Introduction
Time limits arise in many contexts in legal practice. A statute may allow a specific period for something to be done. A contract may require a particular act by a given time. Practitioners unilaterally set deadlines for a response, in default of which there will be specific consequences. For instance, a demand may seek payment “immediately” or “by close of business”, but what do those phrases mean? Can one validly demand immediate payment outside “normal banking hours”, and when do these start and end? This article proposes to examine the attitude of the courts to compliance with certain important time limits, and how disputes and ambiguities in relation to such phrases have been dealt with, particularly in the context of the appointment of a receiver.
Appointment of Receiver
The Belohn Ltd (“Belohn”) owned and operated bars and a restaurant on the corner of Merrion Street and
Merrion Row, Dublin, under the name “Foley’s”. The company ran into financial difficulties and on October 10, 2012, its bank appointed a receiver and manager over Belohn’s assets. On December 18, 2012, a challenge to the receiver’s appointment was brought by Belohn’s holding company, The Merrow Ltd (“Merrow”). Judgment was given in the High Court on the morning of March 22, 2013 by Mr Justice Gilligan. The court held that the receiver’s appointment was void, a finding based primarily on a requirement in one of the relevant debentures that the bank “appoint by writing under its seal a Receiver of the mortgaged property”. The receiver’s appointment had not been made under seal.
Time Limit for Payment
Following the delivery of Gilligan J.’s judgment, the bank’s solicitors made a demand on Belohn, later the same day, for the repayment of in excess of €4 million. At the same time, a demand was made on Merrow for in excess of €1 million then due. The demands, which were handed to the relevant director at 16.15 on March 22, required payment by 17.00. In the absence of payment being made, the bank, at 17.10, appointed the same receiver over all of Merrow’s property and assets. The only assets of Merrow were its subsidiary, Belohn. The appointment
at 17.10 on March 22 was not communicated to Merrow until approximately 16.30 on Sunday, March 24.
Petition to Appoint Examiner
Upon learning of the receiver’s appointment, Merrow presented a petition in its name and that of Belohn seeking to appoint examiners to each company. The application was heard, ex parte, at about 21.00 at the home of Mr Justice Hogan on the evening of Sunday, March 24, 2013. The petitioner impressed upon Hogan J. the importance of the petition being presented before midnight. Under s.2 of the Companies (Amendment) Act 1990 (the “1990 Act”), the court may appoint an examiner upon a petition being presented. Section 3(6) of the 1990 Act specifies an important time limit, providing that the court shall not hear any petition if a receiver stands
appointed to the company and has been so “for a continuous period of at least 3 days prior to the presentation of the petition”.
The Interpretation Act 2005
Of particular interest is the analysis by Hogan J. of the three-day time limit by which a petition must be presented for the appointment of an examiner, following the appointment of a receiver, and the court’s comments on any effort to frustrate the bringing of such petitions. The court heard that financial institutions often appoint receivers late on a Friday, because an application for the appointment of an examiner will depend, first, on the company
learning that a receiver has been appointed, and, secondly, locating a duty judge over the weekend. The court found that if a receiver is appointed on a Friday, an application on the following Monday would be too late, having regard to s.18(h) of the Interpretation Act 2005. This provides:
"Where a period of time is expressed to begin on or be reckoned from a particular date, that day shall be deemed to be included in the period and, where a period of time is expressed to end on or be reckoned to a particular date, that day shall be deemed to be included in the period". [Interpretation Act 2005]
An End to “cat and mouse”
Therefore, even if a receiver is not appointed until late on a Friday evening, that day will be included in the computation of the relevant three-day period, which will expire at midnight on Sunday. Financial institutions hoping that a petitioner seeking to appoint an examiner will not become aware of such an appointment in time to access a judge before midnight on Sunday should take careful note of this decision. Hogan J.’s comments could hardly be more clear:
"Counsel for the Bank, Mr. Walker, quite fairly described all of this as a game of ‘cat and mouse’. If that is so, then it is the duty of the Court to decree that this particular game shall henceforth cease. The Oireachtas has
provided in the public interest for the examinership procedure in s.2 of the 1990 Act. It likewise sought to take account of the interests of creditors by restricting the right to apply for examinership once a receiver has been in situ for three days. What it certainly did not intend was that the statutory right to apply for examinership should be carefully frustrated by calculated counter-manoeuvring on the part of the banks which, in other circumstances, might well encourage a form of trickery which would be just a stone’s throw away from actual deceit". [Mr Justice Hogan]
"Manipulation" of Time Limits
Commenting on the constitutional right of access to justice, Hogan J. went on to state that the courts should not, and will not, allow a very short limitation period “to be manipulated in this manner so that by good timing and calculated silence on the part of the entity appointing the receiver this limitation period would expire before any person contemplating applying for examinership would realise it”. Hogan J. granted Merrow protection on an interim basis until the following day. The bank sought to set aside the order granting interim protection and a hearing took place later that week, with Hogan J. delivering judgment on April 9, 2013.
“Normal banking hours”
Having recited the facts in relation to the service of demands at 16.15 and the receiver’s appointment at 17.10, Hogan J. had the following to say in relation to the time limits given in the demands and what constitutes “normal banking hours”:
"While the indebtedness of Merrow to the Bank cannot be in dispute – whatever about the precise amounts due and the date of the maturity of these loans – one could not realistically regard the manner in which this particular demand was made as bona fide. First, the demand was made outside normal banking hours. Second, the time allowed for payment was quite impossibly and quite unrealistically short. Even if Mr. Foley’s bank had actually been open at the time he received the letter, it would have represented an heroic fete of efficiency for Mr. Foley and his own bank to have ensured that the money was actually received in a particular account by the Bank of Scotland by 5pm, as anyone who has ever stood in a bank queue or tried to effect even the simplest banking transaction such as transferring money from one account to another would immediately understand. Of course, depending on the circumstances and the contractual terms governing the loan agreements, a demand letter may reasonably request payment within a matter of hours during the course of a banking day. But the time permitted for repayment must nonetheless be reasonable and realistic and in this case it was neither". [Mr Justice Hogan]
Although the phrase “normal banking hours” is not defined in statute and the writer has yet to see the phrase defined in any banking contract, Hogan J.’s decision makes it clear that a demand handed to a director at approximately 16.15 is outside normal banking hours.
“Reasonable” and “Realistic”
Practitioners will no doubt have encountered situations where there is no reality in a debtor being in a position to repay a sum demanded, regardless of how much time is allowed. Yet, as Hogan J.’s decision highlights, the time allowed for repayment must be both “reasonable” and “realistic”, even if there would appear to be no reality in a debtor being able to pay. Interesting guidance on this topic is also given in English authorities, including the judgment of Goff J. (as he then was) in Cripps (Pharmaceuticals) Ltd v Wickendan. In that case, it was argued that the defendant creditor had not allowed a reasonable period of time between the issue of a demand for
repayment and the appointment of a receiver. The relevant district manager of the plaintiff’s bank, a Mr Stokoe, decided that a receiver should be appointed and, having obtained the necessary approval from head office, arranged a meeting with representatives of the companies. The meeting took place at approximately 10.45, during which Mr Stokoe informed the companies of the bank’s decision to appoint a receiver. Mr Stokoe’s assistant handed over the written demands for payment. Despite the early hour, Mr Stokoe apparently offered the recipient a drink, which he accepted and the meeting ended by 11.00.
“Some convenient place”
Having reviewed the facts in the case, Goff J. was satisfied that the demands were made at “probably about 10.50am”. The court also found, as a fact, that the receiver arrived at the bank’s district office “around 12.30pm”, where Mr Stokoe met him, informed him that the demands had been made and not satisfied, and handed over deeds of appointment. A central issue in the case was the plaintiff’s argument that insufficient time was allowed after the demands had been made. In rejecting this argument Goff J. stated:
"It was argued by the Plaintiffs that even were money is payable on demand, still a reasonable time must be given to enable payment to be made; see Brighty v. Norton, Toms v. Wilson and Upjohn J. in Lloyds Bank Limited v. Margolis. Much was made of the speed with which Mr. Stokoe acted, and it was said that he never really gave the company any chance to put up proposals in answer to the letter of 6th August; but in my judgment, that is not the point. The question is whether he gave such time as the law requires where money is payable on demand; and the cases show that all the creditor has to do is give the debtor time to get it from some convenient place, not to negotiate a deal which he hopes will produce the money....It is abundantly plain that Cripps had not got the money and had no convenient place to which they could go to get it....In my judgment, therefore, the plaintiffs
cannot object on the ground that they were not given time to find the money or that the interval of time between 11am or shortly before, when the demands were made and midday, or later, when the receiver was appointed was too short". [Mr Justice Goff]
“Immediate” is not “the very next instant”
Goff J. also cited the judgment of Lord Cockburn C.J. in Toms v Wilson.13 In that case, the plaintiff, being indebted to the defendants, executed a bill of sale concerning his household furniture, by which he covenanted with them that he would pay the principle sum with interest, upon certain terms. Commenting on the bill of sale, which required the plaintiff to make payment “immediately upon demand in writing”, Lord Cockburn C.J. had the following to say:
"By the terms of the bill of sale, the Plaintiff was under an obligation to pay this money immediately upon demand in writing, and if he did not then the Defendants were entitled to take possession of and sell the goods. Here such a demand was made. The deed must receive a reasonable construction, and it could not have meant that the Plaintiff was bound to pay the money in the very next instant of time after the demand, but he must have a reasonable time to get it from some convenient place. For instance, he might require time to get it from his desk, or to go across the street or to his banker’s for it...." [Lord Cockburn]
“Close of business”
On November 8, 2013, Mr Justice Peart delivered his judgment in proceedings where a central argument was also that the relevant bank had moved too quickly in appointing a receiver. The companies in question had executed debentures to secure loans from Irish Nationwide Building Society, the rights to which loans subsequently transferred to the Irish Bank Resolution Corporation (IBRC). On February 15, 2012, letters of demand were sent to the companies by the IBRC in circumstances where the relevant loans were in default. It was accepted during the hearing before Peart J. that the letters of demand were received by the relevant director on February 16, 2012. Each demand stated, inter alia, that unless payment of the amounts due was made “by close of business on the 17th February 2012”, steps to enforce the IBRC’s security would be taken. The court heard that the deed of appointment of the receiver to each company was signed at 16.00 and the acceptance
of that appointment by the receiver was signed by him at 16.15 on February 17. The respondents argued
that an appointment at or about 16.00 was prior to close of business. It was argued that by appointing prior to close of business, the receiver’s appointment was invalid and other steps taken by the IBRC, including separate proceedings against the relevant director who had guaranteed the liabilities in question, were fundamentally flawed.
No Default until after the Time Limit
This argument was made notwithstanding the fact that there was no evidence of an ability on the part of either company, or the guarantor, to discharge the amounts due at any time on February 17, or on any date since. It was accepted that both companies were, as of February 17, hopelessly insolvent and remained so. The essence of the respondents’ argument was that no event of default was committed by the companies until after the expiration of the given time limit of “close of business”, and therefore, the IBRC was not entitled to appoint the receiver at 16.00 which, it was argued, was prior to the time limit expiring. The respondents also argued that the court should ensure scrupulous compliance with legal requirements in relation to the appointment of a receiver over any company, and relied on Gilligan J.’s decision in Merrow.
A “flexible phrase”
In his judgment, Peart J. provided the following useful guidance in relation to the meaning of the phrase “close of business”:
"The phrase ‘close of business’ is not a term of art, and is not defined in the debenture deed. Neither is it a phrase for which a definition is provided in the Schedule to the Interpretation Act, 2005, or even in any of the
standard texts on statutory interpretation, or the meaning of words or phrases. It is simply a phrase commonly used in everyday language to describe a time at which a business might reasonably be expected to close its doors to the public or to clients. It does not mean that thereafter no personnel may remain on the premises. One could envisage a solicitor’s office, for example, being closed for business at, say, 5pm or 5.30pm in the sense that a courier or a client could not gain entrance except by special arrangement. But it would not exclude the possibility or even the probability these days that it might be some hours yet before the last person to leave would
turn out the lights and lock the door. The phrase covers a range of different contexts, depending on the nature of the business in question. Close of business for a pub or restaurant might be midnight or even later, just to take a very simple example. Nevertheless one thinks of so-called normal business hours as being 9am to 5pm, but businesses vary in nature, and for some businesses normal business hours are different, and therefore ‘close of business’ will not necessarily be 5pm or 5.30pm. What is ‘close of business’ in any particular case will depend upon the nature of the business in question. It is a flexible phrase to be seen in any particular context". [Mr Justice Peart]
The “banking business day”
Peart J. went on to provide significant clarity in relation to the meaning of the phrase “close of business” in the context of banking business, and for the purposes of this case, when the relevant time limit expired:
"The context for the present case is a banking context where the relationship is that of bank and bank customer. Each party signed up to the terms of the debenture. Any letter of demand is in the context of monies owing to the bank and secured by the debenture on the companies’ assets. Where a letter of demand requires repayment forthwith, and threatens that if the funds are not received on a particular day by ‘close of business’, that must be interpreted as meaning the end of the banking business day. I do not require expert evidence to know that raditional banking hours have for many years been 10am to 4pm. There have been instances where a particular bank might advertise itself as staying open until 5pm on a particular day of the week in order to convenience its
customers, or be open at 9.30am instead of the normal 10am, or perhaps even open on Saturday mornings. But it is reasonable to interpret and understand the phrase ‘close of business’ in the banking context as being the time at which banks have traditionally and normally closed their doors to customers. If money is to reach the bank by close of business, that can be fairly and reasonably interpreted as meaning by not later than 4pm, in the absence of any other specific arrangement made. It is not reasonable to interpret it as meaning 5pm or 5.30pm simply because there may be bank staff working away in the bank up to either of those times or later, or because other types of business might regard ‘close of business’ as meaning some time later than 4pm". [Mr Justice Peart]
Conclusion
The foregoing highlights the approach courts have taken to various time limits, both in statute and those unilaterally imposed. It also illustrates the way in which the courts have struck a balance between competing rights and interests in order to do justice to the issue. Even where there is no reality in a debtor being able to make payment of monies owing, they are entitled to a time limit in a demand which is both reasonable and realistic, but which may be as little as a matter of hours during a business day. The courts will not be slow to condemn any efforts to manipulate a time limit to deprive a part of a statutory right to apply to court. This is, of course, as it should be.