The Gazette 1992

APRIL 1992

GAZETTE

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

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. 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. "The reason given, therefore, both in Ireland and the UK for applying the Rule is that there is no reason not to apply it."

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