Held, appeal allowed. Section 245 was one of a group of sections which enabled transactions entered into during a specified period before the onset of insolvency to be set aside or adjusted. The critical distinction between fixed and floating charges, at least in the present context, was that a fixed charge necessarily attached from its inception to existing property of the company, whereas a floating charge remained in suspense until the happening of a crystallising event, whereupon it would attach to the company’s assets of the types specified in the charge as at the date of crystallisation, whether or not they were in existence when the floating charge was created. The effect of the section was to invalidate the floating charge, save to the extent that it secured the value of new money paid, or new goods or services supplied, to the company on or after the date of the creation of the charge, and as part of the consideration for its creation. The effect of the section was only to invalidate the charge to the specified extent. The section had no effect on the underlying contractual relationship of debtor and creditor between the parties, or on the ability of the creditor to prove for its debt as an unsecured creditor to the extent that the floating charge was invalidated (paras 32–34).

The clear focus of section 245 was on the value of the services actually supplied by the solicitors to the company after the date of creation of the charge until the liquidators terminated their relationship. That was the clear import of the words “services supplied” in subsection (2)(a), and of the way in which the valuation test in subsection (6) was formulated: “the value of any goods or services supplied by way of consideration for a floating charge is the amount in money which at the time they were supplied could reasonably have been expected to be obtained for supplying the goods or services in the ordinary course of business and on the same terms (apart from the consideration) as those on which they were supplied to the company”. Furthermore, the phrase “at the time they were supplied” presupposed that the relevant goods or services were those which were in fact supplied, rather than any which were merely promised to be, but were not in fact, supplied. The services actually supplied by the solicitors were supplied pursuant to the fixed fee agreement, but for the purposes of section 245 the question was not what sum was contractually due from the company to the solicitors in return for those services. That question was relevant only to the extent of the solicitors’ claim in the liquidation as an unsecured creditor. The relevant issue was the extent to which the solicitors were entitled to enforce their charge, and for that purpose what had to be ascertained was the value, calculated in accordance with section 245(6), of the services actually supplied by the solicitors to the company during the relevant period. That was the measure laid down by Parliament to ensure a fair balance between the interests of the solicitors as the holder of a floating charge, on the one hand, and the interests of the general body of unsecured creditors (including the solicitors, to the extent that the charge was invalid) on the other hand. It had nothing whatever to do with the commercial fairness, as between the solicitors and the company, of the contractual terms of the fixed fee agreement. What mattered for the purposes of section 245 was the work actually done by the solicitors during the relevant period. The business of the solicitors was the provision of legal services, and it was the services actually provided during the relevant period which had to be valued. By virtue of subsection (6), the value to be attributed to those services was the amount in money which, at the time of supply, could reasonably have been expected to be obtained for their supply in the ordinary course of business, and on the same terms (apart from the consideration) as those on which they were in fact supplied. The test was therefore an objective one, and although it was common ground that the services were supplied by the solicitors in the ordinary course of their business as solicitors, and that they were supplied on the terms of the fixed fee agreement, the terms of the agreement relating to “the consideration” had to be disregarded. In the present case, the services were supplied in return, inter alia, for the company’s contractual obligation to pay the fixed fee. It had not been argued that any distinction should be drawn for that purpose between the services supplied before and after the date on which the company was wound up. There could be no doubt that the obligation to pay the fixed fee was, on any view, a term relating to “the consideration” for which the services were supplied. It followed, therefore, that the fixed fee should be disregarded in performing the calculation required by subsection (6), and the value of the services should be ascertained otherwise than by reference to the company’s contractual obligation to pay the fixed fee. That should also mean that the whole concept of provision of the services in return for a fixed fee had to be disregarded, because such a concept was incompatible with the exercise which section 245(6) required to be performed. The point of a fixed fee was that it provided the parties with certainty in advance, before the precise amount of work needed to provide the relevant services had been ascertained (paras 35–39).

The basic fallacy in the approach of the judge was that he allowed the underlying commercial fairness, as between the company and the solicitors, of the fixed fee agreement, together with the opinion evidence on that point, to influence not only his assessment of the statutory purpose and language of section 245, but also his analysis of the retrospective valuation exercise required by subsection (6). The judge’s approach to the construction of section 245 and its application to the facts of the present case could not stand. There was no proper basis for the retrospective valuation of the services actually provided by the solicitors to be carried out on a fixed fee basis, once the fixed fee and the other terms relating to payment by the company had been disregarded (paras 40–42).

In those circumstances, the question of valuation would have to be remitted to the High Court for further consideration of the issue. It was clearly desirable that the scope for future disagreement about the nature of the valuation exercise required by section 245(6) should be reduced as far as possible. To that end, the court would clarify a few further points. First, it was common ground that the “ordinary course of business” referred to in subsection (6) was the ordinary course of the supplier’s business. That meant that the supply in question should be assumed to be an unremarkable one which arose out of no special or particular situation, and that it also precluded any reliance on the particular characteristics or situation of the company to which the services were supplied. Thus, the credit risk faced by the supplier could not betaken into account. For the purposes of the objective test under section 245(6) of the 1986 Act, the words “in the ordinary course of business” clearly had a function to perform, and part of that function was to insulate the valuation of the services actually provided from any increase in the supplier’s normal charging rates or any special terms of business attributable to the risk of non-payment by the recipient of the services. Secondly the calculation of value under section 245(6) could not include a charge for credit in the form of compensation for delay in payment, even though one of the purposes of the fixed fee agreement was to postpone the time when the company would have to pay for the services rendered by the solicitors (paras 45–47, 48, 49).

Decision of Mark Raeside QC sitting as a judge of the Chancery Division [2017] EWHC 3388 (Ch) reversed.