A2/2003/0618 
Neutral Citation Number: [2003] EWCA Civ 722
IN THE SUPREME COURT OF JUDICATURE 
IN THE COURT OF APPEAL (CIVIL DIVISION) 
ON APPEAL FROM THE QUEEN'S BENCH DIVISION 
(HIS HONOUR JUDGE BRADBURY)
Royal Courts of Justice 
Strand 
London, WC2 

Tuesday, 15 April 2003
 
B E F O R E:

LORD JUSTICE KENNEDY 
  
LORD JUSTICE MANTELL 
 
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CELTIC CONTRACTORS LIMITED 
Appellant 

-v-
 
INFINITE ENVIRONMENTAL SERVICES LIMITED  
 
SAS INTERNATIONAL LIMITED  

Defendants 
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(Computer-Aided Transcript of the Stenograph Notes of
Smith Bernal Wordwave Limited
190 Fleet Street, London EC4A 2AG
Tel No:  020 7404 1400 Fax No: 020 7831 8838
(Official Shorthand Writers to the Court)
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MISS H BROWN (instructed by Messrs Hannah & Mould, London SW1W 0BD) appeared on behalf of the Appellant 
MR J CRYSTAL (instructed by Messrs Tucker Turner Kingsley Wood & Co, London WC1R 4EQ) appeared on behalf of the Defendants
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J U D G M E N T 
(Approved by the Court)
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Crown Copyright©
                                         Tuesday, 15 April 2004 

1.	LORD JUSTICE KENNEDY:   Lord Justice Mantell will give the first judgment.  
2.	LORD JUSTICE MANTELL:   Celtic Contractors Ltd ("Celtic") are currently suing Infinite Environmental Services Ltd ("IES") for £500,808.33 plus VAT and interest said to be due under a construction sub-contract.  
3.	At a hearing without notice on 26 February 2003 Celtic were granted an interim injunction restraining IES from dealing with monies held in a certain bank account, save as authorised by the order or in so far as any such dealing would not reduce the remaining balance below £336,104.17.  
4.	The return date hearing, originally fixed for 5 March, eventually took place before His Honour Judge Bradbury sitting as a High Court Judge on 12 March.  The judge refused to continue the injunction.  
5.	This is an appeal by Celtic against that refusal.  
6.	The background facts are a little complicated.  I shall attempt to state them in their simplest form.  Clifford Chance, the well-known firm of solicitors, are having new premises built in the Canary Wharf area of London.  The main contractors entered into a contract for fitting out with IES who in turn entered into what may be termed a mobilisation and supply contract with SAS International Ltd ("SAS").  This contract was not only for the work required at Clifford Chance's new premises but also work for with another company called Lehman Brothers.  The terms of the agreement between IES and SAS provided for German bond holders to pay amounts certified as due from the main contractors to IES into an account controlled by Barclays Bank from which IES would be able to withdrew monies only after payment of sums due to SAS.  
7.	But IES also required a labour force.  To that end IES approached Celtic.  Celtic had had previous dealings with another company controlled by the directors of IES.  Those dealings had gone sour, with Celtic claiming that they had not been paid all that was due to them.  Celtic wished to avoid the same thing happening in the proposed contract with IES and sought some guarantee of payment.  Mr McElhinney, the Managing Director of SAS, no doubt anxious to oil the wheels, came forward with a suggestion which he set out in a letter dated 20 August 2002 and addressed to a Mr Pither, a director of IES, and a Mr Whyte, a director of Celtic.  As it is central to the present appeal it is necessary to refer to the terms of the letter in full.  The letter reads: 
"Without Prejudice. 
Dear Alan/John. 
Re: Works at Canary Wharf
Clifford Chance/Lehman Bros
Potential other works 
You have both requested me to act as honest broker in formalising a proposal between IES and Celtic Contractors Ltd to secure payment on behalf of Celtic Contractors for works carried out by Celtic on behalf of IES at Canary Wharf.  
As you both know neither I or SAS wish to act as any form of expert quasi or legal in setting up such an agreement.  
The background to this situation is that on the Lehman Bros and Clifford Chance projects SAS have a Formal Agreement with IES Ltd dated 28th March 2002 giving SAS a charge over all funds paid by Canary Wharf to a joint SAS/IES bank account at Barclays Bank.  
IES under the same Agreement procure materials and services from SAS's subsidiary company, CCF Ltd for the supply of material with payment warranted to CCF (SAS) under the same format.  This process for both SAS and CCF is now in place and operating satisfactorily.  
IES Ltd (Alan Pither) have requested Celtic Contractors (John Whyte) to provide services to IES on the Clifford Chance project proposing that Celtic Contractors are paid for such services in the same format as SAS/CCF ie as each certification/payment is made by Canary Wharf Contractors - the bondsman to the joint SAS/IES bank account - such payment normally made in the last week of each month, monies owing to Celtic Contractors for the previous month's services (such sum mutually agreed by IES/Celtic) would be paid from the joint SAS/IES bank account to Celtic.  
For the avoidance of doubt the priority of payment from funds paid into the joint SAS/IES bank account is:- 
1. SAS/CCF materials supplied; 
2. Celtic Contractors services provided; 
3. balance of funds (save £100) paid to IES.  
At the end of each month prior to funds being released from the joint bank account, IES provided to SAS a formal certified copy of the previous month's Canary Wharf Contractors interim payment certificate confirming that funds available to SAS/CCF (presumably also Celtic Contractors) at the end of the forthcoming month exceed the value of supplier services in the appropriate current month ie there will be sufficient funds available at the end of the following month to pay the SAS/CCF supplier account.  
On the basis that the payment intent of IES to Celtic Contractors and the parameters of operating such payment as described in the previous paragraphs is correctly reflected this could form the basis of a legal agreement addendum to be added to the SAS/IES Agreement dated 28th March 2002.  
This letter duly signed and returned to SAS by IES and Celtic Contractors Ltd will allow the Celtic/IES process payment to commence.  Three copies of this letter are sent to both IES and Celtic Contractors and a formal legalised version of this agreement to be produced by lawyers mutually agreed between IES and Celtic.  
[Signed] 
E A McElhinney."   
It is important to note the "without prejudice" heading, the disclaimer in the second paragraph, the basis upon which monies were to be released to Celtic, the suggestion that the proposals "could form the basis of a legal agreement addendum to be added to the SAS/IES Agreement dated 27th March 2002" and the final paragraph which refers to "a formal legalised version".  
8.	Mr McElhinney never received the letter back duly signed as requested, but it is apparent from the document itself that it was signed both on behalf of IES and Celtic.  There is a dispute whether the letter thus signed constituted a binding agreement or was to be regarded merely as a method of proceeding pending the drawing up of "a formal legalised version".  There is a further issue about the effect of the agreement, if such it was, and in particular whether it conferred on Celtic some equitable interest in the monies held in the Barclays account.  
9.	Nevertheless in about August 2002 Celtic did start work at the site and continued to supply labour until about the end of January 2003 during which period they were paid in accordance with the terms proposed in the letter of 20 August.  
10.	At about the end of January 2003 there was disagreement between Celtic and IES as to the value of work done and sums due under the sub-contract.  In consequence Celtic have not carried out any work since 7 February 2003.  
11.	On 21 February 2003 solicitors for Celtic wrote to Mr McElhinney of SAS insisting that sums due to be paid into the controlled bank account on 27 February 2003 should not be disbursed without first taking account of Celtic's interest in the sum of £286,046 plus VAT.  The letter enclosed a copy of the agreement by this time signed both by Mr Whyte and Mr Pither.  
12.	On 24 February Ms Matthews replied on behalf the SAS, asserted that a duly signed copy of the letter had not been returned to SAS as requested and continued: "to date SAS when instructed by IES have made a number of payments to Celtic but logically have no authority to make payments unless instructed by IES", and on that basis declined to accept instruction from Celtic to see Celtic paid out first.  
13.	The consequence was that Celtic immediately issued its application for an injunction both against IES and SAS claiming by this time a total sum of £585,000-odd.  It was upon the basis of that application that Elias J made the order of 26 February 2003.  
14.	When Judge Bradbury came to consider the application on notice Celtic were no longer seeking any order involving SAS.  That was because, as had been recognised by Elias J, whatever the position may have been between Celtic and IES, SAS had a prior claim to Celtic's over the Barclays Bank account.  
15.	I should mention that whereas at one time it seemed that IES were accepting that a substantial sum was owed to Celtic, though not as great as the sum claimed, by the time the injunction proceedings had been lodged IES was claiming that Celtic had been overpaid and, as I have noted, Celtic's claim against IES had been raised to just short of £600,000.  
16.	Before His Honour Judge Bradbury it was submitted by Miss Brown who appeared for Celtic then, as she does now, that there was a serious issue to be tried as to whether Celtic was owed a substantial sum.  That proposition has always been accepted.  Next it was asserted that the letter of 20 August represented a binding agreement between Celtic and IES.  Then that the agreement was such as to confer upon Celtic an equitable interest in any monies held in the Barclays account.  Finally, whether or not Celtic had such an equitable interest nevertheless the principles set out by the House of Lords in American Cyanamid v Ethicon Ltd [1975] AC 396 justified the making of a freezing order pending final determination of the issues at trial.  
17.	Save as to the first and uncontested proposition the judge rejected all of Celtic's submissions.  
18.	As to the contention that the letter of 20 August represented a binding agreement he held that there was no serious issue to be tried.  He pointed to the matters, which I have identified earlier in his judgment in support of that conclusion.  He went on to say (page 14 of the transcript of his judgment): 
"If I were wrong on that, in relation to the position of the first respondent [IES], the first respondent's obligations would certainly be restricted by the fifth paragraph of the letter, and in particular that paragraph which provides that only sums which were mutually agreed would be paid from the joint bank account to Celtic." 
19.	It followed from that finding that he was bound to reject the submission that Celtic were entitled to an equitable charge over a specified amount as was at that time being claimed pursuant to Civil Procedure Rule 25 sub-rule 1L or, as the matter has been reformulated, to a general charge over any of the funds in the account.  As to the application based on ordinary American Cyanamid principles he held that the balance of convenience did not require relief to be granted to the applicants.  He reminded himself that it is not the purpose of a freezing injunction to provide a claimant with security for its claim, and then noted that it was necessary for IES to have regard to the position of their other creditors and further that to continue the injunction would effectively bring the construction contract work to a standstill with unhappy consequences for parties other than those involved in the litigation.
20.	For my part and for the purposes of this appeal I am prepared to accept that the judge was in error in holding that there was no serious issue to be tried as to the binding nature of the August 20 letter.  There was evidence from Mr Whyte as to his understanding and further the terms of the letter had been acted upon for a substantial period of time.  However, I am entirely in agreement with the judge that any such agreement was insufficient to create the equitable charge for which Celtic contended or for a general charge over any funds in the bank such as might justify an order restraining IES from using the fund for its own purposes.  I note the letter of 20 August in providing for payment on a monthly basis was not contemplating that Celtic should be guaranteed payment other than for work done in the previous month.  In so concluding I am agreeing with the judge that the fifth paragraph does not create the equitable interest for which Miss Brown contends.  I also agree with the judge that once it becomes necessary to have recourse to general principle, and more particularly to the balance of convenience, everything points away from the making of the order.  Even if I were not so firmly of that view I would think long and hard before interfering with the judge's discretion in a matter of that kind.  
21.	For those reasons I would dismiss this appeal.  
22.	LORD JUSTICE KENNEDY:   I agree.  
(Appeal dismissed; Appellants's costs summarily assessed in the sum of £10,781.45).