| Date | 5 December 2001 |
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| Judgment | Smith (Administrator of Cosslett (Contractors)) Ltd -v- Bridgend County Borough Council HL 8 November 2001 |
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| The Issue | Whether the ICE Conditions give effective transfer of title in constructional plant upon the insolvency of the contractor. |
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| Implication |
The standard wording of the ICE Contracts does not transfer title of constructional plant to the employer, but instead has the effect of creating a "floating charge", which will be ineffective unless registered under the Companies Act. |
printThe ICE Forms of Contract seek to give the employer certain powers to dispose of contractor's plant on site in the event of the insolvency of the contractor. These provisions have been examined very carefully by the House of Lords in the recent case of Smith (Administrator of Cosslett) Ltd -v- Bridgend County Borough Council. In the fifth edition of the ICE Form, Clause 53(2) provides that "all plant, goods and materials owned by the contractor, or by any company which the contractor has a controlling interest, shall when on the site be deemed to be the property of the employer". Clause 63 of the same contract concerns the parties' rights following the contractor's insolvency. This clause provides that, in the event of the contractor's insolvency, or where the engineer has certified the contractor's abandonment of the works, the employer may give 7 days notice in writing to enter upon the site and expel the contractor. The employer may then employ another contractor to complete the works and use for such completion any of the constructional plant, temporary works and goods and materials which remain on site. Moreover, the employer may at any time sell any of the plant, temporary works or unused goods and materials and apply the proceeds of the sale towards payment of any sums due to the contractor in default. Similar clauses arise in the sixth and seventh editions of the form. The contract between Cosslett and Mid-Glamorgan County Council, as the Council then was, concerned the rehabilitation of land which had been disfigured by derelict coal dumps. As part of the reclamation work, Cosslett was required to process coal bearing shale through a coal washing plant. The council had advanced to the contractor about £1.8 million to enable it to buy two coal washing plants. The contract then provided for the repayment of that advance by way of deduction from the sums which became payable over the anticipated four year term of the contract. After about two years of operating the contract, Cosslett found that selling the recovered coal was not as profitable as it had expected. In the summer of 1993, it told the council that it appeared to be heading for insolvency and would not be able to carry on with the contract. Shortly thereafter, it abandoned the site and the engineer gave a certificate to that effect. The council then entered into a contract with another company to complete the work, using Cosslett's coal washing plant. After having used the plant to complete the work, the employer then argued that under Clause 63 it was entitled to sell the plant and apply the proceeds towards any sums due from Cosslett. The administrator acting for Cosslett disagreed. He argued that the combined effect of Clauses 53 and 63 was to create an equitable charge in favour of the County Council. This charge was a "floating charge" which required registration under the Companies Act. Since the charge had not been registered, it was therefore void. In the first instance, the Court disagreed with the administrator. The Judge held that the effect of the two clauses was indeed to create a charge over the Cosslett's assets. However, since the plant could not be removed from site at Cosslett's will, and since Cosslett was not free to use the plant as it saw fit, this charge was not a "floating charge" and thus did not require registration under the Companies Act to be effective. The employer would therefore be entitled to the proceeds of the sale of the coal washing plant. The matter than came before the Court of Appeal in July 1997 by which time the works had been completed by the replacement contractor, who under the terms of its contract with the employer had sold the coal washing plant to a third party. As so often is the case, this resulted in a complete reversal of fortunes. The Court of Appeal pointed out that the power to refuse consent to the removal of the plant, which the earlier Judge had treated as vested in the employer, was actually conferred upon the engineer. This suggested that the discretion was to be exercised independently on operational grounds and not as a method of enforcing the employer's security for the payment of money. The result was that the contract provisions created a "floating charge" which required to be registered. Since the council had failed to do this, they were not entitled to the proceeds of the sale of the plant. On hearing that the plant had actually been sold, the administrator was advised by the Judge that it would be entitled to summary judgment for the recovery of those proceeds. The administrator took the Judge at his word and issued a fresh writ claiming damages. This was successful, but that decision once again was brought to the Court of Appeal, and once again the decision was reversed, this time in favour of the Council. The matter came before the House of Lords. Lord Bingham of Cornhill described this second decision of the Court of Appeal as "startling and unorthodox". He reversed the decision in favour of the administrator. The failure of the Council to register its security interest in the coal washing plant by way of a "floating charge" in accordance with the Companies Act rendered the charge void. The administrator acting on behalf of Cosslett was entitled to recover by way of damages the proceeds of the sale of the coal washing plant. Those damages would be assessed by reference to the value of the plant at the date of their sale by the replacement contractor, which was equivalent to the value of the plant in their used state at the completion of the works.
CJ-0148
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