that the "Factor's Discount" may be calculated at the flat rate of 10% rather than the higher alternative rate provided for in the Agreement. Accordingly, there will also be judgment for interest at the rate of 10% calculated in accordance with the provisions of the Agreement.