The joint liquidators of Peak Hotels & Resorts Limited ("Peak") brought an unsuccessful appeal that a legal charge held over funds paid into court ("Funds") was incapable of enforcement. The court dismissed the appeal on the basis that Peak did retain a proprietary interest over the funds.
In October 2015, Peak who had engaged in lengthy litigation proceedings represented by Candey Limited ("Candey"), ran into financial difficulties and entered into a Fixed Fee Agreement for its past and future legal costs, which included the execution of a Deed to charge its assets. During the litigation and before its liquidation, the company had paid funds into the court in order to provide security for costs. On liquidation, Candey asserted the charge secured its outstanding fees. On receipt of the claim for payment as a secured debt, the liquidators applied for a determination as to whether, and if so to what extent, the funds were the subject of the charge. If you would like to read more about the court of first instance decision please click here.
In the court of first instance the judge ruled that the funds owed were the subject of the charge, however this was floating in nature as the Deed did not contain sufficient restrictions on dealings to warrant being fixed. The joint liquidators of Peak appealed on the grounds that once Peak had paid the money into the court, they had parted with their proprietary interest in the money and as a result it was no longer an existing asset capable of being charged.
Considering the decision in Halvanon Insurance Co Ltd v. Central Reinsurance Corporation the most persuasive, the court confirmed there was no reason to distinguish this case from previous authorities and in doing so confirmed that money paid into court on account of fees or cross-undertakings remained the payer's property until such time as the court had provided directions as to its distribution.
Regarding the previous authorities as "flowing firmly in favour of Candey", Rimer LJ considered that a payer of money into Court by way of security retained its interest:
- Subject to the security interest that the payment gives to the defendants; and
- The ultimate payment out is dependent on the making of a court order.
It therefore followed that Peak always retained an interest and entitlement for the proper administration of the funds. As a matter of public policy the court considered that this had to be the correct analysis.
Finally, determining it to be "counter-intuitive" and "contrary to principle" to regard the payment as a method of parting with ownership, the court dismissed the appeal and confirmed that the payer of money into court by way of security for another's costs retains the property in the money, subject to the potential interest of the other party to the litigation. The ultimate entitlement to the money however still remaining subject to the exercise of the court's discretion as to its distribution. On this basis the appeal was dismissed and the position regarding the ownership of title in funds paid to the court clarified.