Where a party to proceedings has been ordered by the court to make a payment into court, whether for security for costs or otherwise, it is common practice for such a payment to be made from a firm’s client account by cheque. However, for the purposes of meeting a court deadline to make such a payment, what is the effective date of payments which are made by cheque? Is it when the cheque is received by the Court Funds Office or is it when funds have cleared?

These were novel questions which the Court of Appeal considered and provided clarification upon in the case of Petroleo Brasilieiro SA v ENE Kos 1 Ltd [2009] EWCA Civ 1127. The court in that case also dealt with the issue of when the effective date for payment into court took place where the cheque is in a foreign currency.

Before considering the issues in Petroleo, the relevant rules governing payments into court by cheque should be noted. Civil Procedure Rule 37 (and its accompanying practice direction) permits payments to be made into court by cheque. The Administration of Justice Act 1982 and the Court Fund Rules 1987 (CFR) govern funds in court. Rule 16 of the CFR provides, inter alia, that where payment is made into court by cheque the effective date of lodgement of money into court is the date it is received in the Court Funds Office (or such later date as the accountant general may determine). Finally, rule 38 of the CFR permits payments to be made into court in foreign currency where the court directs such a payment to be made.

In brief, the claimant in Petroleo applied for summary judgment against the defendant pursuant to part 24 of the CPR. The judge at first instance, Mr Justice Field, refused summary judgment on the condition that the defendant pay into court $500,000 as security and that such payment be made into court by 5pm on 27 February 2009. The defendant, having completed the necessary court forms, lodged a cheque for $500,000 in the Court Funds Office on 27 February. The cheque cleared on the 6 March 2009. In the meantime, the claimant’s solicitors wrote to the judge requesting that summary judgment be entered against the defendant on the grounds that the defendant had failed to comply with the deadline as set out in the original order. Mr Justice Field granted the order for summary judgment and addressed the issue of when payment by cheque is received in court: ‘The tendering of a cheque and completion of form 1 are steps on the way to providing security but until funds have been received into court, the claimant is not secured.’

The defendant argued the following on appeal:

  • it had complied with the deadline in the order by lodging the cheque with the Court Funds Office;
  • if it had not complied with the order then the judge should have exercised his discretion under CPR 24.2 not to grant summary judgment; and
  • the judge should have relieved the defendant from the sanction set out in the order by making an order under CPR 3.9 by granting an extension of time to comply with the order.
  • Lord Justice Dyson, giving the leading judgment of the court, turned to the meaning of the words in the original order that the claimant ‘shall pay into court… the sum of $500,000’. His lordship argued that the words ‘pay into court’ referred to the relevant rules on payment into court, namely the CPR and CFR, and that no ‘special meaning’ should be given to these words as argued by the claimant. Dyson LJ went on to argue that, to ascertain what Field J meant by these words, attention had to be drawn to the relevant rules on paying into court, namely CPR 37 and the CFR.
  • Payment into court of sterling chequesDyson LJ held that the language of CRF 16(6)(ii) was clear and unequivocal, and noted that the rules stated that the effective date of lodgement of a cheque with the court was the ‘date of its receipt in the Court Funds Office’. Dyson LJ proceeded to reason that the reference to ‘its’ receipt in CRF 16(6)(ii) referred to the receipt of the cheque itself and did not refer to the receipt of the cleared funds.

    Dyson LJ argued: ‘I see no reason not to give effect to the plain and ordinary meaning of the language of rule 16(6)(ii). It avoids uncertainty and the real possibility of injustice to the paying party.’

    Dyson LJ followed the Court of Appeal’s ruling in Homes v Smith (Court of Appeal, unreported, 2 February 2000), in which Lord Woolf, master of the rolls, set out the law as to when payment by cheque is deemed to have taken place. In that case, Lord Woolf held that ‘the general position in law as to the payment by cheque is clear. Where a cheque is offered in payment, it amounts to a conditional payment of the amount of the cheque which, if accepted, operates as a conditional payment from the time when the cheque was delivered… If the cheque is not met on presentation, the payment is subject to a condition subsequent which means that the sum which was due becomes due once more’.

    Therefore, Dyson LJ concluded, the lodging of the cheque by the defendants with the Court Funds Office by the deadline meant that the defendant had fully complied with the terms of the order. This was the position regardless of whether the funds had cleared after the deadline in the order had expired.

    Payment into court of foreign currency chequesOn the facts of the case the Court Funds Office accepted the cheque of $500,000 and had sent the defendant’s solicitors a temporary receipt. More fundamentally, the Court Funds Office had confirmed that the date of lodgement of a cheque with the court was the date when the cheque was received in the Court Funds Office. The Court Funds Office also confirmed that this was the same regardless of whether the cheque received was a sterling or a foreign currency cheque. Relying on these facts, Dyson LJ held that payment into court by foreign currency cheque was an approved method for making a payment into court in a foreign currency. His lordship also argued that the effective date of lodgement of foreign currency cheques was the same as that provided for in respect of sterling cheques in CRF 16(6)(ii). Therefore, the effective date of lodgement of foreign currency cheques was when the cheque was received in the Court Funds Office.

    Judge’s discretionDyson LJ rejected the defendant’s arguments regarding the need for the judge to have exercised his discretion to relieve the defendant of the consequences of failing to comply with the original order. Dyson LJ held that the judge could not be criticised for not exercising his discretion under the CPR in circumstances where:

  • the defendant was represented by experienced solicitors who had failed to ask the judge to exercise his discretion after the cheque was lodged with the court; and
  • the judge had stated in his judgment that he had very reluctantly refused the original application for summary judgment.
  • Dyson LJ went on to dismiss the appeal and restored the original order for summary judgment because it was clear in his lordship’s opinion that the defence would fail at trial.

    Petroleo is the first case that provides clear guidance as to when payment by cheque, whether sterling or not, is deemed to be paid into court. If a party who has been ordered to make payment into court does so by cheque then, as long as the cheque is lodged with the Court Funds Office by the relevant deadline, payment into court will be deemed to have been made even if funds have cleared after the deadline. It is also clear from Petroleo that a party wishing a court to relieve it of any sanctions for failing to comply with a court order should make such a request immediately after discovering that it is in breach of a court order.

    Masood Ahmed is senior law lecturer at Birmingham City University