Solicitors' Undertakings Regarding Payments

In Response Engineering Limited v Caherconlish Treatment Plant Limited ) the court was faced with the question of whether a solicitor's undertaking in respect of future payments to be made to a client company constituted a charge over the book debts of that company within the meaning of the Companies Act 1963. Judge Hogan identified that this case raised a difficult question of company law and the interpretation of the relevant provisions of the act. Ultimately, in holding that the undertaking constituted a charge, he found that it was void as against any creditor of the company, since it had not been registered as required under the act.

Facts

In February 2010 the plaintiff was granted judgment against the defendant in the sum of €225,351, together with an order for costs. The defendant was due approximately €220,000 by Limerick County Council for works undertaken in respect of the construction of a water treatment plant. The defendant had no assets amenable to execution, other than its chose in action against Limerick County Council for the €220,000 due. On March 1 2010 the plaintiff obtained a conditional order of garnishee in respect of the sum due by the council. However, when the plaintiff applied to have the order made absolute, a bank, AIB plc, appeared before the court and argued that it had acquired an interest in the sum due to a charge arising from a solicitor's undertaking - this, it argued, took priority over any claim made by the plaintiff.

The bank relied on a letter of undertaking written by the solicitor for the defendant, which stated:

"[m]y client, Caherconlish Treatment Plant Limited, require[s] an overdraft facility in the amount of €305,000.00 and the same will be discharged in two payments namely, €82,342.52 and €222,000.00 as soon as the said payments come in from Limerick County Council. I confirm that I have irrevocable instructions to lodge the said cheques to Caherconlish Treatment Plant's account with AIB and I hereby undertake to do so."

The court acknowledged that since the undertaking preceded the garnishee application, subject to the registration issue, it would otherwise have priority over the plaintiff's garnishee claim. As a consequence, unless the undertaking constituted a security over book debts which required registration for the purposes of Section 99(2)(3) of the act, the bank would be entitled to priority. Therefore, the case turned on whether the undertaking constituted a charge to be registered...