THE HIGH COURT
No. 2001/2446 P     
BETWEEN 
ANGLO IRISH BANK CORPORATION PLC
PLAINTIFF
AND
EDWARD KAVANAGH MAYNOOTH (LIMITED) (IN LIQUIDATION)
DEFENDANT
Judgment of Mr. Justice Gilligan delivered the 19 day of December, 2003.
	The defendant herein was a customer of the plaintiffs and had been since in or about 1989.  The agreement between the plaintiff and the defendant over the years was that each year sums of money were advanced by way of loan from the plaintiff and these were repaid in or around August of each year and a new loan structure was put in place.  
	On or about 31st August, 2000 the defendant having repaid its previous loan facility specifically requested the plaintiff to make a further loan facility in the sum of £1.650 million available.  
	Mr. O’Sullivan, now an Associate Director of the plaintiff but in 2000 a Senior Manager gave evidence as to the background arrangement between the plaintiff and the defendant.  He indicated that prior to the loan facility the subject matter of these proceedings being advanced he had a number of discussions with Edward Kavanagh and William Kavanagh directors of the defendant company and Cormac Murphy who was financial controller.  It was outlined to him that the company had obtained planning permission for certain lands known as “Manor Mills” at Maynooth and a value had been placed on the lands of a sum in the region of £8 million.  He was aware that the defendant at the time was making very modest profits and it was proposed to him that the lands referred to were about to be sold and that a sale would take place within a number of months.  Taking the various factors into account he was not happy to deal with the defendant without security being in place.  He says that if no security was in place he would not have advanced the loan facilities to the defendant.
	The background details to the loan facility as advanced to the defendant are set out in an agreed booklet of documents and I particularly note clause 2 (b) and (e) of the conditions precedent, relating to the resolution of the Board of Directors of the borrower approving the terms of the agreement and the security documents and authorising the execution thereof and the security documents duly executed by the parties thereto.
	In the plaintiff’s letter of loan facility as dated the 15th September, 2000 it is specifically stated the facility is being made available on the terms and conditions set out in the general conditions as referred to and “this facility letter”.  
	The facility letter at para. 3 (a) refers specifically to a security in terms 
(a)	Solicitors undertaking that the facility will be repaid on sale of lands at Maynooth or on transfer of the lands to a newco for the purposes of redevelopment of the lands at Maynooth.
  
There were also a number of other security terms which are not relevant to the issues that arises in this case.
There was also a condition precedent set out at para. 5 of the facility letter which refers to the facility not being available for draw-down unless the conditions precedents set out in the general conditions are satisfied.  
The defendant accepted the conditions as set out in the facility letter by way of signatures of Edward Kavanagh, William Kavanagh and Thomas Kavanagh as dated 19th September, 2000.  The defendant’s resolution was also passed on the 19th September, 2000 agreeing the terms of the facility letter of 15th September, 2000 and the defendant’s solicitors gave a solicitors’ undertaking as dated 20th September, 2000 addressed to the plaintiff in the following terms:
“Dear Sirs, 
We act for the above named Edward Kavanagh Maynooth which company is involved in negotiations to sell the above property for a total consideration of £7.875 million.  
We are advised that our client is in debt to your bank in the amount of IR£1.65 million.  Please note that whilst negotiations are at a very advanced stage binding contracts have not yet been put in place.  It is anticipated that the contracts will be put in place very shortly and that the completion will take place within the next two weeks.  
In consideration of your bank providing facilities to our above named client we hereby irrevocably unconditionally undertake with your bank to retain the sum of £1.65 million out of the proceeds and to forward same to your bank forthwith upon receipt by us.  
Please note that whilst we have unequivocal instructions from our client in this regard our undertaking is strictly conditional upon the conclusion of a binding contract for the sale and the receipt of the sale proceeds by us. 
We trust this is the information you require.”  

Pursuant to the terms as agreed the plaintiff advanced to the defendant company the sum of £1.650 million in two tranches on 20th September, 2000 and the 21st September, 2000.  
On 26th October, 2000 a provisional liquidator was appointed to the defendant company and on 1st December, 2000 at a meeting of the defendant’s creditors Mr. David M. Hughes chartered accountant who had initially been appointed as provisional liquidator was appointed liquidator to the company.  
Subsequently the plaintiff attempted to protect its position but the liquidator has declined to meet the plaintiff’s demands and the issue in this case is as to whether or not it was the intention of the parties as of 19th/20th September, 2000 that the loan should be secured by the proceeds of sale of the lands as referred to and as to whether or not the solicitor’s letter of 20th September, 2000 creates an equitable charge upon the purchase monies to the extent of the monies so advanced by the plaintiff to the defendant company.
Mr. O’Sullivan in cross-examination by Mr. McCann S.C. for the defendant accepted that he would have had a concern if the solicitors on record who wrote the letter of undertaking of 20th September, 2000 were to come off record or were to be no longer retained and this aspect arose as a result of the content of a letter of 26th October, 2000 written by the solicitors for the plaintiff to the solicitors for the defendant wherein it was indicated on behalf of the defendant that “our client does not consent to the cessation of your retainer or to the appointment of your client of Messrs Beauchamps or any other firm to act in any sale of the property.  Could we ask you to immediately take your clients instructions and clarify the position in this regard and further to confirm that you retain the title documents to the property.”
Mr. Cush S.C. for the plaintiff relies on the decision of this Court by McWilliam J. in Kum Tong Restaurant (Dublin)Limited (in Liquidation); Patrick J. Byrne and Allied Irish Bank [1978] I.r. 446, where he outlines the distinction as drawn therein between a mortgage by deposit of title deeds which would be a charge on the vendor’s interest in the property concerned and a charge on the proceeds of sale and their respective effect having regard to the provisions of s. 99 of the Companies Act, 1963.  
Counsel submits that a solicitor’s undertaking has implications for the client and cannot be set at nought after the draw-down of the facility.  The solicitor may subsequently be relieved of the undertaking but a client cannot walk away from same.  Counsel submits that it was the intention of the parties as of 20th September, 2000 that the proceeds of sale of the lands was to be the security for the loan facility and that was the intention of the parties and it was on that basis that the loan facility was advanced.  He submits that in these circumstances it was the intention of the parties that the loan would be secured by the proceeds of sale and the letter of the 20th September, 2000 created an equitable charge upon the purchase monies to the extent of the amount as advanced by the plaintiff to the defendant company.  
He distinguishes the facts of this case from the position that pertained in Re Gregory Love & Company Limited [1961] Ch. 203 wherein the facts were that there was merely an agreement to create a charge in the future upon the happening of some designated contingencies.  In the present case, Counsel submits that the clear intention of the parties was to create a charge on the proceeds of sale at the time of and by the letter of undertaking.  
It is not in dispute between the parties that if an equitable charge was created at the time such a charge would not be a book debt within the meaning of s. 99 2(a) of the Companies Act, 1963 and need not have been registered.
Mr. McCann S.C. on the defendant’s behalf submits that the wording of the letter of 20th September, 2000 does not give rise to an equitable charge and that even if a charge was created no such charge can be upheld as to do so would be to defeat the statutory winding up process.  Further if a charge existed it was void as a charge on lands as opposed to the proceeds of sale and further if there was a charge it fails for lack of fulfilment prior to the date of the winding-up.
	Counsel refers to the fact that the first mention of an equitable charge only arose a significant time after the events referred to and that this is evidenced in the plaintiff solicitor’s letter of 26th October, 2000 and in particular the clear concern that was being expressed as regards the possibility of a change of solicitor and concern as regards to the defendant’s company’s then solicitors retaining the title documents. He advances an argument that if as the plaintiff contends an equitable charge had been created there would have been no reason to have been concerned about the defendant company’s then solicitors retaining possession of the title deeds and further refers to the fact that in any event the solicitors had never even undertaken to do so in the first place.  In those circumstances he submits that no equitable mortgage was created by the parties over any sale proceeds.
	Counsel submits that the wording of the alleged charge is far too conditional to create a charge and that, for example, there is no provision as to what would happen if the sale did not proceed ahead and further refers to the fact that the defendant company might never have developed the lands.
	Counsel advances the case that if any interest was created it was a highly contingent interest and that the only reason why the plaintiff does not advance an argument on the basis of having had any interest in the land is because undoubtedly any such charge would have been void for non registration pursuant to s. 99 of the Companies Act, 1963.  He refers to the distinction in Re Kum Tong Restaurant (Dublin) Limited (In Liquidation) Patrick J. Byrne v.  Allied Irish Bank Limited [1978] I.R. 446 where the company had already entered into a binding contract to sell its lands by the time of the giving of the letter of undertaking and where that letter stated as follows:
	“We now therefore undertake in consideration of your granting the company a bridging loan of £4,000 on the strength of the contract for the sale of their premises in Grafton Street to hold such documents of title to the said premises as we may have in trust for the bank and to hand over sufficient monies out of the proceeds of sale to redeem this bridging finance as soon as the sale is closed.”
	In his submission counsel says that the words “to hold such documents of title to the said premises as we may have in trust for the bank” make it quite clear that the company in the Kum Tong case were encumbering not only the sale proceeds which related to an actual contracted sale but also the documents of title and thus the lands themselves.  In these circumstances it is submitted that whatever interest the plaintiff may have had in the proceeds could not possibly be construed as an extra charge given the extent to which it was contingent on other events occurring.
	Counsel further submits that where there was an intervening liquidation between the date of the alleged charge and the date of the coming into existence of the asset allegedly charged the situation is altered.  At the date of the winding up it is submitted on the defendant’s behalf that the plaintiff was no more than an unsecured creditor as the asset over which it allegedly had a charge had not as of that date come into existence. and that if a charge was created, and the charge did not require registration, then the charge was subject to conditions that remain unfulfilled.  
	 I take the view that the essential issue in this case is as to whether or not I am satisfied that it was the intention of the parties to the loan that it should be secured by the proceeds of the sale of the company’s lands and as to whether or not the plaintiff’s solicitor’s letter of 20th September, 2000 created an equitable charge upon the purchase monies to the extent of the amount as advanced by the plaintiff to the defendant company.
	I accept the evidence of Mr. O’Sullivan that he was advised by senior representatives of the defendant that planning permission had been obtained for the relevant lands at “Manor Mills” Maynooth, that a sale of these lands was imminent for a sum in the region of £8 million, that he was not happy to advance any loan to the defendant without there being security in place and that it was agreed by the defendant that the security would be that the loan would be repaid out of the proceeds of sale of the lands and that this event was to happen within a relatively short period of time.  
	In my view on the evidence the terms and conditions were quite clear to the effect that it was the intention of the parties to create a present charge on the sale proceeds to repay the loan that was in fact advanced in the sum of 1.65 million on 20th and 21st September, 2000.
	I am satisfied on the evidence that the charge was clearly attached to the proceeds of sale of the relevant lands and not to the land itself.
	I am satisfied that the defendant company solicitor’s letter of 20th September, 2000 was effective to create the charge intended on the proceeds of sale and I am further satisfied accordingly that the charge is not a book debt within the meaning of s. 99 of the Companies Act, 1963. 
	I do not accept the argument advanced on the defendant’s behalf that the statutory winding up process is defeated in any way.  I take the view that the equitable charge was existing at the time of the liquidation and the liquidator is bound by the charge.  In effect he takes, subject to the equitable claim.  As Henchy J. set out in Dempsey v. Bank of Ireland, Supreme Court 6th December, 1985.
“The liquidator takes the assets subject to any pre-existing enforceable right of a third party in or over them.  If that were not so, equities, liabilities and contractual rights validly and enforceable created while the assets were in the hands of the company would be unfairly swept aside and an unjust distribution of the assets would result.”

	I do not accept that the charge as created is too conditional, nor do I believe that the absence of a contract for a sale makes a difference.  The facts of this case are that a sale was imminent and this was confirmed by the content of the solicitor’s letter of the 20th September, 2000, prior to the loan being advanced.  The lands were subsequently sold in the course of the liquidation.
	I take the view that the position in this case is distinguishable from the situation which pertained in ‘Re Gregory Love and Company Limited [1916] 1 Ch. 203, as in that case there was merely an agreement to create a charge in the future, upon the happening of certain designated contingencies.  In the present case I find that it was the intention of the parties at the time to create a present ‘undertaking’ over the proceeds of sale of the lands.
	McWilliam J. ‘In the matter of Kum Tong Restaurant (Dublin) Limited (In Liquidation); Patrick J. Byrne and Allied Irish Banks Ltd., [1978] I.R. 446 in somewhat similar factual circumstances attached significant importance to the intention of the parties to the loan in addition to the actual letter giving rise to the equitable charge over the proceeds of sale of a property.
	At page 451 of his judgment McWilliam J. stated:-
“The letter of the 8th day of April, 1974 dealt solely with the proceeds of sale; the title deeds were stated to be held solely to secure payment out of the proceeds of sale.  Although not stated in so many words, the clear intention was to charge the proceeds of sale and no argument has been advanced to me to show that the proceeds of the sale cannot be charged as such and I can see no reason why they should not be so charged.”

	Accordingly, in these circumstances I grant the plaintiff;
1.	A declaration that the undertaking as contained in the defendant’s solicitor’s letter of the 20th September in favour of the plaintiff created an equitable charge over the sale proceeds to be derived from the sale of the defendant’s lands, the subject matter of the equitable charge.
2.	A declaration that the plaintiff’s equitable charge over the proceeds of sale to be derived from the sale of the defendant’s land is valid and enforceable against the defendant.
	And further I direct that the liquidator of the defendant company do pay to the plaintiff the sum of  €2,095,067.80 being the equivalent of 1.650 million Irish Pounds together with appropriate interest thereon.