Vol 5 (2008) - Issue 3

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Re Spectrum Plus in reverse: The Russell Cooke Trust Company Limited v Elliot [2007] EWHC 1443 (Ch): ‘Floating Deed’ Granted over Real Property Held to be a Fixed Charge

Since the delivery of the Privy Council’s Judgment in Agnew v Commissioners of Inland Revenue (sub nom. Re Brumark) [2001] UKPC 28, it has commonly been accepted that the nomenclature applied by the parties to a security will not inhibit its subsequent characterisation by the courts in a different form. Lord Millett explained that to determine whether a particular charge is to be regarded as fixed or floating, the court must engage in the following two-stage process:

‘At the first stage it must construe the instrument of charge and seek to gather the intentions of the parties from the language they have used. But the object at this stage of the process is not to discover whether the parties intended to create a fixed or a floating charge. It is to ascertain the nature of the rights and obligations which the parties intended to grant each other in respect of the charged assets. Once these have been ascertained, the court can then embark on the second stage of the process, which is one of characterisation. This is a matter of law. It does not depend upon the intention of the parties. If their intention, properly gathered from the language of the instrument, is to grant the company rights in respect of the charged assets which are inconsistent with the nature of a fixed charge, then the charge cannot be a fixed charge however they may have chosen to describe it. A similar process is involved in construing a document to see whether it creates a licence or a tenancy … [ref Street v Mountford]’

After the House of Lords’ express adoption of this twostage test in Re Spectrum Plus [2005] UKHL 41, this proposition became indisputable and it is abundantly clear that a ‘floating charge’ will not become a ‘fixed charge’ merely because it is described as such; much as a fork will not become a spade simply by being described by the manufacturer as the latter.

The reason that the case of Russell Cooke Trust Company Limited v Elliot [2007] EWHC 1443 (Ch) calls for comment is that it is the first case of which the writer is aware in which the reverse of the position in Re Spectrum Plus has fallen for consideration; namely whether a security labelled by the parties as ‘floating’ should in fact be characterised as a fixed charge. Indeed, counsel in the case and Mann J all approached the consideration of that issue on the basis that the point was a novel one.

The facts

For the purposes of this article, the identity of the parties and much of the background to that case is not relevant. From the Judgment, the material facts appear to be that the instrument in question secured ‘by way of floating deed’, ‘all rights title estate and other interests of the Borrower in any of the Properties not effectively mortgaged under clause 3.1(a) …’ and ‘Properties’ was defined as meaning ‘the leasehold or immovable property referred to in Schedule 1, and any other freehold leasehold or immovable property now or at any time vested in or held by or on behalf of the Borrower together with in all cases building structures fixtures fittings …’.