668 Property Law

Notes and Questions 18.1

Read Re Cosslett (Contractors) Ltd [1998] Ch 495; [1998] 2 WLR 131; [1997] 4 All ER 115, CA, and Agnew v. Inland Revenue Commissioner [2001] UKPC 28; [2001] 2 AC 710; [2001] 3 WLR 454, PC, either in full or as extracted at www.cambridge.org/ propertylaw/, and consider the following:

1Another aspect of the dispute which was the subject of the Court of Appeal decision in Re Cosslett was litigated in different proceedings on the same facts, and the House of Lords approved Millett LJ’s analysis in Re Cosslett: see Smith v.

Bridgend County Borough Council [2002] 1 AC 336; [2001] UKHL 58.

2Explain why, according to Millett LJ in Re Cosslett, the agreement between Cosslett and the council did not transfer ownership of the plant to the council, and why it did not give rise to a mortgage, pledge, lien or fixed charge in favour of the council. Precisely which elements of the agreement gave rise to a charge in favour of the council?

3Assume you own a valuable painting, and you want to offer it to your bank as security for a loan. Which type of security interest would be most appropriate? Which would be best from your point of view – a mortgage, a charge, a pawn or a lien? Which would you expect the bank to prefer?

4Explain the difference between a fixed charge and a floating charge. According to Millett LJ in Re Cosslett and in Agnew, what are the determining characteristics of a floating charge?

5Despite Millett LJ’s analysis, the precise nature of many aspects of the floating charge remains controversial. In particular, there are conflicting analyses as to the nature of the interest the chargeholder (i.e. the lender) has in the assets before crystallisation. The question at issue is whether the chargeholder can be said to have a proprietary right in the assets before crystallisation. Nolan summarises the arguments in ‘Property in a Fund’, and concludes that it does, suggesting an analogy with a trust fund. The analogy is not wholly convincing, however. A trust fund is a fund held entirely for the benefit of the present and future beneficiaries, whereas assets subject to a floating charge are not held for the benefit of the chargee. It therefore makes sense to regard the chargee’s right of recourse to the assets as inchoate before crystallisation, whereas it would be quite wrong to regard the interest of a beneficiary under a trust in that way.

6It has been argued that a floating charge over all the assets of a company gives the chargeholder an unfair monopoly over the provision of credit to the company. Explain why, and consider the validity of the argument. Might this help explain why individuals cannot grant floating charges over their assets?