140 / 462
GAZETTE
APRIL 1992
English High Court in
Re Thomas
Mortimer,
;
14
later approved by the
Court of Appeal in
Re Yeovil Glove
Company.
15
However, a High Court
judge will not lightly refuse to follow
a decision of the same court which
has stood unchallenged for 30 years;
and while the willingness of Irish
judges to uncritically apply English
authority has been justly criticised
16
the fact that the same question has
twice received the same answer from
English courts strengthens the Irish
decision.
These decisions, it is true, are not
impressively reasoned. Kenny J in
Re
Daniel Murphy
did no more than
quote at length from
Re Thomas
Mortimer,
note that the English
High Court had just reached a
similar decision in
Re Yeovil Glove
Company,
and then say:
"I do not see any reason why the
Rule in
Clayton's case
should not
apply".
17
In
Thomas Mortimer
Romer J set
out the Rule in
Clayton's case
as he
understood it
18
but he did not
address the point which worried
Barron J i.e. that applying the Rule
simply nullifies the aim of the
statute.
In
Yeovil Glove Company
Plowman
J in the High Court
19
dealt with the
Rule at slightly greater length.
Having referred to
Thomas Mortimer
he quoted authority
20
which
suggested that the Rule is not an
inflexible rule of law but a
presumption of fact to be applied
where neither creditor nor debtor has
exercised his right to appropriate. He
stated that since there was no
evidence that either party had
appropriated, he must apply the
Rule, rejecting an argument that it
did not apply where as in the
instant case, there were several
accounts. Again Plowman J did
not seem to be concerned about
the effects of the Rule on the
statute. The Court of Appeal on the
other hand were just as aware as
Barron J of the unfortunate result of
applying the Rule; Harman LJ
grumbled:-
"The result is startling for thus the
Bank pays itself out of monies received
subsequent to the charge for the whole
of the Company's indebtedness to it
prior to the charge, and which was
admittedly not covered by it. The result
is that the whole of the pre-charge
indebtedness is treated as paid off and
the Bank is left bound to set off against
its post charge advances only the excess
received after satisfying the company's
pre-charge indebtedness. This would
seem largely to nullify the effect of the
Section in the case of a company having
at the date of the charge a largely
overdrawn account with its Bank, and
which continues to trade
subsequently . . . it was however held by
Romer J in
Re Thomas Mortimer Ltd
that
Clayton's case
applied with the
result stated, and I can see no escape
from it, nor in spite of frequent pressing
by the Court did the appellant's counsel
forward any alternative. He did indeed
argue that the fact that there were three
accounts and not one made some
difference, but he was quite unable to
explain to my satisfaction what it was."
21
The reason given, therefore, both in
Ireland and the UK for applying the
Rule is that there is no reason not to
apply it.
"The reason given, therefore,
both in Ireland and the UK for
applying the Rule is that there is
no reason not to apply it."
Application to a winding up
To this however it may be added that
the Rule does apply to other aspects
of a winding up. In
Station Motors
Ltd.
-v-
A.I.B.
22
the defendant
argued that it had a preferential
claim on money paid by the plaintiff
for wages out of its overdrawn
account with the defendant, relying
on Section 285 (6) of the 1963 Act
which inter alia provides that
where money has been advanced to
pay wages of the company's
employees:-
"The person by whom the money was
advanced shall in a winding up have a
right of priority in respect of the money
so advanced and paid".
Carroll J with some hesitation found
that the Bank had advanced money
for the purpose of paying wages.
During the relevant period however
substantial lodgments had been
made to the account: the liquidator
argued that the Rule in
Clayton's
case
applied and that these must be
deemed to clear the earlier cheque
drawn for wages. Carroll J accepted
that the Rule applied, following the
English High Court in
Re Primrose
(Builders) Ltd
23
In both cases,
according to Carroll J:-
"There was no evidence at all on
which a Court could come to the
conclusion that the Rule was to any
extent by agreement between the parties
not to apply in any particular
instance".
24
Accordingly having disregarded a
number of lodgments which she had
found to amount to fraudulent
preference, she found that the
cheques which the remaining
lodgments would suffice to repay
had been cleared and no subrogation
could be claimed for them.
The obvious difference between
Section 285 and Section 288 in this
respect is that if the Rule is applied
in a Section 285 case it reduces the
amount for which the creditor can
claim subrogation, whereas if applied
in a Section 288 case it may increase
the amount which the creditor can
claim under the proviso. The
particular difficulty faced by Barron
J in
Smurfit Paribas
therefore did
not face Carroll J in
Station Motors.
Nonetheless all the cases under
discussion, except
Smurfit Paribas
were decided on the same ground i.e.
that the normal rules of
appropriation apply in a winding up,
because the relevant legislation has
not stated that any other rules
should apply.
Statutory interpretation
This brings one to the question of
statutory intrepretation. As noted
above, it has been stated that the
Rule in
Clayton's case
is strictly a
presumption of evidence, rather than
a rule of law. This, it is submitted, is
largely a matter of semantics. In the
absence of any evidence of what the
parties intended, the rule in
Clayton's case
governs the method
by which payments are appropriated,
and this can properly be regarded
116