Constructive Trusts I
Cases
Harlequin Property (SVG) Ltd v O’Halloran
[2013] IEHC 362
JUDGMENT of Mr. Justice Brian J. McGovern delivered on the 25th day of July 2013
1. In these proceedings, the plaintiffs’ claim against the first named defendant is in essence that he misappropriated large amounts of money paid by the plaintiffs to him in connection with a construction project to build a luxury hotel and resort in the Caribbean. The plaintiffs seek declarations that monies held by him in certain bank accounts in the State are held by him as constructive trustee for the benefit and to the use of the plaintiffs and that the funds constitute unjust enrichment by the first defendant at the expense of the plaintiffs. The plaintiffs also seek restitution or damages (including exemplary damages) for fraud and/or fraudulent misrepresentation and a declaration that the plaintiffs and each of them are joint beneficial owners of a dwelling house in County Cork which, the plaintiffs allege, was purchased by the first defendant out of monies misappropriated from the plaintiffs.
2. The second named defendant is the father of the first named defendant and the plaintiffs’ claim against him is that he received money from the first named defendant from sums misappropriated by the first named defendant from the plaintiffs.
3. These proceedings are part of a multi-jurisdictional fraud claim arising out of a construction project to build a luxury hotel and resort at Buccament Bay in Caribbean islands of St. Vincent and the Grenadines (“SVG”). The events in issue before the court took place between 2008 and 2010.
4. The plaintiffs claim that during that period, approximately US$50m was paid by or on behalf of the plaintiffs (together hereinafter referred to as “Harlequin”) to companies owned and controlled by the first named defendant. These companies were ICE (SVG) Ltd. (“ICE”), Cellate Caribbean (SVG) Ltd. (“Cellate SVG”) and Cellate Caribbean Ltd. (“Cellate”), which are collectively known as “the ICE Group”. It is the plaintiffs’ case that they were the only significant source of income for the ICE Group at that time and they allege that despite receiving more than US$50m from the plaintiffs, the value of construction carried out by the ICE Group companies between 2008 and 2010 was approximately US$22.4m.
5. The ICE Group of companies had taken over work on the site after a previous contractor Ridgeview Construction (SVG) Ltd. (“Ridgeview”) had been dismissed following serious differences between it and the plaintiffs over the works being carried out and alleged misappropriation of funds.
6. There is no agreement between the parties on the precise terms of the contract between the plaintiffs and the ICE Group. I will deal with the differences between the parties on this issue later in this judgment.
7. The development was to be built in stages. After the ICE Group took over the site from Ridgeview, some changes were made to the design of the resort and as time went by, the plaintiffs became concerned about delays in completing Phase 1 of the development. The plaintiffs allege that after numerous meetings between the parties, the ICE Group agreed to complete phase one by 1st July, 2010. Specifically, the plaintiffs allege that the first named defendant gave an absolute assurance that this would be done and the plaintiffs marketed the development on that basis. In order to achieve that opening date, a revised schedule of payments was agreed between the parties. The plaintiffs marketed the development at a major trade fair in London and arrangements were put in place to bring tour operators and investors to the site for the opening. The plaintiffs allege that not only was that deadline not met by the ICE Group, but at a time when they had been pumping ever-increasing sums of money into the ICE Group for the purpose of meeting the deadline, the first named defendant was simultaneously misappropriating large amounts of money for his own benefit.
8. The plaintiffs claim that between 2008 and 2010, the first named defendant misappropriated for his own personal benefit a sum in excess of US$13.5m that should have been deployed on the Buccament Bay project or other authorised Harlequin projects and which was paid by Harlequin to the ICE Group for that purpose. The plaintiffs claimed that the first named defendant lived a very lavish lifestyle at the expense of the plaintiffs and spent their money, inter alia, on purchasing a private jet, renting an expensive mansion in Sandy Lane, Barbados, buying a racetrack in St. Lucia, purchasing a quarry in SVG and buying expensive gifts for his girlfriend. Although the plaintiffs claim these were illegitimate payments and expenditure, they do not form part of the Irish proceedings other than being offered as evidence corroborating his misappropriation of funds.
9. The plaintiffs claim that the first named defendant diverted approximately US$2,283,600 to Ireland for his own use, including a sum of US$226,800 for a wedding that was planned but never took place.
10. The first named defendant denies that he misappropriated any money and claims that all of the sums expended by him were either for the benefit of the Buccament Bay project or the ICE Group of companies in facilitating their work on the project, and that insofar as some of the payments made were for him personally, he was entitled to make these payments as part of his remuneration for the work which he was doing.
Legal Issues
11. The following are the legal issues which arise for consideration in this case:-
(i) Whether the first named defendant obtained monies from the plaintiffs on foot of fraudulent misrepresentations and whether he fraudulently misappropriated some of those monies for his own purposes;
(ii) whether the fact that the first named defendant utilised corporate vehicles (the ICE Group) to carry out the alleged fraudulent scheme offers him a personal exemption or immunity from suit in respect of that fraud;
(iii) further, or in the alternative, whether the monies advanced by Harlequin were held on a “Quistclose” trust by the ICE Group and can now be traced to the accounts and assets of the defendants and each of them;
(iv) In the event that the court holds there is no direct claim in fraudulent misrepresentation and/or fraud against the first named defendant, whether the court is entitled to lift the corporate veil so as to enable the plaintiffs to claim directly against the first named defendant in respect of that fraud?
(v) If the ICE Group is insolvent, is the first named defendant liable to the plaintiffs on the basis of a breach of duty owed by him as a director to the company’s creditors?
(vi) Whether the assets of the first named defendant, which are the subject of this action, are held on trust to the benefit of the plaintiffs; and
(vii) Whether the second named defendant knowingly received monies that were disposed of fraudulently and/or in breach of trust, or whether the second named defendant is in any event liable to pay those monies as monies had and received by him to the use of the plaintiffs.
General Outline of the Project at Buccament Bay
12. The first named plaintiff is registered in SVG and was involved in overseeing the construction of Buccament Bay Resort. Mr. David Ames and his wife, Mrs. Carol Ames, are the directors of the company. The business of the company is to buy land and build and operate luxury hotels and resorts in the Caribbean. The company sells villas and hotel units to property investors.
13. The second named plaintiff is registered in Grand Cayman and is the operator of the Buccament Bay and other resorts in the Caribbean. Mr. David Ames is the owner and sole director of the company.
14. The first named defendant was at all material times the CEO of a number of construction companies based in Barbados and SVG and which comprise the ICE Group.
15. Before the ICE Group was contracted to work on the Buccament Bay site, Ridgeview Construction (SVG) Ltd. (“Ridgeview”) had been employed to construct the development. The ICE Group had been subcontractors to Ridgeview in the period between March 2007 and July 2008.
16. The development at Buccament Bay is in an area of approximately 60 acres and is the largest private development so far undertaken in SVG. At its height, approximately 1,000 workers were engaged on development. The site is located on land adjoining the sea and accommodation is arranged in apartment blocks and cabanas or villas which vary in size from one to four bedrooms. Some are detached and some are semi-detached.
17. The resort was pitched at the luxury end of the market and, as one would expect in a development of this nature, there were to be a number of different restaurants and sporting and leisure facilities.
18. The development was to be built in a number of phases. This dispute is primarily concerned with Phase 1 of the development. The original agreement was that Phase 1 would be built by 1st March, 2010. This date was later extended to 1st July, 2010. While the scope of Phase 1 altered to some extent over time, it can be summarised as follows:-
(a) In September 2008, it was agreed that the ICE Group would complete two apartment blocks which had been partially constructed and would also build the cabanas and other areas while the design of the swimming pool and beachfront area was being finalised.
(b) By 26th May, 2009, the parties were working towards an opening day of 1st July, 2010, and the scope of Phase 1 was set out in an email of 26th May, 2009, from Mrs. Carol Ames in which she stated that Phase 1 “. . . will consist of a 362-room key 5-star resort”. Included in the opening would be a marina, dive shop, reception, beach bar and restaurant, galleon ship, ‘Trader Vic’s’ restaurant, steak and fish restaurant, Asian fusion restaurant, fine dining Italian restaurant and a buffet restaurant. Further details as to the types of suites and rooms and their dimensions were set out in the email. It also appeared from that email that the “water’s edge” area was to be finished.
(c) On 23rd and 24th November, 2009, a project progress meeting took place at the site and the key decisions taken at that meeting were set out in minutes which were circulated by an email on 14th December, 2009. It is not necessary to set out all the details of Phase 1 as therein recorded. What is important is that at the commencement of the minutes, it is stated “the meeting began with a review of the overall site plan to establish the exact extent of works for Phase 1 that is to be completed by July ’01 2010”.
(d) A further project progress meeting took place on 25th and 26th January, 2010, and the minutes of that meeting set out the scope of works in Phase 1 to be delivered by 1st July, 2010. Although the completion date is stated to be “July 3rd 2010”, the parties are agreed that that was an error. While there is some lack of precision in what was agreed (for example, the reference to “approx 150 cabanas”), the general scope of Phase 1 is set out. It included the cabanas, a waterfront village, including four restaurants and ancillary works, a beach bar, a retail village building, pool areas, a marina boardwalk and jetty with breakwater and beach works, Apartment Block 1 and Apartment Block 2 to be fully completed externally but left as a shell and core standard internally, certain works to be carried out in Apartment Block 3 and some temporary backup house buildings. Some further matters are also referred to in those minutes.
(e) 18th May, 2010. A reduced scheme of works to comprise Phase 1 is set out in a memorandum of a meeting on that date. This includes two restaurants (with some uncertainty about “Trader Vic’s” being completed on time), a swimming pool, 60 cabanas for guests and other cabanas to be used on a temporary basis for other purposes, Apartment Block 2 to be completed for accommodation (but hotel staff to reside in cabanas until available), some sports facilities, Apartment Block 3 to be completed to 5th floor with roof frames fitted, waterfront village and retail village. There are other matters referred to in the memo.
The Contract
19. Extraordinarily, for a development of this size, there was no written contract. Mr. David Ames said that he was persuaded not to have a written contract by Mr. Martin MacDonald who had become a close and trusted advisor and confidante. Throughout the proceedings, Mr. MacDonald was generally referred to by the soubriquet of “Mac”. Mac was a partner in the accountancy firm of Wilkins Kennedy. Mrs. Ames got to know him when she was employed with Patten Pools (Construction) Ltd. As the plaintiffs’ business grew, they needed someone who could advise them on financial matters and Mac became the point of contact between the plaintiffs and Wilkins Kennedy. But he was more than that. He eventually became de facto the Chief Financial Officer of the plaintiff’s company as he carried out work going way beyond the role of an accountant. He also became a close personal friend of Mr. and Mrs. Ames and they trusted him absolutely. Although Mr. MacDonald played a pivotal role in the events giving rise to this litigation, it is of some significance that he was not called to give evidence, nor did he supply a witness statement.
20. For whatever reason, Mr. Ames did not see the need for a written contract and he appears to have willingly gone along with the suggestion that the parties to the building contract for the resort at Buccament Bay would work things out on an ad hoc basis as they went along. As matters transpired, this turned out to be a very poor decision on his part.
21. The plaintiffs claim that the ICE Group agreed to undertake Phase 1 of the building work at a rate of US$96 per sq. ft. The plaintiffs agreed to make regular interim payments to fund the construction costs. Mr. Ames gave evidence that the rate of US$96 per sq. ft. was agreed in respect of the cabanas and apartment blocks, but conceded that the waterfront village area had not been costed, although he claimed that the rate was never questioned in relation to the restaurants. Although his evidence varied somewhat on the issue, he came down on the figure of US$96 per sq. ft. for the whole of the Phase 1 contract. In his witness statement, he stated that the rate remained US$96 per sq. ft. for all building costs with a reduced rate for pools, decking and car parking. This was corroborated by Mac’s handwritten endorsement on a document which was contained in Appendix 4 of Mr. Ames’ statement and was put in evidence.
22. The first named defendant contends that in the pleadings, both parties have asserted that the contract price was US$76m.
23. Paragraph 16 of the amended statement of claim says that figure was “. . . to complete the Buccament Bay project based on an agreed price per square footage for works due to be competed by 1 July 2010”. At paragraph 7 of the amended defence and counterclaim, the first named defendant denies that the ICE Group agreed to undertake the building works at an agreed price of US$96 per sq. ft., but states that the price per sq. ft. varied for different areas of the project from US$57 to US$102 per sq. ft. and that the total agreed was the price of US$76,208,132 plus the cost of any variations requested as described by the scope of works.
24. There is no doubt that even when the statement of claim was amended, the figure of US$76m was not altered. Furthermore, in an affidavit sworn on 11th April, 2011, in these proceedings, Mr. Ames refers to a figure of US$76,843,396. In the course of his evidence, Mr. Ames sought to resile from that figure.
25. Mr. Ames said that the price of US$96 per sq. ft. was to cover all the services to the accommodation including finished plastering, painting, tiling, sanitary ware and connection of utilities so as to leave the premises ready for the hotel operator to put in furniture, pictures, TVs and matters of that kind. Mr. Simon Taylor, who works on business and brand development with Harlequin, and Mr. David Campion, an architect (formerly with Murray O’Laoire and now working for Harlequin) both confirmed that a rate of US$96 per sq. ft. was agreed. In his evidence, Mr. Campion said that the first named defendant confirmed that this was his agreement with Mr. Ames. Mr. Campion said that the remark was made in the context of a discussion about the cabanas, apartment blocks and joinery tenders for the restaurants. While there is some uncertainty as to the precise basis for calculating the contract price, the evidence established that – whether one takes the plaintiffs’ figures or the defendants’ figures – the profit margin on the job would be tight. Indeed, there was a body of evidence to suggest that the work simply could not have been done for a rate of US$96 per sq. ft.
26. The court heard evidence from Mr. Campion and Mr. Sanjay Amin, a quantity surveyor retained by the plaintiffs, to the effect that it would simply have proved impossible for the ICE Group to deliver the resort at that rate. Mr. Amin estimated that a rate of US$154 per sq. ft. may more reasonably have been expected in 2010, although even this rate would result in little profit accruing to the defendants. Mr. Amin was of the view that profit margins for construction contracts in the Caribbean typically come to between 8% and 15%.
27. While there are disputes on the exact costings for the project, these disputes are not critical to the issues which I have to decide because this is not a building contract case. The figures may be of some importance in tending to support the position of one party rather than another, but it is a peripheral issue. Whether the contract was for a fixed lump sum, as contended for by the defendants, or a fixed amount, as contended for by the plaintiffs, is somewhat tangential to the main issues that arise in this case. What is clear on the evidence is that there was an agreement that monies would be paid on a periodic basis. The plaintiffs contend that while these sums varied from time to time, they were – by and large – paid as they fell due, up to the date of termination of the defendants’ contract.
Payments made by Harlequin to ICE Group
28. An extensive review of the financial payments made by the plaintiffs to the ICE Group in respect of the Buccament Bay project was carried out by Mr. Paul Jacobs of Grant Thornton chartered accountants. Mr. Jacobs is head of the Forensic and Investigation Services Unit of Grant Thornton in Ireland. He prepared a report for the court which analysed a very large number of transactions and accounting entries. His report was submitted to the court and indicates the methodical manner in which he went about his task, including looking at bank statements and what were referred to as “quick books statements” used by the ICE Group to record transactions. He presented to the court extensive spreadsheets and schedules showing payments made by the plaintiffs to the ICE Group, and also showing payments which, he said, were made by the first named defendant for purposes totally unconnected with the Buccament Bay project and for his own benefit. These were set out in what was called a ‘Misappropriation Schedule’.
29. Is worth remarking that at the commencement of his cross-examination, counsel for the first named defendant acknowledged that there was no great dispute between the parties as to the figures set out in his reports, but that the dispute arose in relation to the characterisation of certain payments as “misappropriation”. Mr. Jacobs acknowledged that in relation to one of the Irish payments there was a duplication involved in relation to a payment to Adare Manor Hotel and ‘Weddings by Franc’. That amounted to a double counting of US$25,800. When Mr. Jacobs discovered that duplication, he corrected the figure in Appendix 10 of his report.
30. I am satisfied that Mr. Jacobs’ analysis of the books and records which he examined and the conclusions which he reached are fair and reasonable and I accept his evidence.
31. Mr. Jacobs expressed the view that 94% of the income of the ICE Group came from Harlequin. In other words, apart from one or two small projects, they were entirely dependent on Harlequin. The evidence which I heard in this case overwhelmingly supports that view. Furthermore, the evidence proffered showed that Buckley Meadows and Harmony Hall, the two other construction projects with which the ICE Group was involved in the Caribbean, independently of the plaintiffs, were unlikely to turn a profit. Indeed, the Buckley Meadows project was described by Mark Wallerson, former financial director of the ICE Group as a “loss leader”. Having considered the evidence available to him, including the figures provided by BCQS in a report, Mr. Jacobs concluded that the ICE Group was effectively insolvent at the time of the termination of their contract by Harlequin.
32. Quite apart from that evidence, it was clear, from the evidence as a whole in this case, that the ICE Group was never going to make a substantial profit out of the completion of Phase 1 of the development. It seems to me that this is a relevant consideration in evaluating the Irish payments which are at the heart of these proceedings.
Misappropriation
33. In order to properly understand the allegations of misappropriation and put them in context, it is necessary to set out, in general terms, a timeline showing the amounts of the periodic payments and how they were amended from time to time by agreement.
34. At a meeting on 1st September, 2008, that took place at the plaintiffs’ office at Basildon in the UK, Harlequin agreed to make weekly payments to the ICE Group. The first payment of US$100,000 was transferred on 4th September, 2008, and this was followed by payments of US$125,000 per week thereafter. The agreement was that that sum would be paid per week for 12 weeks. At some time around 13th October, 2008, Mr. Ames was informed by Mr. MacDonald that the ICE Group was doing a very good job on the project and that the weekly payments should be increased to US$165,000 until Christmas in order to speed up construction. Mr. Ames agreed to increase the weekly payment accordingly. The project continued in this way until early 2009.
35. On 17th March, 2009, Harlequin’s payments to the ICE Group increased to Stg.£400,000 per week with effect from 19th March, 2009. This increase was linked to discussions between Mr. Ames, Mr. MacDonald and the first named defendant on site at Buccament Bay in late February 2009. In May 2009, Mr. Ames committed to making increased payments and, specifically, to make 43 weekly payments of Stg.£450,000 in return for the complete delivery of Phase 1 on 1st July 2010. Mr. Ames’ understanding was that those payments would enable Phase 1 to be completed. The price did not include the fit out or furnishing of the restaurants. The weekly payments of Stg.£450,000 continued with some variations until 23rd February, 2010. At a meeting in November 2009, the plaintiffs agreed a revised and reduced scope for Phase 1 to be completed by 1st July, 2009. It was agreed that some remaining elements of Phase 1 would be delivered after 1st July, 2010. By 28th January, 2010, Harlequin had paid 41 of the 43 weekly payments agreed with the ICE Group in May 2009.
36. On 23rd February, 2009, a new payment plan was agreed which involved payments of Stg.£600,000 per week to be made and which were to be supplemented by additional ad hoc payments as and when required to ensure Phase 1 was delivered by 1st July, 2010. These payments were agreed at a time when Mr. Ames was becoming increasingly concerned that the 1st July, 2010, deadline would not be met. The first of the Stg.£600,000 payments was made on 24th February, 2010, and weekly payments in that sum continued until 18th May, 2010. Meanwhile, on 10th May, 2010, a payment of US$435,000 was made by Harlequin to ICE Group.
37. On 18th May, 2010, a meeting took place at Harlequin’s offices in Basildon. By this time, the plaintiffs were extremely concerned about the lack of progress on the development and felt they had been misled. Desperate to ensure that an opening could proceed on 1st July, 2010, Mr. Ames agreed that the plaintiffs would make seven payments of US$1m per week to the ICE Group. On the day following the meeting, Harlequin paid US$1m to the ICE Group, and on 27th May, 2010, they paid another US$1m. That was the last payment made before the ICE Group was dismissed from the site.
38. Mr. Paul Jacobs, in his report and evidence, stated that from August 2008 until June 2010, payments of US$9,942,633.59 were made from ICE Group bank accounts in respect of matters which the plaintiffs claim were totally unrelated to the Buccament Bay project. These included monies spent in relation to the purchase of a jet aircraft, the purchase of a Hertz franchise in St. Lucia, the purchase of racetrack and the purchase of a quarry in SVG. There were also monies paid in respect of a Romanian ski resort project in which the first named defendant was involved with Mr. Noel Tynan. The first named defendant maintains that some of these payments were for the benefit of the Buccament Bay project, for example, the purchase of a jet aircraft and the quarry. He sought to justify the purchase of the jet aircraft on the basis that there was no scheduled air service between the Caribbean Islands and other destinations where the first named defendant was required to travel on Harlequin related business. With regard to the quarry, the first named defendant claims that this was a purchase which would save costs in the sourcing of raw material for use on the Buccament Bay building project.
39. This case is concerned with payments which were allegedly misappropriated and paid into Irish accounts. So far as the Irish payments were concerned, they were made from the ICE Group, primarily to bank accounts of the first named defendant with the exception of a sum of US$201,000 to ‘Weddings by Franc Ltd’.
40. The first named defendant had two accounts in Ireland which are relevant to these proceedings. One was a Bank of Ireland Account No. 72907584 (“the 584 Account”) and the other was with TSB, Account No. 15434479 (“the 479 Account”). The second named defendant had an account with Permanent TSB in Ireland which bore the Account No. 16111530 (“the 530 Account).
41. The plaintiffs contend that the evidence of Mr. Jacobs establishes that between January 2009 and May 2010, the ICE Group transferred US$2,283,600 into bank accounts in Ireland which had nothing to do with ICE Group’s business, much less the Buccament Bay project. This is disputed by the first named defendant who claims that some of these monies were connected with his plan to set up offices for the ICE Group within Ireland. In the last month alone, before the contract with the ICE Group was terminated in June 2010, the Group transferred US$350,000 into the first named defendant’s own personal bank accounts in Ireland at a time when the plaintiffs claim the Buccament Bay project urgently required supplies to be purchased to complete the building of Phase 1.
42. The Irish payments started in January 2009 and continued through to the conclusion of the contract in June 2010. As the payments increased in amount, the plaintiffs allege that the first named defendant siphoned off ever-larger sums for non-Buccament Bay project items in the Caribbean and also transferred ever-larger sums to his Irish accounts.
43. Mr. Roberts’ evidence shows the following Irish payments having been made:-
January 2009: Transfer to Bank of Ireland Account (the 584 Account) US$110,000
February 2009: Transfer to Bank of Ireland Account (the 584 Account) US$5,000
March 2009: Transfer to Bank of Ireland Account (the 584 Account) US$10,000
April 2009: Transfer to Bank of Ireland Account (the 584 Account) US$60,000
June 2009: Transfer to Bank of Ireland Account (the 584 Account) US$50,000
July 2009: Transfer to Bank of Ireland Account (the 584 Account) US$38,000. Transfer to PTSB (the 479 Account) US$100,000.
October 2009: Transfer to Bank of Ireland Account (the 584 Account) US$150,000. Transfer to PTSB (the 479 Account) US$100,000.
November 2009: Donal O’Halloran (second defendant) US$358,000. Transfer to Bank of Ireland Account (the 584 Account) US$150,000. Transfer to PTSB (the 779 Account) US$150,000. Weddings by Franc Ltd. US$72,000.
December 2009: Adare Manor US$25,800. Transfer to Bank of Ireland Account (the 584 Account) US$50,000. Transfer to PTSB (the 779 Account) US$50,000. Weddings by Franc Ltd. US$25,800 (to be deducted as same payment in respect of Adare Manor December 2009).
February 2010: Transfer to Bank of Ireland Account (the 584 Account) US$300,000.
March 2010: Weddings by Franc Ltd. US$129,000.
May 2010: Transfer to Bank of Ireland Account (the 584 Account) US$350,000.
After making allowance for the double counting of US$25,800, the total Irish payments amount to US$2,257,800.
44. In the meantime, the first named defendant was making substantial payments in the Caribbean in respect of other matters which the plaintiffs allege were quite unconnected with the Buccament Bay project. These have been referred to earlier and include such matters as the purchase of a Falcon Jet aircraft, a racecourse in St. Lucia, the Hertz franchise in St. Lucia and a quarry in SVG. There were other items referred to in the course of the evidence. The Schedules appended to the witness statement of Mr. Paul Jacobs and supported in his evidence show that the level of payments for what the plaintiffs claim were matters unrelated to Buccament Bay increased in the latter half of 2009 and the beginning of 2010. While these payments are not part of the Irish proceedings, they are relevant to establish a pattern of behaviour on the part of the first named defendant and high levels of expenditure at a time when more and more money was required to complete the construction of Phase 1 of the development. In the course of his evidence, Mr. Paul Jacobs referred to a study which he undertook to show in percentage terms what monies paid by Harlequin to the ICE Group were paid out on items which are shown in the ‘Misappropriation Schedule’ to his report which includes both Irish and Caribbean payments. He noted that there was an increase in the proportion of monies being used for items on the Misappropriation Schedule as time went by, and in particular, he noticed an uplift in relation to the period of October and November 2009. He calculated that approximately 26% of the monies paid to the ICE Group by Harlequin in respect of the Buccament Bay project were paid out on items specified in the Misappropriation Schedule.
45. Looking specifically at the purchase by the first named defendant of a house at Shippool, Innishannon, County Cork for €790,000, Mr. Jacobs was able to identify a total of €761,000 which was lodged by four transactions lodged into the account of the solicitor for the first named defendant in the deal. Of that sum of €400,000 was comprised in a bank draft that preceded the Bank of Ireland mortgage loan offer. Mr. Jacobs was satisfied that this sum came from the first named defendant’s bank account and that 98% of the lodgements into the bank account came from the ICE Group. Other than that, he was not able to say precisely how the €400,000 was actually funded.
46. A total of US$1,673,000 was sent by the ICE Group to the first named defendant’s bank accounts in Ireland to establish what was referred to as “Irish operations”. In February 2010, there were three payments US$100,000 sent to the first named defendant’s Irish accounts. One was sent on 11th February, 2010, one on 17th February, 2010, and one on 24th February, 2010. They were described as management fees. It was also put to the first named defendant that between October 2009 and February 2010, US$950,000 had been sent to his Irish accounts excluding repayments made to loans alleged to have been made by the second named defendant. The first named defendant said that the funds were sent to set up an operation in Ireland. He stated that the money was ring fenced for expenditure on Harlequin projects. He stated that the ICE Group intended to set up an operation in Ireland which would support the Caribbean operations. When asked how this would do so, his evidence was vague and unclear. Although he claimed that the monies were ring fenced for that purpose, some of the monies included the substantial sum of US$201,000 to ‘Weddings by Franc’. The first named defendant admitted that insofar as some of these payments were stated to be for discharging invoices and some were stated to be for management fees or salary, that they were not in fact for that purpose. While he did give some evidence about negotiating for the lease in respect of offices at Penrose Wharf in Cork, no lease was ever signed and it was difficult to understand how his business, which was predominantly in the Caribbean at that stage, was going to be helped by relocating offices to Cork. The first named defendant admitted that an ICE Group company had been incorporated in the UK on 2nd October, 2008. Therefore, if the Group required a European based company to handle its affairs, one wonders why it could not have been done by the UK company. In any event, it was clear that at the time when many of these payments were made, the Buccament Bay project was stalling and required substantial injections of cash to meet the opening deadline.
47. The only conclusion one can come to is that the monies were sent to Ireland under bogus descriptions of “invoices” or “management fees” or “salary” so as to conceal their true purpose. While there was evidence that certain steps had been taken with a view to setting up an Irish office for the ICE Group, there would be no need for such a charade had these funds had been legitimately and properly diverted for this purpose. Furthermore, such an undertaking was entirely unconnected with the Buccament Bay project.
48. I am satisfied that some negotiations had taken place with a view to renting premises in Cork. A sales note of 1st June, 2010, from the agent states:-
“To your clients, the ICE Group and No. 5, First Avenue, Belview, St. Michael’s Barbados, West Indies. I now enclose a copy of the Heads of Terms of Agreement which have been fully reached by both parties and negotiated by our firm.”
49. By this time, the relationship between the first named defendant and Mr. Ames had completely broken down and it may well be that the ICE Group was going to move its headquarters to Ireland with a view to conducting business other than in the Caribbean. But by June 2010, it made no sense for the ICE Group to be setting up headquarters in Cork with a view to managing the Caribbean business and, in any event, there did not appear to be sufficient funds from the Buccament Bay project to enable the ICE Group to do this. If the true purpose of the transfers to the Irish accounts of the first named defendant was to set up an ICE Group business, it is difficult to understand why a bank account in the ICE Group name was not set up in Ireland. Furthermore, it does not explain why the monies were transferred to personal accounts of the first named defendant and why those transfers falsely stated that they were being made against invoices and for salary payment when that was clearly not the case.
Control over ICE Group
50. Ms. Shona Quammie was employed by the ICE Group on 22nd June, 2009, as accounts supervisor and remained in the employ of the Group until she resigned on 16th June, 2010. She then joined the first named plaintiff company in the same position. Part of her role involved the transfer of funds from the bank account of ICE to Cellate SVG bank account in Barbados. She was involved in all the ICE Group companies and her job involved keeping track of suppliers and arranging payments from ICE Group’s bank accounts in SVG. She gave evidence of the numbers of relevant bank accounts and her role in the ICE Group. She was intimately involved in the bookkeeping and funds transfer within the Group and transfers to creditors and other accounts outside the ICE Group. I found her to be a credible witness and her evidence was important in understanding the way in which the ICE Group was run and what payments were made. She gave evidence that there were no cash flow projections while she worked with the ICE Group and it was impossible to try and reconcile payments coming in from Harlequin against the likely expenditure over any specific future period or against any category of cost or towards a budgeted spend. Matters were managed on an ad hoc basis.
51. Ms. Quammie gave evidence that the first named defendant would chose what was paid and what was not. Apart from the monthly payroll, there was no set payments system. Everything other than payroll was paid on an approval basis by him.
52. In April 2010, Ms. Quammie was becoming very concerned about the cash flow position at the ICE Group and the amount of money which was being spent on matters unrelated to the Buccament Bay project. She was aware that there was constant negotiation between various members of the ICE Group and the first named defendant to try and get payments for the Buccament Bay project. As the agreed opening date for Phase 1 became closer, she found herself dealing more and more with pressure and queries from creditors. Especially, from around March 2010 until the ICE Group was dismissed from the site, a lot of creditors were calling about payments and she could not pay invoices or bills without approval from the first named defendant. At the same time, she was being directed to make regular and substantial payments from the ICE Group’s bank accounts to the first named defendant’s personal bank accounts in Ireland. By way of example, she said that on 16th February, 2010, she received an email from Mr. David Wallerson, the corporate accounts manager for the ICE Group, to send US$100,000 to Mr. Padraig O’Halloran’s Bank of Ireland account “when the transfer hits tomorrow” and on 5th March, 2010, she received an email from the first named defendant saying that €50,000 needed to be sent weekly to his Irish bank account. At the end of May 2010, a sum close to US$1m was received from Harlequin and the majority of payments paid out immediately thereafter were for matters which Ms. Quammie said were unconnected with the Buccament Bay project. US$250,000 was sent to the first named defendant’s own bank account in Ireland. She had no doubt that the person who controlled the ICE Group and the financial disbursements made on its behalf was Mr. Padraig O’Halloran, the first named defendant. Because of the position which she held within the ICE Group and her areas of responsibility, she was in a unique position to give such evidence and I accept that evidence.
53. She was cross-examined about the retention by her of emails and she stated that she did so as she was concerned to protect her position. She said that as time went by, she would submit requests for payment of various creditors. While these would be turned down, she would “. . . get ad hoc instructions for stuff as planes, stuff as money to Mr. Padraig O’Halloran and items that were not exactly related where the actual expenses remained outstanding from (sic) my own personal benefit, in the event that it ever got out of control, I retained my emails”.
54. I found this evidence to be compelling. While Ms. Quammie was cross-examined robustly about her characterisation of certain payments, and in particular the purchase of KLB, a company involved in selling and/or hiring plant and machinery, no ulterior motive was ascribed to her for giving evidence which suggested many of the payments made by the ICE Group were to the first named defendant’s personal bank accounts or were for matters unrelated to the Buccament Bay project.
55. Quite apart from the testimony of Ms. Quammie, the evidence as a whole supports her view that the first named defendant was the controlling hand over the ICE Group and all significant decisions concerning expenditure were made by him.
Representations made by the First Named Defendant
56. It is clear on the evidence that an agreement was in place from the summer of 2009 that Phase 1 of the Buccament Bay resort would be delivered by 1st June, 2010. Implied in this agreement and the assurances given by the first named defendant was a representation that bona fide efforts would be made to deliver the resort according to the agreed timetable.
57. On numerous occasions, the first named defendant promised the plaintiffs that the ICE Group would deliver Phase 1 of the Buccament Bay resort by 1st July, 2010. These representations were made orally at many meetings and also in frequent emails. When these representations were made by the first named defendant, he knew that the deadline was of great importance to the plaintiffs. The first named defendant linked the delivery date with ongoing payments, stating that if the plaintiffs kept up the payments then the ICE Group would deliver Phase 1 by 1st July, 2010.
58. It is not necessary to outline all the occasions on which these misrepresentations were made as the transcripts of evidence are replete with these matters. Oral representations by the first named defendant assuring the plaintiffs of delivery of Phase 1 by 1st July, 2010, were made at meetings on the following dates:-
16th-17th May, 2009; 23rd-24th November, 2009; 24th-25th January, 2010; 23rd February, 2010; 25th March, 2010; 29th March, 2010; 29th-30th April, 2010, and 18th May, 2010.
59. The first named defendant repeated these assurances in many emails including on the following dates:-
16th February, 2010; 15th, 18th, 25th, 28th March, 2010; 5th, 19th and 30th April, 2010; 5th, 7th and 23rd May, 2010.
To focus on but one of these emails (23rd March, 2010), the first named defendant stated to Mr. David Ames: “Your resort WILL BE OPEN! On 1st July!”
The First Named Defendant’s State of Mind
60. The plaintiffs allege that when these representations were made, the first named defendant knew very well that the date he was promising for delivery of Phase 1 was unachievable and that he knew this by at least September 2009, and probably earlier. Mr. David Campion, an associate director of Murray O’Laoire, architects, and acting at the relevant time as consultant architect for the ICE Group, confirms that the first named defendant had promised that Phase 1 would be completed by 1st July, 2010, and that this deadline was very much on the agenda at a meeting of 23rd and 24th November, 2009. By that time, the project was so far behind he felt that all monies received by the ICE Group needed to be spent on the development in order to deliver anything meaningful by that date. By January 2010, Mr. Campion said there was no evidence that procurement was in hand so that essential works could be undertaken.
61. The evidence in this case established that from October 2009, legitimate requests for information by Mr. Ames to the first named defendant in the ICE Group were not being dealt with. Mr. Ames gave evidence of sending frequent emails to which he received no response. In January 2010, the first named defendant promised to send weekly site reports but these were not sent. Mr. Ames found that he was not being kept abreast of developments. As Mr. Ames continued to look for information, the first named defendant sent an email on 15th January, 2010, to Mr. Mark Coggle and Mr. Kevin Webster which was copied to Mr. Stephen McConaghy and Mr. Gilbert Aquino, the text of which is quite revealing. He stated:-
“Hi Guys,
Please don’t give Dave Ames any information, please direct the information through me! . . .”
62. This was in response to a plea from Mr. Mark Coggle as to how he should deal with ongoing requests from Mr. Ames so as to enable an appropriate response to be delivered. The evidence established quite clearly that the first named defendant deliberately tried to keep Mr. Ames and the plaintiffs in the dark as to the true state of progress of Phase 1 of the development and the only plausible explanation for this is that The first named defendant knew that the assurances he had been giving the plaintiffs about the completion date of 1st July, 2010, could not be met.
63. In January 2010, Mr. Kevin Webster, the project manager for the ICE Group at Buccament Bay, produced a ‘Gantt chart’ (a bar chart illustrating a project schedule) setting out a realistic schedule of works and a timeframe for completion of Phase 1. The achievable completion date was shown on this chart as being April 2011, and not 1st July, 2010. In Mr. Campion’s account, this chart was shown to the first named defendant who rejected it out of hand and instructed his staff not to tell Harlequin what the realistic date for delivery would be.
64. Mr. Sean O’Connor, who is an experienced project manager, gave evidence as to what system should be in place in a construction project of the size of the Buccament Bay resort. He was astonished that there was no bill of quantities or schedule of works, and when he arrived on site after the ICE Group contract had been terminated, he said the “site was an absolute mess” and “there was a lack of essential supplies on site”. He found that suppliers had not been paid and credit lines under the ICE Group had dried up. Mr. Gilbert Aquino, an architect, also confirmed that he was firmly of the view that the works could not be completed by 1st July, 2010, and that he had this view since the summer of 2009. He knew that Mr. Webster was also of that view.
65. It is of some importance to note that when Mr. Webster asked the first named defendant on 5th May, 2010, how he should respond to a request from Mr. Ames for an update on progress, that the first named defendant sent an email to Mr. Webster stating that his response should be “. . . nice and simple, along the lines that we are working towards the required deadlines, don’t spook him”. Clearly, the first named defendant did not intend Mr. Ames or the Harlequin companies to become aware of the actual prospects of an opening by 1st July, 2010. If they knew the true position, they were unlikely to keep putting money into the project.
66. The court heard evidence that in certain respects the works resembled a ‘Potempkin village’, with the façade of progress belying the fact that essential infrastructure had not been put in place. It emerged that while open areas around the cabanas had been fully landscaped, the requisite waste water drainage systems had not been put in place, such that sewage was found to have escaped into the soil. Mr. O’Connor described this state of affairs as “almost incomprehensible”, and gave evidence that, upon Harlequin’s taking control of the site in June 2010, all of the landscaping works had to be dug up and the appropriate waste water works installed. While Mr. O’Halloran’s evidence is that this approach was taken due to the need for the landscaping to bed in, and that it would require a small team only seven days to take up the sod and lay the pipes, it is impossible to avoid the conclusion, given the weight of corroborative evidence, that the true reason had been to convey a false impression as to the extent to which the construction works had been completed.
67. It emerged in the evidence, also, that Mr O’Halloran and key advisors, including Mr. Newman, had sought advice in February of 2010 from Knowles, a consultancy firm specialising in construction disputes. In Mr. Newman’s evidence the meeting was primarily concerned with assessing the possibility of the ICE Group “discontinuing” its involvement with the Buccament Bay project at short notice. However, it appears that they were advised that this would not be possible. The first named defendant claimed in evidence that the company had sought this advice because of failures on the part of the plaintiffs to make payments on schedule. Indeed, the first named defendant claimed that the ICE Group is owed a significant sum of money by the plaintiffs. However, there was no evidence of complaints having been made by the ICE Group or The first named defendant regarding purported difficulties in obtaining payment from the plaintiffs. Indeed, the meeting with Knowles took place in the same month that an agreement was reached with the plaintiffs for an increase in the payments to be made in pursuance of the Buccament Bay project. Around this time, also, the first named defendant and his senior advisors travelled to the UK, Jordan, Romania and Morocco canvassing for new business. It appears that a ticket had been purchased for Mr. MacDonald, but that he had ultimately not travelled with the other members of the party.
RLB Reports
68. The first named defendant relies on reports of RLB Rider Levett Bucknal (“RLB”) in support of his case that no misrepresentations were made by him as to the feasibility of opening Phase 1 on 1st July, 2010. RLV was commissioned by the plaintiffs to monitor the construction and the development progress of the Buccament Bay project and they prepared reports in January 2010, February 2010 and 21st May, 2010. In the January 2010 report, the author concluded that the construction programme “. . . although ambitious, is achievable with the continued diligence of the main contractor and design teams should ensure a successful outcome”. The February 2010 report concluded with the words “. . . we believe that overall the Phase 1 soft opening date can be achieved at Buccament”. Both reports raise concerns about the level of coordination required to ensure that the resort would be ready on time and pointed to a number of possible threats to the achievement of the planned opening date for Phase 1.
69. A careful reading of the reports indicates that the authors considered that a soft opening for Phase 1 was achievable but was “ambitious”. In their closing submissions, the plaintiffs draw attention to what they argue is a significant qualification of the January 2010 report, where it is stated “in the absence of any financial information relating to project cash flow requirements or procurement programmes, these elements have not been considered in forming our conclusion”. The plaintiffs argue that these elements are absolutely essential in determining the question as to whether or not the project would be delivered by 1st July, 2010. Mr. David Campion, a development director with the plaintiffs, was consultant architect for the ICE Group at the relevant time and said at that no time did RLB speak to him about the contents of the reports or discuss any of the issues arising therein. He said that he would have expected that the author of the report would speak with the architect for the project before completing it.
70. In its final report of 21st May, 2010, RLB concluded:-
“Having gauged the progress on site with the soft opening date in mind for 1st July 2010, we conclude that the soft opening date is not achievable for 1st July given the lack of functional infrastructure and the current level of works incomplete . . . the levels of resources did not appear to be the same as observed in February. The absence of key materials and labour skills upon the site at this late stage i.e. cabling, infrastructure, Vinlec, WWT, etc. is of concern. Until these key items are confirmed in terms of orders placed, delivery dates to site, times required to installed etc. it is not going to be possible to project a revised date for opening with any confidence.”
Whatever hopes might have existed until then about meeting the opening date, they were now well and truly dispelled.
71. There is undoubtedly a conflict between the evidence given by a number of witnesses on behalf of the plaintiffs and the evidence of the first named defendant himself and what is contained in the RLB reports. However, under cross-examination, the first named defendant admitted that in March 2010, it was wrong to give an assurance to Mrs. Ames that Phase 1 would be open on 1st July, 2010, as he required further information from Mr. Ames and assurances as to what would be done by the plaintiffs to facilitate that opening date. At the very least, he agreed that at the meeting of 25th and 26th March, 2010, it would have been wrong for him to give an unqualified answer that Phase 1 would have been finished by 1st July, 2010. To that extent, there is some difference between his evidence and what is contained in the RLB report. But what I think is of more importance is the fact that no witness from RLB was called to give evidence which would have led to the contents of the report being tested. This is against a background where Mr. Campion said that RLB never discussed any of the matters contained in the report with him, even though he was the project architect.
72. Mr. Rupert Spencer, a quantity surveyor who worked for Tower Consultants Ltd., gave evidence on behalf of the first named defendant and prepared a valuation report on the works executed by ICE Group at Buccament Bay. He received instructions from Cellate which was part of the ICE Group and his instructions were to prepare a report with the objective of providing an independent and expert opinion as to the value of the construction work executed by the ICE Group at Buccament Bay. Tower Consultants Ltd. had done work for Ridgeview Construction in or around the years 2006 and 2007, and the company had a one-third interest in RLB up to July 2009. Some evidence was presented to the court suggesting there may have been a relationship of sorts between the first named defendant and RLB. On 15th May, 2009, an email from Mr. Mark Williamson, the managing partner of RLB, to Mr. Stephen McConaghy, an employee of the ICE Group, and the first named defendant commenced with the following sentence:-
“Just a quick note to bring you up to speed on this week and to say thanks for the work you are passing RLB’s way on both sides of the Atlantic!!”
The same email also made reference to a meeting in Romania which was a reference to a project in which the first named defendant was involved with Mr. Noel Tynan. Mr. Garrett Ronan, Vice President of hotel and resorts development with Harlequin, said that he was astonished to see the RLB reports in January/February 2010, which suggested that Phase 1 would probably be completed by 1st July, 2010. He was aware from a discussion with the RLB representative that a meeting was to take place with the first named defendant to go back over what was to go into the RLB report and he told Mr. Ronan that he did not want to upset anyone and that the first named defendant was quite aggressive. He also said that the RLB man who came on site expressed his personal concerns but they did not appear in the report and that he thought it a little strange that the RLB representative would be discussing the report with the first named defendant. He said he got sense from talking to him that the report would be tempered. Quite clearly, the plaintiffs were challenging the accuracy of the reports furnished by RLB and, in particular the reports in January and February 2010.
73. Having considered all the evidence in this case, I am satisfied that from some time in the summer of 2009, it was clear to the first named defendant that it was unlikely that Phase 1 would be completed by 1st July, 2010. The position was abundantly clear by November 2009, from which time the first named defendant was making assurances about the delivery date. I do not accept that the RLB report is of sufficient weight to give comfort to the first named defendant because of the information deficit which existed when they prepared the report, and because there are unresolved disputes about the accuracy of that report and the independence of RLB.
Reliance placed by Harlequin on Representations of First Named Defendant
74. I have already concluded that the first named defendant made representations concerning the opening date of Phase 1 by 1st July, 2010, and that these representations were made by the first named defendant in circumstances where he knew that the opening date of 1st July, 2010, could not be achieved for Phase 1. Those representations were made knowingly, or at the very least, recklessly, as to their truth. There can be no doubt, on the evidence, that Harlequin placed reliance on those representations. The first named defendant was well aware of the fact that Harlequin was under enormous commercial pressure to deliver the Buccament Bay resort by 1st July, 2010. As a result of the representations made by the first named defendant, a number of steps were taken by Harlequin:-
(a) Harlequin purchased a large quantity of furnishings at a cost of approximately US$12.7m which were delivered from China. These were for the fitting out and furnishing of the rooms and facilities in the resort;
(b) Harlequin employed a large number of managers and staff in SVG to prepare for the opening on 1st July, 2010;
(c) Bookings had been made and commitments were made to investors and 397 people were booked to visit the resort in July 2010;
(d) From March 2010, Harlequin took steps to ensure that the hotel would be ready and operational by 1st July, 2010. Recruitment interviews took place and rooms were hired in other local small hotels to establish temporary offices in order to conduct training for new staff to run the resort;
(e) The plaintiffs committed to purchasing all of the food and beverage items necessary for the opening. This required considerable logistical commitment and expense to bring in stores from Miami to SVG in refrigerated containers.
The Role of Wilkins Kennedy Accountants, Mr. Martin MacDonald and Mr. Jeremy Newman
75. Wilkins Kennedy had been accountants to a business run by Mrs. Carol Ames and subsequently became accountants to Harlequin. The contact between Harlequin and Wilkins Kennedy was Mr. Martin MacDonald (“Mac”). Mac became more than a member of an accountancy firm retained by Harlequin. He became a close friend and confidante of Mr. and Mrs. Ames and, as time went by, Mr. Ames relied more and more on his assistance. Eventually, he became, to all intents and purposes, the Chief Financial Officer of Harlequin. Mr. Jeremy Newman was retained to give tax advice to Harlequin. After some time, he became involved in giving advice to the ICE Group. This was a matter of concern to Mr. Ames, who was reassured that sufficient safeguards were put in place to avoid any conflict of interest on the part of personnel within Wilkins Kennedy. On 23rd November, 2012, Mr. Newman resigned from Wilkins Kennedy and has now gone into business with Mr. Padraig O’Halloran. Together, they have set up a new construction and civil engineering company in Jordan.
76. Again and again, throughout this lengthy trial, evidence was produced which showed what a pivotal role Mac played in the day-to-day business of Harlequin. What also emerged in the course of the trial was the growing relationship that developed between Mr. Padraig O’Halloran and Mac. It developed to such a point that Mac attended the stag party of the first named defendant at Monte Carlo during the Grand Prix weekend in 2010. Although Mr. Newman gave evidence in the trial, Mr. MacDonald did not. He neither turned up at the trial nor furnished a witness statement.
77. I am satisfied that the evidence establishes that by the spring of 2010, Mr. MacDonald was working in league with the first named defendant and he had a serious conflict of interest in continuing to act for Harlequin. Mr. Ames felt very let down by Mr. MacDonald, and with some justification. By that time, Mr. Newman was also working for the ICE Group.
78. Mr. Newman gave evidence about the manner in which the Harlequin Group was funded, pointing out that it did not avail of loan facilities, but rather, brought in investors into the project. In the course of the trial, there were oblique references to Ponzi schemes and investigations in the UK into the way in which the companies were financed. These are matters for the appropriate authorities in another jurisdiction and are not relevant to the matters which I have to decide. A great deal of this trial was taken up with matters that were peripheral to the issues which I have to decide and did little more than add colour.
Conclusion on the Facts
79. Having considered all the evidence in this case, I have come to the following conclusion with regard to the facts:-
(i) By the time the ICE Group’s contract at Buccament Bay was terminated on 11th June, 2010, a substantial amount of work remained to be done in order to complete Phase 1. I do not propose to repeat in detail the evidence which was given in relation to this aspect of the case. Suffice it to say that while there was some disagreement between witnesses tendered on behalf of each of the parties, it was clear that the ICE Group had not brought Phase 1 to completion nor was there any prospect of it being completed by 1st July, 2010. I accept the evidence of Mr. David Ames that the agreement made in May 2009 to make 43 payments of Stg.£450,000 was intended to complete Phase 1 of the development. On 23rd February, 2010, the plaintiffs agreed to pay Stg.£600,000 per week plus ad hoc payments. On 19th May, 2010, the first named defendant and the ICE Group demanded a further seven payments of US$1m each to complete Phase 1 of the development and these payments were made on the basis that they were necessary to secure essential supplies and pay construction costs so as to enable the ICE Group to deliver Phase 1 of the project by 1st July, 2010.
(ii) The ICE Group failed to complete Phase 1 within the agreed time.
(iii) A series of substantial payments were made by the plaintiffs to the ICE Group on specific representations made by the first named defendant that Phase 1 would be completed by 1st July, 2010, when he knew or ought to have known that this was not true.
(iv) The payments made by the plaintiffs to the ICE Group for the completion of Phase 1 ought to have been sufficient for that purpose but would not have provided significant profit to the ICE Group.
(v) At a time when the ICE Group should have been applying the monies received from Harlequin towards the completion of Phase 1 of the Buccament Bay development, the first named defendant diverted substantial sums of money to bank accounts which he held in Ireland using false invoices and descriptions in respect of the transfers. Detailed and persuasive evidence was also given to show that the first named defendant was also diverting substantial sums of money for other matters unconnected with the Buccament Bay project which are not part of these proceedings and involve other jurisdictions.
(vi) Some of the monies paid by the plaintiffs to the ICE Group were diverted to the account of the second named defendant. There was no evidence establishing any connection between these monies and the Buccament Bay project. While the defendants claim that these monies involve the repayment of loans made by the second named defendant to the first named defendant, the evidence in support of that claim was vague and unspecific.
(vii) The only effective source of income of the ICE Group was the plaintiffs.
(viii) The ICE Group was effectively under the control of the first named defendant who made all the significant decisions about financial disbursement.
(ix) From the beginning of 2010, the first named defendant ensured that Mr. David Ames and the plaintiffs were not kept fully informed as to the progress of the building works at Buccament Bay despite requests for information and he sought to ensure that all such information going to Mr. Ames and the plaintiffs would be directed through him. His determination to control this information was to ensure that the plaintiffs did not ascertain the true position with regard to the works at Buccament Bay.
(x) Harlequin had made the payments required of them under the contract up to the date of termination (apart from an insignificant number of occasions when some payments were delayed for a matter of days). Harlequin successfully built out the remainder of the first phase of the resort for a soft opening on 1st August 2010, albeit with the scope of works having been substantially reduced, and subsequently built out other parts of the resort.
The Law
80. In paragraph 11 of this judgment, I set out the legal issues which arise for consideration in this case. It is necessary to look at the legal principles which should be applied to these issues and the findings of fact which I have made.
Fraudulent Misrepresentation
81. At law, a misrepresentation is made fraudulently if, when he makes it, the representor knows that the representation is untrue or is reckless as to whether it is true or not. A person who deceives another fraudulently and thereby causes loss is liable in damages for the tort of deceit. The elements of the tort of deceit may be found in the case of Derry v. Peek [1889] 14 App. Cas. 337 at 279. The tort was restated in this jurisdiction in Northern Bank Finance v. Charleton [1979] IR 149, and the parties are agreed as to its constituent elements, being:-
(a) That the alleged representation consists of something said, written or done that amounts to a representation;
(b) that the defendant was the person who made the representation;
(c) that the plaintiff was the person to whom the representation was made;
(d) that the representation was both false and fraudulent;
(e) that the representation was a material inducement to the claimant to act on it;
(f) that the plaintiff did in fact alter his position on foot of the representation;
(g) that the plaintiff thereby suffered damage.
82. The defendants submit that a distinction must be drawn between actionable fraudulent misrepresentations which, they say, must necessarily relate to present facts or present intention, and statements of future fact or future intention which are said to be incapable of amounting to an actionable misrepresentation, see Mulcahy & Keaton v. Mulcahy [2011] IEHC 186, per Laffoy J. where it was submitted that a statement of future intention, as distinct from present fact, would only constitute a misrepresentation if the statement of intention was not honestly held at the time the statement was made. The learned judge referred to the speech of Lord Wilberforce in British Airways Board v. Taylor [1976] 1 ALL E.R. 65 (at p. 68):-
“. . . the distinction in law between a promise as to future action, which may be broken or kept, and a statement as to existing fact, which may be true or false, is clear enough. There may be inherent in a promise an implied statement as to a fact, and where this is really the case, the court can attach appropriate consequences to any falsity in, or recklessness in the making of that statement. Everyone is familiar with the proposition that a statement of intention may itself be a statement of fact and so capable of being true or false. But this proposition should not be used as a general solvent to transform the one type of assurance with another; the distinction is a real one and requires to be respected . . .”
The caution expressed in the above remarks reflects the difficulty that may exist in ascertaining a person’s intention in a way which enables a court to reach a conclusion that in many cases will amount to a finding of fraud.
83. The defendants rely on Cecil v. Bayat [2010] VWHC 641 (Comm.) where at p. 26, Hamblen J., sitting in the High Court of England and Wales, adopted the following formulation:-
“A representation of intention is a statement of present intention. It is only because it speaks to the present that it can be regarded as a representation of fact. If it speaks to the future it would be a statement of future intention, not a representation of fact.”
84. A statement as to the future will often imply a statement as to present intention. A promissor generally represents by implication that he has, at the moment of making the promise, the intention of fulfilling the obligations that he is undertaking. If it can be shown that no such intention existed at that moment, he is guilty of a misrepresentation. But the mere fact that the intention which was represented to exist was not eventually carried into effect offers little evidence of the original non-existence of the intention. (See ‘Clerk & Lindsell’ 20th Ed. Thompson Sweet and Maxwell 2010).
85. The plaintiffs argue that the position in this case was similar to that in Edgington v. Fitzmaurice (1885) 29 Ch. D 459, where it was held that a prospectus was deceptive when it contained false statements of what the company intended to do with the investor’s money once they had got it. In that case, a company issued a prospectus seeking subscriptions by way of debenture bonds, which were purportedly to be applied towards development and expansion of the trade of the company. In fact, the funds were put towards discharging existing liabilities. Furthermore, the plaintiff erroneously came to the belief that the debentures would incorporate a charge over the property of the company. The monies were advanced by the plaintiff and the company subsequently became insolvent. The court held that the representation as to the purpose for which the monies would be applied was capable of operating as a “material misstatement of fact” capable of giving rise to a tortious action in deceit.
Personal Liability of a Director for Deceit/Fraudulent Misrepresentation
86. In Edgington v. Fitzmaurice, the court held that the defendants, being promoters and officers of the company, could be held liable for fraudulent misrepresentation in their personal capacity. This principle was affirmed in Standard Chartered Bank v. Pakistan National Shipping Corporation [2003] 3 WLR 1547. In that case, the managing director of the defendant was held personally liable for deceit, relating to the fraudulent dating of Bills of Lading. Lord Hoffmann, in his speech in the House of Lords at p. 1554, stated:-
“No one can escape liability for his fraud by saying: ‘I wish to make it clear that I am committing this fraud on behalf of someone else and I am not to be personally liable’.”
87. In Shinkwin v. Quin-Con Ltd. & Quinlan [2001] 1 IR 514, the plaintiff, who had suffered personal injuries in the course of his employment, sued his employer (a limited company) and a director. The first named defendant (the company) was impecunious and uninsured. The second named defendant was found to be liable having regard to the particular facts of the case. Fennelly J., speaking for the Supreme Court, held that while due regard must be had to “the separate legal character of the company, the principle of limited liability and the rule of Salomon v. Salomon & Co. [1897] A.A. 22”, these principles do not preclude the imposition of a separate personal duty on a director arising from his or her close proximity to the tortious act. In reaching this determination, the learned judge distilled the question as follows:-
“. . . did he involve himself so closely in the operation of the factory and, in particular, in the supervision of the plaintiff as to make him personally liable for any of the acts of negligence which injured the plaintiff ?”
88. The evidence in this case is that the ICE Group was effectively under the control of the first named defendant and that he made all significant decisions with regard to the Group, and in particular, the disbursement of monies received by the Group. Furthermore, from at least September 2009, the first named defendant specifically directed that all communication with the plaintiffs, and in particular, Mr. David Ames, would take place through him.
89. While there was some argument addressed to the issue of the standard of proof required to establish fraudulent misrepresentation, it seems to me that the ordinary civil burden of proof applies, namely, proof on the balance of probabilities. That is not to diminish the seriousness of making a claim of fraudulent misrepresentation and the consequences which may flow from failing to prove such an allegation where it is pleaded. The issue was canvassed in Banco Ambrosiano SPA v. Ansbacher & Company Ltd. [1987] ILRM 669, where Henchy J. stated at p. 701:-
“. . . I am unable, therefore, to discern, in principle or in practice, any rational or cogent reason why fraud in civil cases should require a higher degree of proof than is required for the proof of other issues in civil claims.”
The factual background in this case is such that if misrepresentations were made, they were made by the first named defendant in circumstances where he cannot shelter behind the companies in the ICE Group.
Conclusion on Fraudulent Misrepresentation
90. I am satisfied that the first named defendant, on numerous occasions, represented that Phase 1 of Buccament Bay project would be completed by 1st July, 2010. These representations were made by him at a time when he knew they were untrue or when he was reckless as to the truth of the statements. He knew that the plaintiffs were relying on those statements, and acting on his representations, they continued to employ the ICE Group and pour ever-increasing sums of money into the project. The first named defendant induced Harlequin to continue making payments on foot of his representations. There is convincing evidence that the first named defendant knew both of his own knowledge and from information he was receiving from other professionals employed by the ICE Group that Phase 1 could not be delivered by 1st July, 2010. The first named defendant persisted in ignoring all warnings which he received from such professionals and continued to press Harlequin for more and more funds.
91. The actions of the first named defendant illustrate that he did not intend to deliver the project as agreed and on time. I accept the evidence from expert witnesses which shows that basic elements of a major construction contract had not been put in place by the ICE Group in order to enable the works to be completed on time. There was no detailed breakdown of costs similar to a cost plan, bills of quantities or a schedule of builder’s quantities, a project programme or schedule or a detailed procurement plan. I also accept the evidence of those who entered on the site after the ICE Group was dismissed from the project and who found that the site was not in the condition one would have expected if there had been a genuine intention to finish the project on time. Essential building materials were not on site and when Harlequin took over the site in June 2010, many essential supplies had neither been ordered nor paid for and essential equipment was found to be in a poor state of repair or not operational. The evidence established that the ICE Group was in a financially insolvent position and did not have the capital required to meet its contractual obligations to Harlequin and honour the representations made by the first named defendant. Yet, at the same time the first named defendant continued to divert substantial sums of monies paid by Harlequin for the completion of the project when he must have known that by doing so, Phase 1 could not have been delivered on the agreed date.
92. All the evidence points to the conclusion that the first named defendant misappropriated significant sums of money paid to the ICE Group for the completion of Phase 1 and that the level of misappropriations increased significantly in the last few months prior to the ICE Group being dismissed from the site. While there was some dispute between the parties on the question of whether or not the first named defendant was entitled to draw down some of the monies paid by Harlequin to the ICE Group for his own purposes, whether by way of salary or otherwise, there could be no justification for the very substantial payments diverted from the project to the first named defendant’s Irish accounts and to the second named defendant to repay loans which were alleged to have been made by him to the first named defendant some years earlier.
First Named Defendant’s Duty to the Plaintiffs as Creditors of the ICE Group
93. An alternative claim was advanced on behalf of the plaintiffs that the first named defendant may be held personally liable by reference to the duty owed to creditors by directors in circumstances where the latter are aware that the company is insolvent, or nearly so. Reliance is placed upon the decision of McGuinness J. in Jones v Gunn [1997] 3 IR 1, wherein, following a comprehensive review authorities including, inter alia, In Re Frederick Inns [1991] IRLM 582 (HC) and [1994] 1 ILRM 387 (SC), West Mercia Safetywear v. Dodd [1988] B.C.L.C. 250, and Winkworth v. Edward Baron Development Co. [1987] 1 All E.R. 114, the learned judge held at p. 22 that:-
“… where a company is clearly insolvent, even if not in liquidation, the directors owe a fiduciary duty to the general creditors and may not make payments which benefit either closely connected companies or themselves personally to the detriment of the general and independent creditors.”
94. In her closing submission to the court, counsel for the first named defendant acknowledged that, while in general a director’s duty to creditors extends only to the preservation of the corporate structure, a liability may well arise in circumstances where it can be demonstrated that the director was aware that the company was “clearly insolvent”. However, it was submitted that this liability is to the company and does not bestow locus standi upon a creditor to sue a director in a personal capacity. An extract from Ahern, ‘Directors‘ Duties: Law and Practice’ (2009 Round Hall) was opened to the court, where at p. 185 the author commented that:-
“There is an issue as to whether a direct duty is owed to creditors once the duty to consider the interests of creditors is triggered or whether it is simply an aspect of the duty to act in the company‘s interests. The preferred view is that the duty is owed to the company rather than a duty owed directly to creditors and directly enforceable by them.”
95. In support of this proposition, the first named defendant further relied on the statement of Toulson J. in Yukong Lines Ltd of Korea v Rendsbury Investments Corporation of Liberia (No. 2) [1998] 4 All ER 82 at p. 99:-
Where a director, or person having the management, of an insolvent company acts in breach of his duty to the company by causing assets of the company to be transferred in disregard of the interests of its creditor or creditors, under English law he is answerable through the scheme which Parliament has provided. In my judgment he does not owe a direct fiduciary duty towards an individual creditor, nor is an individual creditor entitled to sue for breach of the fiduciary duty owed by the director to the company.
96. The plaintiffs argue that, per Jones v. Gunn, the position in this jurisdiction is distinct from that set out in Yukong Lines Ltd of Korea v Rendsbury Investments Corporation of Liberia (No. 2), and support this assertion by reference to the analysis of Lightman & Moss in ‘The Law of Receivers and Administrators of Companies’ (5th Ed., 2011, Sweet & Maxwell) at p. 12, where the authors state:-
“It is suggested that the obiter dictum of Lord Templeman in Winkworth v Edward Baron Development Co Ltd [1986] 1 W.L.R. 1512 (HL), 1516, which suggests that the duty is owed to creditors as well as to the company, does not accurately represent English law. Such a direct duty has, nevertheless, been held to exist in Ireland: see Jones v Gunn [1997] 3 IR 1”
97. Accordingly, it seems that there is some uncertainty as to the whether a director’s duty to creditors in circumstances of clear insolvency may give rise to a direct cause of action. Given my findings that the first named defendant should be liable on foot of his fraudulent misrepresentations, it is unnecessary to determine this point.
Quistclose Trust
98. A Quistclose Trust is one whereby one party (A) pays money to another (B) so that B holds the money in trust for A subject to a power for B to apply the money for a stated purpose. Such an arrangement has the effect that A’s beneficial interest in the money will remain unless and until the money is supplied in accordance with the stated purpose of the power (see ‘Equity and the Law of Trusts in the Republic of Ireland’, Keane 2011, 2nd Ed.). The Trust gets its name from the case of Barclays Bank Ltd. v. Quistclose Investments Ltd. [1970] AC 567, although it was acknowledged that this form of trust had been in existence for over 150 years. Quistclose Trusts were recognised in Ireland in In Re Money Markets International Stockbrokers Ltd. (No. 2) [2001] 2 IR 17.
99. The parties are agreed that the recent statement of the nature of the Quistclose Trust in Bieber v. Teathers Ltd. [2012] EWCA Civ 1466 should be adopted. In that case, Patten L.J. reviewed and distilled the principles set out in Quistclose Investments and in Twinsectra Ltd. v. Yardley [2002] UKHL 12, as follows:-
“First, the question in every case is whether the payer and the recipient intended that the money passing between them was to be at the free disposal of the recipient: Re Goldcorp Exchange [1995] 1 AC 74 and Twinsetra at [74].
Second, the mere fact that the payer has paid the money to the recipient for the recipient to use it in a particular way is not of itself enough. The recipient may have represented or warranted that he intends to use it in a particular way or had promised to use it in a particular way. Such an arrangement would give rise to personal obligations but would not of itself necessarily create fiduciary obligations or a trust: Twinsetra at [73].
Thirdly, it must be clear from the express terms of the transaction (properly construed) or it must be objectively ascertained from the circumstances of the transaction that the mutual intention of payer and recipient (and the essence of their bargain) is that the funds transferred should not be part of the general assets of the recipient but should be used exclusively to effect particular identified payments, so that if the money cannot be so used then it is to be returned to the payer: Toovey v. Milne (1819) 2 B&A 683 and Quistclose Investments at 580 B.
Fourth, the mechanism by which this is achieved is a trust giving rise to fiduciary obligations on the part of the recipient which a court of equity will enforce: Twinsetra at [69].
Equity intervenes because it is unconscionable for the recipient to obtain money on terms as to its application and then to disregard the terms on which he received it from a payer who has placed trust and confidence in the recipient to ensure the proper application of the money paid: Twinsetra at [76].
Fifth, such a trust is akin to a ‘retention of title’ clause, enabling the recipient to have recourse to the payer’s money for the particular purpose specified but without entrenching on the payer’s property rights more than necessary to enable the purpose to be achieved. It is not as such a ‘purpose trust’ of which the recipient is a trustee, the beneficial interest in the money reverting to the payer if the purpose is incapable of achievement. It is a resulting trust in favour of the payer with a mandate granted to the recipient to apply the money paid for the purpose stated. The key feature of the arrangement is that the recipient is precluded from misapplying the money paid to him. The recipient has no beneficial interest in the money: generally, the beneficial interest remains vested in the payer subject only to the recipient’s power to apply the money in accordance with the stated purpose. If the stated purpose cannot be achieved, then the mandate ceases to be effective, the recipient simply holds the money paid on resulting trust for the payer, and the recipient must repay it: Twinsetra at [81], [87], [92] and [100].
Sixth, the subjective intentions of payer and recipient as to the creation of a trust are irrelevant. If the properly construed terms upon which (or the objectively ascertained circumstances in which) payer and recipient enter into an arrangement has the effect of creating a trust, then it is not necessary that either payer or recipient should intend to create a trust: it is sufficient that they intend to enter into the relevant arrangement: Twinsetra at [71].
Seventh, the particular purpose must be specified in terms which enable a court to say whether a given application of the money does or does not fall within its terms: Twinsetra at [16].”
100. In Twinsetra [2002] 2 AC 164 at [73] Lord Millett observed:-
“A Quistclose Trust does not necessarily arise merely because money is paid for a particular purpose. A lender will often enquire into the purpose for which a loan is sought in order to decide whether he would be justified in making it. He may be said to lend the money for the purpose in question, but this is not enough to create a trust; once lent, the money is at the free disposal of the borrower. Similarly, payments in advance for goods or services are paid for a particular purpose, but such payments do not ordinarily create a trust. The money is intended to be at the free disposal of the supplier and may be used as part of his cash flow. Commercial life would be impossible if this were not the case.”
101. In Re Kayford [1975] 1 ALL ER 604 at 607, [1975] 1 WLR 279 at 282, where the same question arose in the same context, Megarry J. stated:-
“As for the requisite certainty of words, it is well settled that a trust can be created without using the words ‘trust’ or ‘confidence’ or the like: the question is whether, in substance, a sufficient intention to create a trust has been manifested.”
102. In Thomas & Hudson ‘The Law of Trusts’ (2nd Ed. Oxford 2010), the authors address the question of the character of a relationship capable of giving rise to a Quistclose Trust at p. 276 thus:-
“All decisions have emphasised one highly significant factor in that analysis, and that is whether the money is intended to be at the free disposal of the borrower or whether it is intended to be used exclusively for the stated purpose. This is normally (but not necessarily) evidenced by payment of money into a separate bank account. If such intention exists, the fact that the borrower fails to deal with the money in the agreed manner (by not keeping it separate from his own money or actually misapplying it) is immaterial: there is then a breach of an established trust. On the other hand, when money may be placed in a general operating account, or where it is merely recorded by a book entry, it is unlikely the requisite intention to create a Quistclose Trust (or indeed any trust) will be found.”
103. The intention must be common to both donor and recipient to create the trust and evidence sufficient to demonstrate a requisite intention is required.
104. Applying these principles to the present case, it seems to me that although Harlequin clearly provided payments on an agreed schedule to the ICE Group for the completion of Phase 1, it cannot be said that there was an intention that the particular funds advanced from time to time were for a specific purpose and no other purpose. Undoubtedly, the monies advanced were for the general purpose of completing Phase 1 of Buccament Bay. But that would not be sufficient to establish a Quistclose Trust. If, for example, Harlequin had paid to the ICE Group a specific and precise sum intended to discharge an invoice for an essential piece of equipment on the clear understanding that the monies would be used by the ICE Group for that purpose and no other purpose, a Quistclose Trust could be said to arise. But it seems to me that that is not what actually happened. The funds which were advanced by Harlequin to the ICE Group for the completion of Phase 1 were for that general purpose and to ensure completion by 1st July, 2010. In my view, the plaintiffs have not established that the facts of this case fit within the ambit of a Quistclose Trust.
Constructive Trust/Knowing Receipt
105. Quite apart from any remedy available to the plaintiffs against the first named defendant for his fraudulent behaviour, the plaintiffs argue that it is an appropriate case in which to fix on the Irish payments and their traceable proceeds, a constructive trust in favour of the plaintiffs. The plaintiffs cite the case of East Cork Foods Ltd. v. O’Dwyer Steel Company [1978] I.R. 103, in which the Supreme Court recognised that the courts can impose a constructive trust in circumstances amounting to unjust enrichment. In that case, Henchy J. said at p. 111:-
“The real reason why the Courts would uphold the claim is because it would be unjust and inequitable to allow the first defendant to keep the money. To refuse the claim would mean that the first defendant would be unjustly enriched . . . fair dealing and commonsense should have told the first defendant that it had a fiduciary responsibility in regard to the money. In the event, it has been held that the first defendant was not entitled to be paid any part of the £20,000, so the law must treat that defendant as a constructive trustee of the whole of that sum for the second defendant.”
106. The plaintiffs also rely on Murphy v. The Attorney General [1982] I.R. 241, where at p. 316, Henchy J. held as follows:-
“The implied condition that the State is a constructive trustee of the money collected as Income Tax under the condemned sections is the counterpart in equity of a claim in common law for money had and received. In Moses v. Macferlan at p. 1012 of the report, Lord Mansfield held that ‘the gist of this kind of action is that the defendant, upon the circumstances of the case, is obliged by the ties of natural justice and equity to refund the money’. Thus, he put the claim on the footing of equity, or unjust enrichment, rather than under the fiction of an implied promise to repay money had and received.
Whether the action be framed at common law for money had and received or (as here) in equity for an amount of money held as a constructive trustee for the plaintiffs, I would hold that, in the absence of countervailing circumstances . . . such money may be recovered.”
107. The plaintiffs further submit that each of the defendants may be compelled to return to them monies obtained from the ICE Group on the basis of a cause of action for knowing receipt, or in the alternative an action for monies had and received. In Re Frederick Inns Limited [1994] 1 ILRM 387 at p. 398, Blayney J. approved the following statement of Buckley LJ in Belmont Finance Corporation Ltd v. Williams Furniture Ltd (No. 2) [1980] 1 All ER 393 at p. 405:-
So, if the directors of a company in breach of their fiduciary duties misapply the funds of their company so that they come into the hands of some stranger to the trust who receives them with knowledge (actual or constructive) of the breach, he cannot conscientiously retain those funds against the company unless he has some better equity. He becomes a constructive trustee for the company of the misapplied funds.
108. Both parties opened to the court the conceptual analysis of receipt based and fault based liability contained in the dissenting judgment of Lord Millett in Twinsectra Ltd v Yardley at page 190:-
Liability for “knowing receipt” is receipt-based. It does not depend on fault. The cause of action is restitutionary and is available only where the defendant received or applied the money in breach of trust for his own use and benefit: see Agip (Africa) Ltd v Jackson [1990] Ch 265, 291-292; Royal Brunei Airlines Sdn Bhd v Tan [1995] 2 AC 378, 386. There is no basis for requiring actual knowledge of the breach of trust, let alone dishonesty, as a condition of liability. Constructive notice is sufficient, and may not even be necessary. There is powerful academic support for the proposition that the liability of the recipient is the same as in other cases of restitution, that is to say strict but subject to a change of position defence . . .
. . . The accessory’s liability for having assisted in a breach of trust is quite different. It is fault-based, not receipt-based. The defendant is not charged with having received trust moneys for his own benefit, but with having acted as an accessory to a breach of trust. The action is not restitutionary; the claimant seeks compensation for wrongdoing. The cause of action is concerned with attributing liability for misdirected funds. Liability is not restricted to the person whose breach of trust or fiduciary duty caused their original diversion. His liability is strict. Nor is it limited to those who assist him in the original breach. It extends to everyone who consciously assists in the continuing diversion of the money.”
109. The defendants argue that this obiter statement and the principle of strict liability of a recipient, subject to a defence of change of position, has not attained widespread acceptance in England and Wales, submitting that an element of unconscionability on the part of the recipient should be demonstrated, as illustrated in Charter plc v. City Index Ltd [2008] 2 WLR 950. That case is noteworthy, in particular for its discussion of the distinction in the framing of an action in knowing receipt between restitutionary, equitable principles operating in rem and an alterative tortious, compensatory approach, operating in personam, with the Court of Appeal holding that unconscionability is an essential ingredient in the latter instance.
110. Notwithstanding the foregoing, regard should be had to Keane’s comment in his text on ‘Equity and the Law of Trusts in the Republic of Ireland’ (2011, 2nd Ed. Bloomsbury Professional) at p. 245, that the approach of Blayney J. in Re Frederick Inns was such that:-
“. . . the threshold for finding a person accountable as a constructive trustee for the knowing receipt of misapplied trust property had been set at a significantly lower level in Ireland.”
111. This issue is, to some extent, tied up with the claim against the second named defendant. The plaintiffs claim that the monies paid to him were fixed with a constructive trust and that they are entitled to trace those funds into his account and recover them on the basis that he has become a constructive trustee of the misapplied funds.
112. In ‘Equity and the Law of Trusts in the Republic of Ireland’, Keane (2011) 2nd Ed. Bloomsbury Professional) at p. 370, the author states:-
“A person, then, who is entitled to any equitable interest in any property, real or personal, will be entitled to trace their property, for so long as it continues to exist and even though it may have been mixed with other property, into the hands of anyone in a fiduciary relationship with him and into the hands of any third party, except a bona fide purchaser for value without notice of the fiduciary relationship.”
113. There is no evidence that the second named defendant was aware of the fiduciary relationship between the plaintiffs and the ICE Group and/or the first named defendant. Whether he was a bona fide purchaser for value is unclear because of the unsatisfactory nature of the evidence surrounding the alleged loans by him to the first named defendant. While the onus of proving that he is a bona fide purchaser for value without notice is on the second named defendant, it seems to me that if there is a remedy at common law for the plaintiffs by way of damages for fraudulent misrepresentation, it would not be necessary to determine the issues in this case by reference to a constructive trust.
114. If I was to make a decision in this case based on constructive trust, it would have consequences for the second named defendant as he would be a recipient of monies to be fixed with such a trust. In the course of the trial, I formed the view that he had been unwittingly dragged into the proceedings by the action of the first named defendant.
115. The second named defendant may have lent money to the first named defendant some years ago. Such evidence as was available on the issue was unsatisfactory. But it was clear that if loans were made, most of them were made prior to the Buccament Bay project and all were quite unrelated to it. In giving his evidence, the second named defendant presented as an elderly man who was in frail health and seemed somewhat confused. I am quite satisfied he was not knowingly a party to any misappropriation of the plaintiffs’ funds.
116. If he was paid out of misappropriated funds, then, as a matter of justice, any liability for that misappropriation should rest with the first named defendant. At the time the first named defendant procured the payment of those sums from the ICE Group accounts to the second named defendant’s account, the first named defendant knew or ought to have known that the monies concerned should have been expended on the Buccament Bay project and not to discharge any possible private indebtedness he might have to his father.
117. I am therefore satisfied that powerful countervailing factors operate in this case against the imposition of a constructive trust in relation to the second named defendant. With regard to the first named defendant, the plaintiff has established an entitlement to an effective remedy at law, such that it is unnecessary for the court to exercise its equitable jurisdiction.
Conclusion on the Law
118. Applying the law to the facts in this case, I hold that the first named defendant was guilty of fraudulent misrepresentation and deceit and that he is liable to the plaintiffs in damages. I am satisfied that this is the appropriate way in which to deal with the claims made by the plaintiffs in these proceedings. The facts do not establish the existence of a Quistclose Trust. I am also satisfied that it is not necessary to deal with the question of compensation or restitution within the rubric of a constructive trust for the reasons I have set out above.
Damages
119. In assessing damages, I am confining myself to what were referred to as the “Irish Payments” and will take as a starting point the summer of 2009. Taking the evidence as a whole, but particularly the evidence of Mr. Gilbert Aquino that from the summer of 2009, the first named defendant knew that the ICE Group could not deliver Phase 1 of the project by 1st July, 2010, and that the “Irish Payments” from that time on were sums misappropriated from the plaintiffs, these are the sums which can be taken into account in assessing the damages to be awarded for fraudulent misrepresentation and deceit. I have ignored all the Caribbean and other payments referred to in the course of the trial, save as to their corroborative value and showing a pattern of behaviour on the part of the first named defendant with regard to the diverting of funds from the Buccament Bay project.
120. Between 29th June, 2009, and 31st May, 2010, 22 payments were made from the ICE Group accounts to the first named defendant’s personal bank accounts in Ireland. These payments totalled US$1,488,000. In addition, the following payments were made by the ICE Group to ‘Weddings by Franc’ in respect of a wedding planned by the first named defendant at Adare Manor, County Limerick, but which never took place:-
6th November 2009 US$72,000
17th December 2009 €20,000
8th March 2010 €50,000
12th March 2010, Eastern Caribbean equivalent of €50,000
Total: US$72,000
Plus €120,000
Finally, there were direct payments made from the ICE Group accounts to the second named defendant’s accounts in Ireland as follows:-
13th November 2009 US$179,000
20th November 2009 US$179,000
121. The ostensible reason for these payments was to repay loans which the first named defendant claims he was given by the second named defendant some years earlier. Notwithstanding the fact that the evidence proffered supporting the contention that loans had been made in the first instance was unsatisfactory, the payment of these sums had no apparent benefit to either the Buccament Bay project or to the ICE Group and its business. The loans appear to have been given by the second named defendant to help out the first named defendant.
122. In assessing damages, I have regard to all these payments which were misappropriations of funds paid by the plaintiffs to the ICE Group as a result of fraudulent misrepresentations made by the first named defendant. I measure the damages to which the plaintiffs are entitled from the first named defendant against those sums. Those sums, in summary, are US$1,918,000 and €120,000. The US Dollar sum will be converted on the date of this judgment and I will hear counsel as to the precise sum in respect of that figure before pronouncing judgment. The judgment shall be against the first named defendant alone.
O’Donnell v Bank of Ireland
[2014] IESC 77
Judgment of Ms. Justice Laffoy delivered on 19th day of December, 2014
The appeal and its background
1. This is an appeal against an order of the High Court (McGovern J.) made on 12th September, 2013 following delivery of judgment on 31st July, 2013 ([2013] IEHC 375). In that order the High Court found that the appellants were not entitled to any of the reliefs sought and awarded the respondents their costs against the appellants. It was also ordered that the appellants vacate the premises referred to as Gorse Hill, Vico Road, Killiney, County Dublin by Monday, 21st October, 2013. The order was subsequently stayed pending the appeal to this Court.
2. The High Court proceedings had been initiated by a plenary summons which issued on 30th July, 2012. In essence, the reliefs sought in the High Court related to the property referred to in the order, which hereafter will be referred to as Gorse Hill. The primary objective of the appellants is discernible in the following elements of the reliefs as claimed in the statement of claim:
(a) a declaration that various listed guarantees and indemnities executed by an Isle of Man company, Vico Limited, in favour of the first and second respondents and listed securities in the form of mortgages and charges given by Vico Limited to, and which the first and second respondents hold, over Gorse Hill, and any other deed or instrument which purported to create a charge in favour of the first and second respondents over Gorse Hill are, having regard to alleged wrongdoing in their procurement which will be outlined later, void and of no legal effect, or alternatively should be rescinded;
(b) a declaration that the appellants are entitled to the beneficial ownership of Gorse Hill;
(c) alternatively, a declaration that the rights of the first and second respondents over Gorse Hill are held by way of constructive trust to the benefit of the appellants.
While further declaratory and other relief was also sought in respect of certain documents executed by the appellants, which will be outlined later, and the appellants also claimed, if necessary, damages for breach of trust, negligence and breach of duty, it is obvious that the primary objective of the appellants was and is to procure that the securities held by the first and second respondents over Gorse Hill should be declared to have no effect or should cease to have effect.
3. The appellants, who are the four children of Brian O’Donnell (Mr. O’Donnell) and Mary Patricia O’Donnell (Mrs. O’Donnell), resided with their parents in Gorse Hill from around 2000 to 2011. Since 2011, three of the appellants have continued to reside in Gorse Hill. With the exception of the first appellant (Alexandra), each of the appellants had attained full age before 2006. Alexandra did not attain full age until March 2010.
4. The prime movers in relation to the acquisition of Gorse Hill for re-development and use as a family residence were Mr. O’Donnell and Mrs. O’Donnell. In 1997 they devised and put in place a very complex legal structure in relation to the ownership of Gorse Hill and their other assets. Before considering the legal and equitable bases on which the appellants claim that they are entitled to the reliefs claimed in the proceedings, which have varied since the judicial process started, it is necessary to outline the evidence as to –
(a) the title to Gorse Hill,
(b) the terms of a discretionary trust (the Discretionary Trust) created by Mr. O’Donnell and Mrs. O’Donnell and the assets the subject of that trust at the relevant times, and
(c) the guarantees given by Vico Limited to, and the related securities held by, the first and second respondents over Gorse Hill,
in the context of the legal structure devised by Mr. O’Donnell and Mrs. O’Donnell in relation to their assets, including Gorse Hill, as it evolved.
5. As regards the respondents, all the guarantees and indemnities and the related securities over Gorse Hill which are the subject of these proceedings were given to the first respondent. The second respondent is a separate corporate vehicle within the Bank of Ireland Group. It is not clear on the evidence that it was necessary to join the second respondent as a respondent in the proceedings to achieve the appellants’ objective, although, to take one example, in the first facility letter issued to Mr. O’Donnell and Mrs. O’Donnell in 2006, which was dated 10th May, 2006, the loan offer was expressed to be made by the first respondent through its subsidiary, the second respondent. For convenience, the first and second respondents will be collectively referred to as “the Bank”, although, in reality, it is against the first respondent that the claims for the declaratory reliefs sought by the appellants in relation to the guarantees and the related securities outlined earlier require to be addressed, so that each reference to the “Bank” as a party to such deeds is a reference to the first respondent.
6. The third respondent was appointed by the Bank as receiver over assets which included Gorse Hill by deed of 8th June, 2012. As is recited in the order of the High Court dated 12th September, 2013, the Court had been “informed that by agreement the third [Respondent] would not be participating in the trial of the action”. The third respondent did not participate on this appeal. Accordingly, the adversaries on the appeal are the appellants and the Bank.
7. In outlining the evidence as to the title to Gorse Hill, the terms of the Discretionary Trust and its implementation and the guarantees and indemnities obtained by the Bank from Vico Limited and the related securities over Gorse Hill, the primary focus will be on the documentary evidence adduced in the High Court, comprising title documents, contractual documents, security documents and contemporaneous legal opinions and advice and internal memoranda and correspondence. Insofar as it is necessary, other evidence adduced in the High Court will be referred to. In summary, the evidence in the High Court was given by the following witnesses:
(a) on behalf of the appellants by –
(i) the third appellant (Blake),
(ii) Rory O Beirn (Mr. O Beirn) an accountant, who is a brother of Mrs. O’Donnell, and whose role will be explained later, and
(iii) Timothy Mann (Mr. Mann), a lawyer qualified and practising in the Isle of Man, who was called as an expert witness on Isle of Man law, and
(b) on behalf of the Bank by –
(i) four senior officials of the Bank who were involved on behalf of the Bank in its business relationship with Mr. O’Donnell, Mrs. O’Donnell and companies controlled by them between 1997 and 2013, namely, Michael Moriarty (Mr. Moriarty), Renee Duggan (Ms. Duggan), Eoin Geoghegan (Mr. Geoghegan) and Des Hanrahan (Mr. Hanrahan),
(ii) Robert Antony Eugenuisz Jelski (Mr. Jelski), a lawyer qualified and practising in the Isle of Man and a member of the firm of Dickinson Cruickshank Ramsey, Advocates and Notaries, formerly Dickinson Cruickshank & Company (Dickinson Cruickshank), which firm had advised the Bank in connection with the guarantees, indemnities and related securities obtained by the Bank from Vico Limited in 1998 and subsequently, and
(iii) Kevin Edward O’Riordan (Mr. O’Riordan), a lawyer qualified and practising in the Isle of Man, who was called as an expert witness on Isle of Man law.
The witness statements of the appellants other than Blake were admitted in evidence. Neither Mr. O’Donnell nor Mrs. O’Donnell gave evidence at the trial, notwithstanding that, as the trial judge commented in his judgment (at para. 33), Mr. O’Donnell in particular would be uniquely placed to confirm the position with regard to the Discretionary Trust, by which I understand him to mean to identify the assets settled by the Discretionary Trust.
8. Before embarking on the task of outlining the evidence, however, it is appropriate to refer to the limited role of this appellate court in relation to findings of fact made, inferences of fact drawn, and conclusions reached from a combination of primary fact and proper inference by the trial judge at first instance, which role is set out in the unanimous judgment of this Court delivered by McCarthy J. in Hay v. O’Grady [1992] 1 I.R. 210, with particular reference to the five principles outlined at pp. 217 and 218.
Title to Gorse Hill
9. Gorse Hill in its current state was the subject of two separate acquisitions, each of which was obviously initiated by Mr. O’Donnell and Mrs. O’Donnell. The title to the property the subject of the first acquisition was and remains unregistered title, whereas the title to the property the subject of the second acquisition was registered in the Land Registry at the time of its acquisition.
10. The first acquisition was under a contract dated 27th May, 1997 made between John J. Sharpe and Irene Sharpe (the Sharpe Vendors), as vendors, and Lorraine Hayes (in trust), as purchaser, which was registered in the Registry of Deeds on 30th September, 1997. Lorraine Hayes was a solicitor in William Fry and, at the time, Mr. O’Donnell was a solicitor in the same firm. It is clear that Lorraine Hayes executed the contract in trust at the behest of Mr. O’Donnell and Mrs. O’Donnell. The purchase price was IR£1,055,000 (equivalent to €1,399,574). The purchase was not completed in the ordinary way by the purchaser paying the purchase money to the vendors and getting a possession of the property together with a deed of assignment of the title from the Sharpe Vendors on the closing of the sale. Instead, a scheme for avoiding or deferring stamp duty was utilised. Under the scheme, instead of a deed of assignment of the property in sale being executed by the Sharpe Vendors in favour of the purchaser when the purchase price was paid to them, the Sharpe Vendors furnished a power of attorney dated 4th February, 1998, which was addressed to, inter alia, Mr. O’Donnell and Mrs. O’Donnell, Vico Limited and the Bank. In the power of attorney the Sharpe Vendors appointed each of those parties to be their attorney with various powers to sell and transfer the property the subject of the contract dated 27th May, 1997, including power to execute a deed in the name and on behalf of the Sharpe Vendors.
11. The Bank had become aware of the intention of Mr. O’Donnell and Mrs. O’Donnell to utilise the stamp duty scheme towards the end of 1997. It obtained advice from Michael O’Connor, a solicitor in William Fry, and the advice was recorded in a fax sent by Mr. O’Connor to the Bank on 19th December, 1997. Mr. O’Connor explained that Mr. O’Donnell had arranged for the power of attorney to be issued in the Bank’s name and he stated that any power of attorney which Mr. O’Donnell held would be handed over to the Bank as security, so that, if the need arose, the Bank would be in a position to offer the property for sale to a purchaser and to complete the sale in the name of the original vendors and of Mr. O’Donnell, thus giving the purchaser good title.
12. Mr. O’Connor’s advice in that fax only addressed the stamp duty issue and it did not take cognisance of the fact that by December 1997 the complex legal structure in relation to the assets of Mr. O’Donnell and Mrs. O’Donnell referred to earlier had been proposed to the Bank by Mr. O Beirn, the accountant acting for them at the time, and, in particular, the title structure intended in relation to Gorse Hill had been outlined. As was recorded in a note, to which counsel for the appellants attached particular significance on the appeal, which was made on 11th December, 1997 by Mr. Moriarty, who was then head of Private Banking in the Bank, and which was faxed to Mr. O Beirn on the same day, the Bank was aware of the proposed arrangements. As regards Gorse Hill, it was recorded in the note that Vico Limited would own a residence at Gorse Hill. It would have no direct borrowings from the Bank but it would provide a “capped” guarantee to the Bank for liabilities of two other companies which were identified, which were to be part of the structure devised by Mr. O Beirn, and the guarantee would be “counter-covered” by an equitable deposit of the title deeds of Gorse Hill. It was also noted that, as part of the security, Vico Limited would give a letter of undertaking to exercise the power of attorney, if required by the Bank in a default situation. Vico Limited was to be a company incorporated in the Isle of Man, which, like each of the two other companies in respect of which it would give the Bank a guarantee, would be a wholly owned subsidiary of another company incorporated in the Isle of Man, Tabasco Limited, which, in turn, would be wholly owned by “Aunryd Trust” (obviously a typographical error), which was also a company incorporated in the Isle of Man. In due course, the corporate structure became less complicated, in that the evidence was that Tabasco Limited “fell away”, so that Vico Limited became a direct wholly owned subsidiary of Aundyr Trust Company Limited, which was the original trustee of the Discretionary Trust to be discussed later. To avoid unduly complicating what is already a very complex ownership plan, it may be assumed that at all material times the issued share capital of Vico Limited was held directly by the Trustee of the Discretionary Trust. The structure as outlined explains why the power of attorney dated 4th February, 1998 was in favour of Vico Limited, as well as in favour of Mr. O’Donnell, Mrs. O’Donnell and the Bank.
13. The evidence established that the purchase of Gorse Hill from the Sharpe Vendors was completed on 4th February 1998. On completion the purchaser got possession of the property and obtained the power of attorney which, in due course, would enable a deed of assignment to be executed in the names of the Sharpe Vendors in favour of the purchaser or a sub-purchaser. It is quite clear on the evidence that the purchaser, which was obviously nominated by Mr. O’Donnell and Mrs. O’Donnell, was Vico Limited, which had been incorporated in the Isle of Man on 11th December, 1997. The evidence established that Vico Limited did give an equitable mortgage by deposit of title deeds to the Bank in February 1998. There are two contemporaneous documents which corroborate that. First, on 21st January, 1998, Vico Limited gave a company, Lower Mount Limited, a power of attorney to complete “a deposit of title deeds of our property at Gorse Hill . . .” to the Bank. Secondly, and more importantly, there is a certificate of registration of a mortgage or charge issued by the Isle of Man Companies Registry and dated 20th February, 1998, which was issued pursuant to a statutory provision in force in the Isle of Man. The certificate records that a record of deposit of deeds dated 4th February, 1998 created by Vico Limited “for securing the sum of all monies due and owing and passed to” the Bank was registered. It is reasonable to assume that such registration involved compliance with a statutory provision similar to s. 99 of the Companies Act 1963 (the Act of 1963) in this jurisdiction.
14. Having regard to the title documents, in my view, it cannot be doubted that, prima facie, Vico Limited became the beneficial owner of Gorse Hill as acquired from the Sharpe Vendors in February 1998, but the legal estate remained outstanding in the Sharpe Vendors. The legal estate was got in by Vico Limited by a deed of assignment dated 8th May, 2006 expressed to be made between the Sharpe Vendors, as vendors, of the one part and Vico Limited, as purchaser, of the other part. That deed, which was executed on behalf of the Sharpe Vendors by Mr. O’Donnell as their attorney, vested the legal estate in Vico Limited. Apart from the fact that it was executed some eight years later pursuant to a power of attorney dated 4th February, 1998, that deed of assignment was no different in effect from a deed of assignment which would have been taken in the name of Vico Limited, if the purchase from the Sharpe Vendors had been completed in the ordinary way in February 1998. It cannot be doubted that after the execution of that deed in 2006, prima facie, Vico Limited was the legal owner, as well as the beneficial owner, of the property acquired from the Sharpe Vendors, as was found by the trial judge in his judgment, as will be outlined later.
15. Turning to the second acquisition, in 2000 Mr. O’Donnell contracted to purchase land adjoining the property which had been acquired from the Sharpe Vendors. The land in question was registered on Folio 211 of the Register of Freeholders, County Dublin. The contract was dated 2nd April, 2000 and was made between Karenina Morrison-Bell, as vendor, and Mr. O’Donnell (in trust), as purchaser. The purchase price was IR£1.2m (equivalent to €1,523,686). Once again, the scheme to avoid or defer stamp duty was utilised. The relevant power of attorney given by Karenina Morrison-Bell was dated 28th June, 2000, when, it is reasonable to assume, the purchase was completed. Once again, the title to the registered land was regularised in 2006, when by a deed of transfer dated 8th May, 2006, executed in the name of Karenina Morrison-Bell by Mr. O’Donnell and Mrs. O’Donnell pursuant to the power of attorney, the lands registered on Folio 211 were transferred to Vico Limited. On the documentary evidence, it is clear that from June 2000, prima facie, Vico Limited was the beneficial owner of the land registered on Folio 211 and that, on the execution of the transfer dated 8th May, 2006, it became the legal owner as well as the beneficial owner thereof, as was also found by the trial judge in his judgment. Vico Limited was registered as full owner with absolute title on Folio 211 on 13th July, 2006. It is clear on the evidence that, as and from the acquisition of the beneficial ownership of the lands registered on Folio 211 by Vico Limited in June 2000, that land was treated as part of Gorse Hill. Accordingly, references to Gorse Hill hereafter are to both the unregistered property acquired from the Sharpe Vendors and the property registered on Folio 211.
16. The house originally located on the Gorse Hill property was demolished and the site was re-developed as a residential property around 2000 by Mr. O’Donnell and Mrs. O’Donnell. The appellants and their parents lived there from completion of the residence.
17. The foregoing outline of the title to Gorse Hill in 2006 is primarily based on the documents of title which were put in evidence in the High Court. As already observed, prima facie, the documents of title establish that Vico Limited was the beneficial owner of each portion of Gorse Hill from the completion of the purchase thereof and it became the legal owner of each portion of Gorse Hill in 2006.
18. Some factual matters emerged on the evidence which I consider it is appropriate to record at this juncture. First, the consideration for the purchase from the Sharpe Vendors in 1998 was advanced by Mr. O’Donnell and Mrs. O’Donnell to Vico Limited and Vico Limited issued a Promissory Note dated 4th February, 1998 under seal to Mr. O’Donnell and Mrs. O’Donnell promising to repay the consideration (IR£1,055,000) to them on demand. However, in a covering letter dated 4th February, 1998 to Mr. O’Donnell and Mrs. O’Donnell, Vico Limited stated that, as Mr. O’Donnell and Mrs. O’Donnell were aware, Gorse Hill was the only asset of Vico Limited, so that the ability of Vico Limited to repay the Promissory Note was dependent on that fact and was subject to other obligations of Vico Limited of which they were aware, which, presumably, was a reference to the obligations of Vico Limited to the Bank. Secondly, the accounts for Vico Limited for the year ended 31st December, 2008, which were prepared by Mr. O Beirn, were put to Mr. O Beirn in cross-examination in the High Court. Those accounts disclose that the only fixed asset of Vico Limited was Gorse Hill, which was ascribed a value of €30m, which in a note was stated to be “based on a professional valuation report issued by CBRE”. The only liabilities of Vico Limited were stated to be “a Settlors’ Subordinated Loan” in the amount of €14,816,774. In a related note it was stated that the “subordinated loans are subordinated to the repayment of any facilities granted by any financial institutions to the company from time to time”. Thirdly, the accounts in relation to the Discretionary Trust for 2009 and subsequent years put in evidence before the High Court were consistent with the property Gorse Hill not being settled by the Discretionary Trust
The Discretionary Trust
19. The Discretionary Trust, which was created under seal, was dated 16th December, 1997 and was made between Mr. O’Donnell and Mrs. O’Donnell, as settlors, of the one part, and Aundyr Trust Company Limited, the original trustee, of the other part. It was created at a time when each of the appellants was a minor. Each of Aundyr Trust Company Limited, which by 2006 had changed its name to IFG International Trust Company Limited, and its successors, Chancery Company Managers Limited, which replaced the original trustee on the 18th October, 2006, and Chancery Trustees Limited, which, in consequence of internal re-arrangement, was appointed trustee on 30th June, 2008 was a corporate trustee service provider incorporated in the Isle of Man. Each will be referred to hereafter as “the Trustee”. It was recited in the Discretionary Trust that it was to be called and known as “The Avoca Settlement” and it was so described in the judgment of the trial judge.
20. The first point to be made about the Discretionary Trust is that it expressly provided that the proper law of the settlement thereby established was to be the law of the Isle of Man, subject to an express power given to the Trustee to change the proper law. The initial property settled by the Discretionary Trust was Stg. £10. That was the “Trust Fund”, which, as defined, would include all monies, investments or other property thereafter paid or transferred by any person or persons to or under the control of and accepted by the Trustee as additions to the Trust Fund.
21. Two definitions in the interpretation clause are of particular relevance to the appellants’ case. First, the term “Beneficiaries” was defined as meaning “all or any” of the persons specified in the second schedule, the persons named in the second schedule being the four appellants, and also any persons constituted a “Beneficiary” pursuant to Clause 10.1. That clause conferred on the Trustee “power . . . to add to the class of Beneficiaries such one or more persons (not being an Excluded Person or Excluded Persons)” as the Trustee should in its absolute discretion determine and the addition was to be made by a declaration in writing. While the Trustee did not exercise the power to add to the class of Beneficiaries at any time, it could have done so. That being so, the appellants were not the sole beneficial owners of the assets settled under the Discretionary Trust when these proceedings commenced. Secondly, the expression “Excluded Persons” was defined as meaning all or any of the persons specified in the third schedule, namely, Mr. O’Donnell and Mrs. O’Donnell, and any person declared in writing by the Trustee, who might otherwise be a Beneficiary, to be excluded, and any person for the time being resident in the Isle of Man.
22. In broad terms, the Trustee was given an absolute discretion as to the appropriation or application of the income and capital of the Trust Fund for the benefit of all or one or more of the “Beneficiaries”. Insofar as the Trust Fund was not so appropriated or applied before the expiration of the Trust Period as defined, the Trust Fund would be held in trust “for such of the [appellants] as shall then be living in equal shares absolutely”. The “Trust Period” was defined as the period of (i) eighty years from 16th December, 1997 or (ii) until such day, if any, before the date specified at (i) as the Trustee might in its discretion appoint by deed. The Discretionary Trust was expressed to be irrevocable.
23. Clause 19 of the Discretionary Trust contained the provisions as to “Excluded Persons”, who were not to be capable of taking any benefit of any kind by virtue or in consequence of the Discretionary Trust. It was specifically provided that no part of the capital or income of the Trust Fund should be paid or lent or applied for the benefit, either directly or indirectly, of the Excluded Persons in any manner or in any circumstances whatsoever.
24. Mr. Mann in his evidence emphasised that the provisions in the Discretionary Trust in relation to “Excluded Persons” were typical provisions in an Isle of Man discretionary trust and he pointed to the fact that those provisions specifically excluded Mr. O’Donnell and Mrs. O’Donnell from all benefit under the Discretionary Trust and from taking any benefit in the future.
25. As one would expect, after the creation of the Discretionary Trust Mr. O’Donnell and Mrs. O’Donnell each furnished what is commonly referred to as a “letter of wishes” to the Trustee, in each case the letter being dated 14th January, 1998. In each letter, it was recognised that the settlors did not have any legal right to interfere with the trust powers and the discretion given to the Trustee but the hope was expressed that the Trustee would deal with the Trust Fund and would exercise its powers and discretions in accordance with the settlors’ wishes and would consult with each during his or her lifetime and from and after the death of the survivor with their proposed executors, who were named. A further letter was written by Mr. O’Donnell and Mrs. O’Donnell to the Trustee on 20th October, 2000. In that letter they confirmed and assured the Trustee that they would “at all times care & support the beneficiaries”, namely, the appellants. The letter also contained the following statement:
“We confirm that we shall use the residence Gorse Hill Vico Road as a residence of ourselves & the beneficiaries for so long as the Trustees on behalf of the beneficiaries shall permit. It is acknowledged by the Trustees & the beneficiaries that any notice given to us to vacate the residence shall be in writing & shall in the absence of our consent be at least 2 calendar years prior to the vacation date to allow sufficient time for alternative arrangements to be made.”
Mr. O’Donnell and Mrs. O’Donnell also agreed to keep Gorse Hill “in a state of good repair” at their expense and “do all things necessary in terms of care & expenditure to maximise the residence & gardens for the benefit of the beneficiaries”.
26. There was no evidence before the High Court that, aside from the replacement of the Trustee in October 2006 and the acceptance by the Trustee of one asset, namely, the shares in Vico Limited, as an addition to the Trust Fund, the Trustee had exercised any of the discretions or powers conferred on it by the Discretionary Trust, and, in particular, the discretion in relation to determining who was or would be beneficially entitled to the Trust Fund prior to the initiation of the proceedings in the High Court. In response to a question raised in this Court as to what evidence there was that the appellants were actually the sole beneficiaries of the Discretionary Trust, as distinct from potential beneficiaries, counsel for the appellants referred the Court to minutes of three meetings of the board of directors of the Trustee (then Chancery Trustees Limited) held on 17th July, 2012, 18th July, 2012 and 13th August, 2012, which, apparently, were in the books of documents put before the High Court and were in the books of documents lodged in the Supreme Court in connection with the appeal. The minutes in question were discovered in an affidavit of discovery sworn by Gethin James Taylor on behalf of the Trustee on 28th May, 2013 on foot of an application for third party discovery by the appellants. This Court was told that the documents in question had not been presented in evidence in the High Court. That is not quite accurate. In fact, the third appellant, Blake, who was the only one of the appellants who gave oral evidence in the High Court, was questioned about the minute of the first meeting held on 17th July, 2012. What emerged from the evidence was that the minute was correct in recording the Trustee’s attitude to separate proceedings, which had been taken by the Bank in the High Court in relation to the contents of Gorse Hill and to which the appellants were defendants and in which the Trustee had “become embroiled”. What the minute recorded was that the solicitors “acting for the settlor” in those proceedings, when they had been “formally advised that they had not been instructed by the Trustee”, had “withdrawn from the case”.
27. Although the remainder of the minute of the meeting of 17th July, 2012 was not addressed in the evidence in the High Court, it recorded that “the sole asset of the trust” created by the Discretionary Trust was “the shares in Vico Limited, the sole asset of which was a residential property”, which had been occupied by the beneficiaries and the settlors and which had been seized by a receiver appointed by the Bank. It also recorded that Vico Limited was potentially insolvent. The board of the Trustee resolved to consider any request which might be received by it “to exercise [its] discretion to make a distribution in specie of the issued share capital as to one quarter each to each of the four beneficiaries”. The minutes of the meetings held on 18th July, 2012 and 13th August, 2012 were not put in evidence in the High Court. However, it was clear on the evidence in the High Court that the issued share capital of Vico Limited, which constituted the Trust Fund of the Discretionary Trust, consisted of two ordinary shares of Stg. £1 each. There was no evidence before the High Court that those shares had actually been transferred to or had become vested in the appellants after July 2012.
28. Therefore, there was no satisfactory evidence before the High Court that after these proceedings were commenced the appellants had become the actual sole beneficiaries of the Trust Fund settled by the Discretionary Trust, as distinct from potential beneficiaries thereof. While there was undoubtedly a evidential deficit as to the appellants’ status as the sole beneficiaries, as distinct from potential beneficiaries, of the Trust Fund, the standing of the appellants to maintain their claim against the Bank was not challenged on that basis. However, it remains an unsatisfactory aspect of the prosecution of the appellants’ case in the High Court and on this appeal.
29. Another unsatisfactory aspect of the prosecution of the appellants’ case is that just four weeks before the proceedings were due to be heard in the High Court, the appellants brought a motion seeking leave to join the Trustee as a defendant in the proceedings. While the notice of motion also sought leave to join Vico Limited as a defendant, that aspect of the motion was not proceeded with. On 12th June, 2013 the High Court (Cooke J.) delivered an ex tempore ruling on the application, in which the Court refused the application for the primary reason that the party which the appellants sought to have joined did not come within the scope of Order 15, rule 13 of the Rules of the Superior Courts. That decision was not appealed.
The guarantees and securities given by Vico Limited to the Bank.
30. The earliest in time of the guarantees and mortgages and charges which the appellants have sought to have declared void and of no legal effect were entered into by Vico Limited with the Bank on 1st June, 2006. However, as will be clear from the outline of the title to Gorse Hill set out earlier, Vico Limited had given an equitable mortgage by deposit of title deeds to the Bank in February 1998. The evidence disclosed that the security obtained by the Bank over Gorse Hill in 1998 was released in 2002, and that for a number of years thereafter Gorse Hill was not encumbered in favour of the Bank, although it would appear that it was encumbered in favour of another bank, Anglo Irish Bank Corporation Plc, whose security was released in 2006. It will be recalled that the title of Vico Limited to Gorse Hill, both the unregistered title and the title registered on Folio 211, was regularised in May 2006. Around the same time, Mr. O’Donnell and Mrs. Donnell, on their own behalf, and on behalf of a company controlled by them, Hibernia (2005) Limited (Hibernia), negotiated loan facilities from the Bank. Part of the arrangement with the Bank was that Vico Limited would give a guarantee and indemnity to the Bank in relation to the liabilities of Mr. O’Donnell and Mrs. O’Donnell (to a maximum of €11,333,000) and in relation to the liabilities of Hibernia (to a maximum of €5,667,000), that is to say, for €17m in total. The liability of Vico Limited to the Bank on foot of those guarantees and indemnities was to be secured by a legal mortgage given by Vico Limited in favour of the Bank over Gorse Hill.
31. That arrangement was given effect to in June, 2006 when –
(a) a guarantee and indemnity, which was dated 1st June, 2006, was executed by Vico Limited in favour of the Bank in relation to the liabilities of Mr. O’Donnell and Mrs. O’Donnell to the Bank;
(b) a guarantee and indemnity of the same date was executed by Vico Limited in favour of the Bank in respect of the liabilities of Hibernia to the Bank;
(c) a deed of mortgage (the 2006 Mortgage), which appears on its face to be dated 14th June, 2006 but was probably executed on 1st June, 2006, made between Vico Limited of the one part and the Bank of the other part, whereby the Bank got a legal mortgage over the unregistered portion of Gorse Hill in respect of all liabilities of Vico Limited to the Bank, was executed under the seal of Vico Limited, which was affixed in the presence of two of its directors; and
(d) a deed of charge dated 1st June, 2006 (the 2006 Charge) was executed by Vico Limited, again under the seal of Vico Limited affixed in the presence of two of its directors, in favour of the Bank charging the lands registered on Folio 211 with all liabilities of Vico Limited to the Bank.
32. In the pleadings the reference is to “Deeds of Mortgage” dated 1st June, 2006, which was obviously intended to refer to the 2006 Mortgage and the 2006 Charge. The 2006 Mortgage was subsequently registered in the Registry of Deeds on 2nd August, 2006. The 2006 Charge was subsequently registered as a burden on Folio 211 in the Land Registry on 13th July, 2006 and, following an amendment to the folio on 3rd October, 2008, the Bank was registered as owner of the charge. The particulars of the 2006 Mortgage and the 2006 Charge were registered in the Companies Registration Office on 21st June, 2006 as charges on property in the State created by a company incorporated outside the State. As will appear later, it was confirmed in 2011 that both the 2006 Mortgage and the 2006 Charge had been duly registered in the Isle of Man Companies Registry in accordance with the law of the Isle of Man.
33. In general, and as will be outlined in more detail later, in these proceedings the appellants’ case as pleaded is that they are entitled to have the guarantees and securities listed above and all other guarantees and securities in favour of the Bank in relation to or over Gorse Hill declared void and of no effect on the grounds that they were procured by the unconscionable application of undue pressure and influence and breach of trust, negligence and breach of duty and were ultra vires the powers of Vico Limited.
34. After the guarantees, indemnities and securities given to the Bank in June, 2006 were put in place the arrangement between Mr. O’Donnell and Mrs. O’Donnell and the Bank was varied and the maximum liability covered by the guarantees and indemnities given by Vico Limited was increased from €17m to €25m. After June 2006 Vico Limited gave the following further guarantees and securities to the Bank:
(a) a deed of guarantee and indemnity given on 25th August, 2006, which unconditionally and irrevocably guaranteed sums due by Mr. O’Donnell and Mrs. O’Donnell to the Bank;
(b) a deed of guarantee and indemnity dated 19th October, 2006 guaranteeing sums due by Mr. O’Donnell and Mrs. O’Donnell to the Bank; and
(c) a deed of confirmation dated 15th June, 2007 made between Vico Limited and the Bank, whereby Vico Limited acknowledged and agreed that the obligations guaranteed by it would include all monies due and owing by Mr. O’Donnell and Mrs. O’Donnell under a guarantee and indemnity dated 11th June, 2007 executed by them as guarantors and in favour of the Bank and that the guarantee should continue in full force and effect as a continuing guarantee for all obligations thereby expressed to be guaranteed.
35. By 2010 Mr. O’Donnell and Mrs. O’Donnell had defaulted in relation to their liabilities to the Bank, as had three companies controlled by them (Avoca Properties Limited, Grey Stoke SA and Vico Swiss Holdings A.G.). The Bank issued summary summons proceedings (the Summary Summons Proceedings) in the High Court (Record No. 2010/6100S) against Mr. O’Donnell and Mrs. O’Donnell and against each of those companies. Shortly after the hearing of the Summary Summons Proceedings commenced, a settlement was reached and a written agreement (the Settlement Agreement) was entered into between the Bank, on the one hand, and Mr. O’Donnell and Mrs. O’Donnell and the three companies, on the other hand, on 4th March, 2011. Under the Settlement Agreement it was agreed that the Summary Summons Proceedings should be adjourned generally, but with liberty to re-enter for the purposes of enforcing the terms agreed. Specifically it was provided that the Bank should be at liberty to re-enter the proceedings on the happening of certain events and that the debtors, upon such re-entry, would consent to judgment against them in the sums set out in Schedule 1 to the Settlement Agreement. Predictably, one of the events which would give rise to the right to re-enter and to obtain judgment was a failure to make certain payments as specified in Schedule 2 to the Settlement Agreement. Another event, which is of particular relevance in the context of the issues in these proceedings, was contained in Clause 3.2(b) which set out the event as follows:
“That the Debtors fail to:
(i) confirm on or before Wednesday, 9th March, 2011 the identity of each person or company having any beneficial interest in the property at Gorse Hill, Vico Road, Killiney, County Dublin (the “Gorse Hill property”);
(ii) deliver to the Bank, on or before 16th March, 2011, full unencumbered security from each person or company having a legal and/or beneficial interest in the Gorse Hill property, such security to:
(A) secure all the debts the subject of these proceedings;
(B) be executed within two days of receipt from the Bank of the form of documents required by it, without comment or negotiation on the part of the Debtors or any other person . . ..”
36. The conditions stipulated in Clause 3.2(b) were complied with in the following manner:
(a) each of the appellants made a statutory declaration on 16th March, 2011 and in each of the statutory declarations (the 2011 Statutory Declarations) it was declared that it related to the property known as Gorse Hill and in each there was a declaration by the relevant appellant in the following terms:
“I confirm that Vico Limited holds the entire legal and beneficial title to the property and that I have no interest in or right or title to the property except to the extent that I am the beneficial owner of the shares in Vico Limited.”
and
(b) on 24th March, 2011, Vico Limited executed a deed of guarantee and indemnity in favour of the Bank in respect of the liabilities of Mr. O’Donnell and Mrs. O’Donnell and the liabilities of the three companies.
The guarantee and indemnity dated 24th March, 2011 (the 2011 Guarantee) is one of the deeds in respect of which the appellants have sought a declaration as to voidness and it being of no legal effect.
37. Unfortunately for the appellants, the Bank found it necessary to re-enter the Summary Summons Proceedings later in 2011 and on 12th December, 2011 it obtained judgment in the sum of €71,575,991.29 plus interest at the rate of 8% per annum from 12th December, 2011 against Mr. O’Donnell and Mrs. O’Donnell.
38. A relief specifically sought by the appellants in the statement of claim is that the statutory declarations made on 16th March, 2011 and any other document executed by the appellants which purports to affirm, agree or consent to the mortgages, guarantees and indemnities referred to in the statement of claim were, as alleged, procured by the unconscionable application of undue pressure and influence and by breach of trust, negligence and breach of duty.
39. The foregoing outline of the evidence in relation to the various guarantees, indemnities and securities created by Vico Limited over Gorse Hill is based primarily on the documentary evidence which was before the High Court.
40. It is necessary now to consider the evidence as to what the Bank knew about the ownership of and the title to Gorse Hill from its investigation of title when it took the securities, guarantees and indemnities from Vico Limited in 2006, 2007 and 2011. It will be recalled that the Bank had obtained a mortgage by equitable deposit of title deeds from Vico Limited in 1998, but that security had been released in 2002. Counsel for the appellants has relied on what the Bank knew about the title to Gorse Hill in the period from 1997 to around 2002. That evidence will be outlined after consideration of the evidence as to the Bank’s investigation of the title to Gorse Hill in 2006 and in connection with the Settlement Agreement in 2011.
Evidence as to the Bank’s investigation of title of Gorse Hill in 2006
41. By 2006, Mr. O’Donnell was practising as a solicitor and was a partner in the law firm known as Brian O’Donnell & Partners. Brian O’Donnell & Partners acted on the borrowers’ side in connection with the loan facilities given by the Bank to Mr. O’Donnell, Mrs. O’Donnell and Hibernia in 2006. It is clear on the evidence that it was that firm which procured the guarantees and indemnities, and the 2006 Mortgage and the 2006 Charge, which under the terms of the loan facility, the borrowers (Mr. O’Donnell, Mrs. O’Donnell and Hibernia) were obliged to procure for the Bank from Vico Limited. Neither Vico Limited nor the Trustee had any separate legal representation at that time in relation to those transactions. The Bank instructed the firm of Gartlan Furey, Solicitors, to act for it as lender to ensure that the terms of the loan facilities were complied with.
42. In a letter dated 15th May, 2006, Gartlan Furey set out the Bank’s requirements and those requirements were addressed in a response dated 18th May, 2006 from Brian O’Donnell & Partners. Gartlan Furey sought confirmation that no person other than Vico Limited had made or would make any direct or indirect financial contribution towards the purchase of Gorse Hill or had been or would be the beneficiary of any agreement or arrangement whereby that person had acquired or would acquire any interest in the property or any part thereof. Such confirmation was given in the response. Gartlan Furey also sought that Brian O’Donnell & Partners should reply to “a standard set of Requisitions on Title” as raised by the Bank, as lender, and as replied to by Brian O’Donnell & Partners on behalf of their clients, as borrowers, their clients being Mr. O’Donnell and Mrs. O’Donnell. The response suggested that completed Requisitions on Title were enclosed with the letter of 18th May, 2006. In fact, there were two sets of Requisitions on Title produced in evidence, one in relation to the unregistered property and the other in relation to the property registered on Folio 211 and each bore the date 2nd June, 2006, which was the day following the date which appears on the guarantees and indemnities given by Vico Limited to the Bank and the date of the 2006 Charge. However, I am satisfied that no significance should be attached to the peculiarity in relation to the dating of the requisitions and replies, because it is quite clear that the Bank was relying on the replies in relation to the facilities being afforded to Mr. O’Donnell and Mrs. O’Donnell, which were drawn down on 6th June, 2006.
43. Some of the replies given to the requisitions raised, which were in the standard form published by the Law Society of Ireland, were canvassed in evidence and in submissions. The reply to Requisition 14 in relation to encumbrances disclosed that there was only an equitable charge in favour of Anglo Irish Bank Corporation Plc, which would be discharged. In relation to Requisition 15, in which it was required that, if there was a voluntary disposition on title, the borrowers’ solicitors should furnish various documents, the response was that the requisition was not applicable. In the context of a series of requisitions on taxation in Requisition 16, in response to a query whether the property or any part of it was the subject of a discretionary trust, the response was that it was “not to the borrowers’ knowledge”.
44. It was made clear in the letter of 15th May, 2006 from Gartlan Furey that, as Vico Limited was an Isle of Man company, they would require an opinion from an Isle of Man lawyer “confirming the good standing of the company and confirming that the security documents have been duly executed, do not breach Isle of Man law and are valid and enforceable in the Isle of Man”. Gartlan Furey was aware that Dickinson Cruickshank had previously advised in relation to security given by Vico Limited to the Bank in 1998 and it was suggested that an opinion be sought from that firm. On 17th May, 2006, Brian O’Donnell & Partners sent a letter by fax to Mr. Jelski, who was then a partner in Dickinson Cruickshank. There were two statements in that letter which were not accurate. First, having stated that Brian O’Donnell & Partners acted for Vico Limited, it was stated that that company was “ultimately owned” by Mr. O’Donnell, which was not correct. Secondly, it was stated that Brian O’Donnell & Partners were then arranging “for re-financing of certain properties that are owned by” Vico Limited with Bank of Ireland, which was not strictly speaking correct either. However, the letter also stated:
“By way of background to the upcoming banking transaction I confirm that it is intended that Vico Limited will execute a Guarantee in favour of the bank in respect of the borrowings of [Mr. O’Donnell and Mrs. O’Donnell] and will execute a supporting Legal Mortgage and Charge over a property at Gorse Hill . . . which Vico Limited owns. This is a mirror of what was done back in 1998 when your last opinion was given.”
That statement, in my view, was an accurate representation of the proposed transactions.
45. Dickinson Cruickshank provided the required opinion by letter dated 2nd June, 2006, which was addressed to the Bank, on the basis that their instructions had come from the Bank. In the opinion, having alluded to the relevant provisions of the Isle of Man legislation in relation to companies and the incorporation details of Vico Limited, Dickinson Cruickshank set out their opinion that –
(a) Vico Limited was duly constituted under the laws of the Isle of Man;
(b) it had unlimited powers of borrowing and it had power to purchase property;
(c) it had power to charge its property and assets as security for repayment of monies borrowed, subject to the requirement to register particulars of charge in the Isle of Man Companies Registry in accordance with the requirement of Isle of Man law, which I assume is similar to s. 99 of the Act of 1963;
(d) it had power to issue guarantees and indemnities for the payment of liabilities of others and to charge its undertaking and property as security for its liability as guarantor, subject to the requirement in relation to registering particulars of the charge; and
(e) a document executed by Vico Limited would be duly executed when executed by it and signed as a deed by a director and a secretary thereof or a second director.
As will be outlined later, an opinion in the foregoing terms had already been given by Dickinson Cruickshank to the Bank by letter dated 5th February, 1998.
46. Having recorded earlier in the opinion of 2nd June, 2006 that the exercise of the powers of Vico Limited was delegated to its directors, it was stated in the opinion that there was an express provision in the Articles of Association of Vico Limited enabling its directors to borrow money without limit as to amount and upon such terms and in such manner as they should think fit and to grant any mortgage or charge of its undertaking and property. It was further stated that, in exercising those powers, the directors “must act in the best interests of” Vico Limited and “for the commercial benefit” of Vico Limited. In his evidence Mr. Jelski, who prepared the opinion of 2nd June, 2006, explained that what he referred to as “a restriction on the exercise by the directors of their powers” did not affect the legal capacity of Vico Limited to enter into the guarantees with, and give the securities to, the Bank in 2006. Further, his evidence was that it is well established as a matter of Manx law that ratification or approval of a transaction by a company’s shareholders cures any potential defect in the directors’ authority to enter into the transaction on behalf of the company. His evidence was that it was clear from the minute of the meeting of the board of directors of Vico Limited held on 1st June, 2006 referred to later and the resolutions passed at that meeting that the sole shareholder of Vico Limited had consented and expressly approved of the giving of the guarantees and securities to the Bank. He expressed the opinion that as a matter of Manx law the transactions were legally binding on Vico Limited.
47. Returning to the text of the opinion dated 2nd June, 2006, Dickinson Cruickshank also confirmed that they had examined the guarantees to be given to the Bank in respect of the liabilities of Mr. O’Donnell and Mrs. O’Donnell and Hibernia and that they also had examined the proposed 2006 Mortgage and the proposed 2006 Charge, and it was confirmed that Vico Limited had power to execute those documents. It was also confirmed that Dickinson Cruickshank had examined copies of resolutions passed by Vico Limited, which authorised the execution, delivery and performance of the foregoing documents. It was also confirmed that those documents had been executed by the persons authorised by the resolutions and constituted legal, valid and binding obligations of Vico Limited.
48. The minute referred to in the opinion of Dickinson Cruickshank, which the Bank obtained in June 2006, also recorded what happened at the meeting at which the resolutions were passed, the meeting of the board of directors of Vico Limited held in the Isle of Man on 1st June, 2006. What is recorded in the minute as having been told by the chairman of the meeting to the directors present was an accurate description of the proposed re-financing arrangement, in that it was recorded that Mr. O’Donnell and Mrs. O’Donnell had requested Vico Limited to provide a guarantee to the Bank in relation to their personal borrowings and indirect personal borrowings via their wholly owned company, Hibernia, up to a maximum of €17m. The minute recorded that it was reported to the directors that the assets of Vico Limited comprised of a property and adjacent land in Killiney then valued at €30m. The Bank also required first legal charges over that property and adjacent land and also a guarantee and indemnity in relation to the borrowings of Mr. O’Donnell and Mrs. O’Donnell and Hibernia. It was also recorded that the chairman reported that discussions had taken place in relation to the level of the guarantee, as the indebtedness of Vico Limited to Mr. O’Donnell and Mrs. O’Donnell was recorded at IR£1,055,000. Further, it was recorded that Mr. O’Donnell had confirmed to the chairman at a meeting in Dublin in January 2005 that Mr. O’Donnell and Mrs. O’Donnell had invested a further amount of approximately IR£10m in improving and refurbishing the property after its acquisition. It is to be noted that the aggregate of the sums recorded as being invested by Mr. O’Donnell and Mrs. O’Donnell in the property, IR£11,055,000, is the equivalent of €14,039,850, which is quite close to the figure of €14,816,774 referred to earlier as shown in the accounts of Vico Limited for 2008 as the liability of the company referred to as “Settlors’ Subordinate Loan”. Further, it was recorded in the minute as follows:
“The Chairman advised the meeting that IFG International Trust Company Limited as Trustee of the [Discretionary Trust], the ultimate beneficial owner of [Vico Limited] has consented to the proposed transaction.”
The outcome of the meeting was that it was resolved that the guarantee and indemnity in favour of the Bank to secure the borrowings of Mr. O’Donnell and Mrs. O’Donnell and the guarantee and indemnity in favour of the Bank to secure the borrowings of Hibernia be executed, as well as the securities which were to become the 2006 Mortgage and the 2006 Charge.
49. The Bank, as has been recorded, did have sight of the minute of the meeting of the board of Vico Limited which disclosed that the shareholder of Vico Limited, the Trustee, as trustee of the Discretionary Trust, had consented to the proposed transactions. In his evidence, Mr. Jelski addressed the contention that, on the facts, the Bank had a duty to inquire that the consent of the shareholder of Vico Limited had been validly given in circumstances where the shareholder held the shares on trust. His evidence was that, as a matter of Manx law and as a matter of long established Isle of Man practice, there is no duty on a party taking security from a company to inquire or take notice of the dealings between trustee shareholders and the beneficiaries of the trust.
50. There was also a meeting of the board of directors of the Trustee, then IFG International Trust Company Limited, as Trustee of the Avoca Settlement, held on 1st June, 2006 in the Isle of Man. The minute of that meeting was in evidence before the High Court, although the undisputed evidence of Mr. Geoghegan, who was the main Relationship Manager of the Bank dealing with Mr. O’Donnell and Mrs. O’Donnell for the period from 2006 to 2008, was that no documents from the Trustee or the beneficiaries of the Discretionary Trust were provided to the Bank in 2006. The three directors of Vico Limited who were present at its board meeting were also present with three other directors at the board meeting of the Trustee. Once again, the proposed re-financing arrangements between Mr. O’Donnell and Mrs. O’Donnell and the Bank were correctly recorded, in that it was reported to the meeting that the Bank had agreed to lend Mr. O’Donnell and Mrs. O’Donnell and Hibernia respectively €11,333,000 and €5,667,000 and that, as security, the Bank required a legal charge over the assets of Vico Limited and a guarantee and indemnity from Vico Limited in relation to the loans. The minute recorded that the chairman reported to the meeting that “the [Trust’s] underlying company Vico Limited” had been requested to enter into the guarantees. The indebtedness of Vico Limited to Mr. O’Donnell and Mrs. O’Donnell in the amount of approximately IR£11,055,000 was also recorded. The minute stated:
“Furthermore as Mr. & Mrs. O’Donnell were specifically excluded from benefit from the Trust, the Trustees had been provided from the beneficiaries an agreement to consent to the provision of the security and guarantee in relation to Mr. & Mrs. O’Donnell’s borrowings. A copy of which is attached and forms part of these minutes.”
It was also recorded that it had been reported to the meeting that –
“. . . the beneficiaries of the Settlement, are the children of Mr. & Mrs. O’Donnell, and also it was possible that the borrowings would facilitate Mr. & Mrs. O’Donnell to ultimately increase the family estate which would ultimately benefit the children, the beneficiaries of the Trust.”
The outcome of the meeting was that the board of directors of the Trustee gave approval to the directors of Vico Limited to enter into the proposed security arrangements in relation to the borrowings of Mr. O’Donnell and Mrs. O’Donnell and of Hibernia. That clearly is the consent of the Trustee which was referred to in the minute of the meeting of the board of Vico Limited of 1st June, 2006.
51. The “agreement to consent” referred to in the minute of the meeting of the board of directors of the Trustee as having been provided by the beneficiaries, namely, the appellants, and a copy of which was annexed to that minute, was addressed to the Trustee and it was signed by each of the appellants on 31st May, 2006, including Alexandra, who was a minor at the time. The text of the document was as follows:
“We the current beneficiaries of the [Discretionary Trust] created on 15th January, 1998, individually and irrevocably agree, to Vico Limited (the “Company”) a wholly owned subsidiary of the [Discretionary Trust], which is indebted to [Mr. O’Donnell and Mrs. O’Donnell], to give security over the Company’s sole asset, the land and property at Vico Road . . ., to [the Bank] in respect of personal borrowings provided by the Bank to Mr. O’Donnell and Mrs. O’Donnell and Hibernia . . . (a company wholly owned by [Mr. O’Donnell and Mrs. O’Donnell]), up to a maximum of €17,000,000.”
While the Discretionary Trust was created on 16th December, 1997, not 15th January, 1998, the reference in that document is clearly to the Discretionary Trust. Where the Bank was first mentioned in the document it was originally referred to as “Anglo Irish Bank PLC”. the words “Anglo Irish” were crossed out and the words “of Ireland” were inserted after the word “Bank” in manuscript. The position of the Bank, consistent with the evidence of Mr. Geoghegan referred to earlier, at all times has been that, while the Bank obtained a copy of the minute of the meeting of the board of directors of Vico Limited held on 1st June 2006 in connection with the giving of the guarantee and securities by Vico Limited to the Bank, it was not furnished with the minute of the meeting of the board of the Trustee nor the consent of the beneficiaries referred to in it, a position which has been established on the evidence and which the appellants have had to accept.
52. As recorded earlier, the loan facility arrangements between Mr. O’Donnell and Mrs. O’Donnell and the Bank were subsequently varied. For instance, in August 2006 the maximum limit on the total borrowings for which Vico Limited was to be liable as guarantor was increased to €25m. Further, as recorder earlier, Vico Limited gave further guarantees and indemnities to the Bank on 25th August, 2006 and 19th October, 2006 and Vico Limited furnished a deed of confirmation to the Bank, which was dated 15th June, 2007. I consider that it is not necessary to outline in detail the steps that were taken to authenticate those actions by Vico Limited, which were similar to the steps which had been taken in relation to the procurement of the guarantees and the securities given to the Bank by Vico Limited in early June 2006. By way of example, those steps included obtaining further opinions from Dickinson Cruickshank, which were dated 25th August, 2006 and 19th October, 2006 and which reiterated what was stated in the opinion dated 2nd June, 2006. The opinion of 19th October, 2006 was quoted extensively in the judgment of the trial judge, as will appear later.
53. It is also clear that the Trustee obtained the consent of the appellants to the increase in the maximum total liability of Vico Limited on foot of the guarantees to €25m by a document dated 22nd August, 2006 signed by each of the appellants, including Alexandra, who was still a minor, in identical terms to the document signed on 31st May, 2006, including the incorrect date of the Discretionary Trust, save that the sum of €25,000,000 was substituted for €17,000,000. The position of the Bank in relation to the document dated 22nd August, 2006 is the same as its position in relation to the document dated 31st May, 2006 signed by the beneficiaries, as outlined earlier. The Bank’s position is that it did not have knowledge of either document. It was acknowledged by counsel for the appellants that there is no evidence to the contrary.
54. In the context of the variation of the loan facilities, on 21st August, 2006, Mr. O’Donnell and Mrs. O’Donnell wrote to a person in the Isle of Man who was probably a staff member of both Vico Limited and the Trustee in relation to the indebtedness of Vico Limited to them, which the evidence demonstrates was in excess of €14m, and they expressly waived their entitlement in relation to that indebtedness in the following terms:
“We, Brian O’Donnell and Mary Patricia O’Donnell, hereby waive the repayment of all and any existing loans currently owed to us by [Vico Limited] until such time as all and any guarantees due and payable to the Bank of Ireland have been discharged.”
Evidence as to the Bank’s investigation of title to Gorse Hill in 2011
55. In 2011, Arthur Cox, Solicitors, acted for the Bank in the Summary Summons Proceedings against Mr. O’Donnell and Mrs. O’Donnell and the three corporate co-defendants. The defendants were represented by Whitney Moore, Solicitors.
56. The reason why the Bank required the inclusion in the Settlement Agreement of Clause 3.2(b), as quoted earlier, was explained by Mr. Hanrahan, a director of the Specialist Property Group of the Bank at the time, when he testified in the High Court on behalf of the Bank. Mr. Hanrahan’s evidence was that, after the commencement of the Summary Summons Proceedings against Mr. O’Donnell and Mrs. O’Donnell and the three companies referred to earlier, he had a number of conversations and meetings with Mr. Con Casey, a representative of Mr. O’Donnell and Mrs. O’Donnell, in January, 2011. In the course of the interaction between the parties, it was suggested on behalf of Mr. O’Donnell and Mrs. O’Donnell, for the first time, that the Bank did not have security over Gorse Hill, as it was controlled by a discretionary trust in favour of the children of Mr. O’Donnell and Mrs. O’Donnell.
57. After the Settlement Agreement was executed, compliance with the requirement of Clause 3.2(b) of the Settlement Agreement was dealt with between Whitney Moore, acting for the defendants in the Summary Summons Proceedings, and Arthur Cox, acting for the Bank. On 9th March, 2011, Arthur Cox was informed by Whitney Moore that their instructions were that Vico Limited held the legal and beneficial interest in Gorse Hill and that the Discretionary Trust held the shares of Vico Limited. It was Whitney Moore which furnished the 2011 Statutory Declarations to Arthur Cox.
58. In compliance with the Settlement Agreement, the 2011 Guarantee was given by Vico Limited under seal to the Bank. In the 2011 Guarantee the expression “Principals” was defined as meaning Mr. O’Donnell, Mrs. O’Donnell and the three companies which had been defendants in the Summary Summons Proceedings. In the operative part thereof, in consideration of the Bank making or continuing advances or otherwise giving credit or affording banking facilities to or with the Principals, Vico Limited unconditionally and irrevocably covenanted to pay and guaranteed on demand by the Bank all monies payable to the Bank from the Principals or any of them. The 2011 Guarantee was expressed to be in addition to any collateral or other security then or thereafter held by the Bank for all or any part of the monies thereby guaranteed, including any previous guarantees provided by Vico Limited. The execution of the 2011 Guarantee was ratified at a meeting of the board of directors of Vico Limited held in the Isle of Man on 24th March, 2011. By letter dated 24th March, 2011, Dickinson Cruickshank Ramsey reiterated the opinion of Dickinson Cruickshank as to the unlimited borrowing powers of Vico Limited and its power to charge its property and to issue guarantees and indemnities in respect of the liabilities of others. It also confirmed that the 2006 Mortgage and the 2006 Charge had been duly registered in the Isle of Man Companies Registry.
Evidence as to the Bank’s understanding of the title to Gorse Hill before 2006
59. As has been recorded earlier, the Bank was aware of the complex legal structure which Mr. O’Donnell and Mrs. O’Donnell proposed putting in place in relation to their assets, and the acquisition of Gorse Hill, in December 1997, as outlined in the Bank’s note of 11th December, 1997 summarised earlier in para. 12. Moreover, as noted earlier, in connection with the transaction between Mr. O’Donnell and Mrs. O’Donnell and the Bank in February 1998, when the Bank obtained an equitable mortgage by deposit of the title deeds of Gorse Hill from Vico Limited as security for the “capped” guarantees given by it to the Bank, the Bank obtained an opinion from Dickinson Cruickshank as to the powers of Vico Limited under the law of the Isle of Man. The opinion was contained in a letter of 5th February, 1998 from Dickinson Cruickshank directly to the Bank, which outlined the matters recorded in para. 45 above as having been also outlined in the opinion of 2nd June, 2006.
60. The focus of counsel for the appellants on the hearing of the appeal was on various statements dealing with the financial affairs of Mr. O’Donnell and Mrs. O’Donnell which had been prepared by Mr. O Beirn and had been the subject of evidence and submissions in the High Court and of submissions in this Court, as well as to the Bank’s note of 11th December, 1997 and other Bank internal notes, memoranda and documents dealing with the financial affairs of Mr. O’Donnell and Mrs. O’Donnell, with a view to establishing that the Bank knew that, as the appellants erroneously contended was the case, Gorse Hill was the subject to a trust prior to 2006.
61. While I consider it is unnecessary to outline all the evidence in relation to those documents, by way of example, one such document will be considered. It was a document which was headed “Credit Application (PB)” (PB meaning Private Banking), which was signed by, inter alia, Mr. Moriarty and Ms. Duggan, and which was an internal document of the Bank from Private Banking to the Credit Committee, in which Mr. O’Donnell’s financial profile was analysed in the context of further facilities sought by Mr. O’Donnell from the Bank. The document was dated 25th August 1999. The segment of the document on which counsel for the appellants laid emphasis was headed “Security” and counsel concentrated on what was stated in relation to Gorse Hill, which was one of ten properties which were available as security. In commenting on the various securities, it was noted that there was an “added complication” in that two of the properties, one being Gorse Hill, were held “in a trust” and some had been purchased via a “Power of Attorney Scheme” to avoid stamp duty, one being Gorse Hill. The “Power of Attorney Scheme” is no longer of relevance because the title to Gorse Hill was regularised in 2006. In the list of securities, Gorse Hill was described as “purchased in Vico Ltd. (Trust)”. That was elaborated on as follows:
“The O’Donnells created a Discretionary Trust some years back located in IOM with IOM resident trustee naming their children as beneficiaries. The IOM Trust set up a holding company, called Tabasco Ltd, which in turn set up subsidiary companies to hold various properties. In the case of the two properties held within the Trust, we have taken a guarantee from Tabasco Ltd countercovered by the shares in the relevant subsidiary company. At present there is a restricted guarantee in relation to Vico Ltd and this will now be retaken for the full value of the property. Facilities in the name of the companies will be guaranteed by the O’Donnells. This situation only affects the . . . commercial property and the Vico Road property as all other properties are held in sole/joint names.”
While the statements in relation to Gorse Hill suggest that that property was trust property and, specifically, that it was held “within the Trust” created by Mr. O’Donnell and Mrs. O’Donnell as a Discretionary Trust in the Isle of Man, naming their children as beneficiaries, the reality is that at that time the property, that is to say, the beneficial interest in Gorse Hill, was vested in Vico Limited, the legal estate being outstanding in the Sharpe Vendors.
62. Throughout the documentation generated in connection with the guarantees, indemnities and securities created in relation to the liability to the Bank of Mr. O’Donnell and Mrs. O’Donnell and companies controlled by them, one finds statements as to ownership of assets which are obviously incorrect. Such statements are to be found in documents which emanated from lawyers, for example, the reference in the fax dated 17th May, 2006 from Brian O’Donnell & Partners to Mr. Jelski referred to earlier, which incorrectly suggested that Vico Limited was ultimately owned by Mr. O’Donnell, as well as in documents created by officials within the Bank. The document under consideration in the preceding paragraph emanated from three bank officials, including Ms. Duggan and Mr. Moriarty. Undoubtedly, statements in that document, which were scrutinised by counsel for the appellants, were imprecise and in some cases incorrect. However, where the title to Gorse Hill was vested from 1998 onwards falls to be determined primarily by reference to the title documents and the other evidence outlined earlier.
63. The evidence established that following approval of the additional facilities to Mr. O’Donnell and Mrs. O’Donnell, Vico Limited, in late 1999, provided a series of guarantees to the Bank which were secured in favour of the Bank by an equitable mortgage by deposit of title deeds of Gorse Hill. In 2002 that security over Gorse Hill was released. The earliest guarantees and securities under challenge in these proceedings were given to the Bank in June 2006.
The appellants’ case as pleaded
64. In opening his submissions on the appeal, counsel for the appellants indicated that he would be seeking to “re-orientate” the case being made on behalf of the appellants on the appeal away from the case made in the High Court. Notwithstanding that, in order to give context to the findings made by the trial judge in his judgment, it is appropriate to outline the principal elements of the case made by the appellants on the pleadings and the Bank’s response. It was made clear by counsel for the appellants that the core of their case remained that, if the Bank had obtained an interest in trust property in breach of trust, then equity would impose a constructive trust in favour of the appellants as beneficiaries of the Discretionary Trust. In that context, it must be emphasised that neither the Trustee of the Discretionary Trust, nor Vico Limited nor Mr. O’Donnell nor Mrs. O’Donnell is a party to these proceedings, nor was evidence given on behalf of any of them.
65. Not unusually, there is quite a lot of repetition in the pleadings, in that similar allegations are made by the appellants in relation to various stages of the relationship of Mr. O’Donnell and Mrs. O’Donnell and of Vico Limited with the Bank. What follows is a truncated outline of the pleadings, the focus being on the wrongdoing alleged on the part of the Bank against the appellants, from which it is claimed that the appellants’ entitlement to the reliefs they claim flows. What is pleaded as indicating a nexus between the appellants and the beneficial ownership of Gorse Hill is pleaded by reference to the Discretionary Trust, which it is pleaded was established as a trust by their parents for the benefit of the appellants. It is then pleaded that Gorse Hill “was placed into the [Discretionary] Trust by means of a mechanism whereby the shares of the legal owner of the property, Vico Limited, were settled on the [Discretionary] Trust and thereafter held by the [Trustee] in trust for the [appellants] . . . as the ultimate beneficiaries”, the contention being that Gorse Hill was trust property.
66. Chronologically, the first wrongdoing alleged on the part of the Bank against the appellants in the statement of claim is based on the execution by the appellants of the documents dated 31st May, 2006 and 22nd August, 2006 agreeing to Vico Limited giving security to the Bank, which will be referred to as the “2006 Consents”. There is an allegation, which is factually incorrect, that the 2006 Consents were executed “by reason of a requirement of the [Bank] . . . as proposed commercial lenders to [Mr. O’Donnell and Mrs. O’Donnell]”. It is further alleged that the appellants did not receive any independent legal advice in relation to the 2006 Consents, nor did they understand their legal significance or implications, particularly in circumstances where, it is asserted, they did not understand that their home, Gorse Hill, was in the ownership of Vico Limited and that the execution of the 2006 Consents would have the effect of placing their home in jeopardy. It is also alleged, again factually incorrectly, that the Bank was fully aware of, or had constructive knowledge of, the requirement that the appellants were, without advice or knowledge, acting in a way which was “likely to deprive them of their lawfully held property (consisting of their family home) and without any corresponding benefit accruing to them”. That last allegation is reiterated in relation to the alleged awareness or “constructive knowledge” of the Bank in relation to the “purported execution” of the 2006 Mortgage and the 2006 Charge and the guarantees and indemnities executed by Vico Limited on 1st June, 2006.
67. It is also alleged that the consents given by the Trustee to the execution by Vico Limited of the various guarantees, indemnities and securities executed in June 2006 and also the guarantee of 25th August, 2006 were procured by Mr. O’Donnell and Mrs. O’Donnell and the Bank by the provision to the Trustee of the 2006 Consents executed by the appellants. On the evidence that allegation against the Bank is factually incorrect, in that the Bank was not aware of the 2006 Consents when it took the guarantees and related securities over Gorse Hill from Vico Limited.
68. As regards all of the guarantees, indemnities and securities referred to, it is pleaded that the Bank was aware, or had constructive knowledge, of –
(a) the complete absence of advice or independent advice being given to the appellants;
(b) the fact that the appellants were, in part, the minor children of Mr. O’Donnell and Mrs. O’Donnell;
(c) the fact that the appellants were under the undue influence of their parents;
(d) the fact that by the said transaction no benefit did, or could, accrue to the appellants;
(e) the fact that the appellants were, without proper understanding and in the absence of being informed, depriving themselves of their lawfully held property;
(f) the fact that the transactions were designed to enrich the Bank and to damage the appellants; and
(g) the fact that the guarantees, indemnities and securities were procured by –
(i) the unconscionable application of undue pressure and influence,
(ii) breach of trust, and
(iii) negligence and breach of duty.
69. It is then pleaded that “this Guarantee and Indemnity”, which is identified in replies to a notice for particulars raised on behalf of the Bank as a guarantee of “2006”, was “incompatible with the decision of the Board of Directors” and was ultra vires the powers of Vico Limited.
70. Later in the statement of claim, wrongdoing is alleged against the Bank in relation to the execution of the 2011 Statutory Declarations. It is pleaded that the said statutory declarations were obtained by the exertion of undue influence and/or duress and are void, and, further, that the appellants did not receive, nor were they advised to receive, any or any adequate advice, whether independent, legal or otherwise before making the statutory declarations. It is alleged that the statutory declarations were prepared by the Bank or its agents, which is factually incorrect, and that they were presented on a “take it or leave it” basis. Further, it is alleged that the statutory declarations are erroneous in that the appellants are the beneficial owners of Gorse Hill, which, it is alleged, was at all times known to the Bank.
71. Similar allegations are made in relation to the execution of the 2011 Guarantee as are made in relation to the earlier guarantees, indemnities and related security documents recorded earlier, including an allegation that it was procured by unconscionable application of undue pressure and influence and by the breach of trust, negligence and breach of duty.
72. An alternative plea is that the contracts, meaning the various guarantees, indemnities and securities given by Vico Limited to the Bank, are unenforceable based on the absence of any corporate benefit accruing Vico Limited in entering into them.
73. It is pleaded that at all times it was known to the Bank –
(a) that the appellants were the beneficial owners of Gorse Hill, and
(b) that the sole business of Vico Limited was the management of the residential property, that there was no trading activity associated with Vico Limited, and that it existed as a corporate mechanism whereby Gorse Hill was held in trust for the appellants.
It is alleged that the Bank was aware of, but ignored, the fact of the beneficial interest being vested in the appellants, that it secured charges over Gorse Hill to its benefit and to the detriment of the appellants, and that it failed in its duty of care to ensure that the appellants knew of the risks involved and that they were advised to obtain independent legal advice.
74. It is pleaded that, insofar as the Bank holds any right in Gorse Hill, it holds it in trust for the appellants’ benefit and that Gorse Hill is the subject of a constructive trust for the appellants’ benefit, as the appellants have been wrongfully deprived of their rights by the wrongful actions of third parties, including the Bank. Further, it is repeated that the wrongful conduct of the Bank was by way of unjust enrichment, duress, unconscionable bargain, interference, negligence, breach of duty and breach of trust.
75. Having regard to the appellants’ case as pleaded, in summary, the bases on which the appellants claim to be entitled to the reliefs sought is that –
(a) the giving of the guarantees and related securities to the Bank by Vico Limited contravened the relevant company legislation under which it was incorporated;
(b) Gorse Hill was trust property of which the appellants were the beneficial owners and the giving of the guarantees and related securities to the Bank was in breach of trust; and
(c) alternatively, the circumstances of the giving of the guarantees and related securities gave rise to the imposition of a constructive trust on any interest of the Bank in Gorse Hill for the benefit of the appellants.
The Bank’s defence as pleaded
76. Turning to the defence delivered by the Bank, it raises three preliminary objections, the first being that the appellants’ claim for damages was statute-barred and that, as regards the declaratory and equitable relief sought by the appellants, the appellants were guilty of laches and delay and had acquiesced in the matters complained of, such as they were not entitled to maintain their claims. The Bank’s position in the High Court was that that objection was not central to its defence, but it was not being dropped. In fact, it was not pursued and need not be addressed in this judgment.
77. The second preliminary objection is that the statement of claim discloses no cause of action, in circumstances where the appellants have not identified any proprietary interest or entitlement to any proprietary interest in Gorse Hill, nor have they identified a proprietary interest of which they have been deprived, it being asserted that the appellants’ claim is “frivolous and vexatious and is bound to fail”.
78. The third preliminary objection is that the appellants’ claim is misconceived as a matter of law, in that the appellants are attempting to rely upon an asserted beneficial interest in the shares in Vico Limited to ground a claim over an asset which was never owned by the appellants but was owned by another entity – Vico Limited. It is pleaded that the appellants cannot assert any proprietary interest in Gorse Hill by virtue of any interest which they may have or have held in the shareholding in Vico Limited and that such assertion is misconceived as a matter of law and is bound to fail.
79. Apart from the preliminary objections, the Bank in its defence joins issue with each of the allegations of wrongdoing made by the appellants against it. The recurring theme in the defence is that the appellants are not the beneficial owners of, and have no interest in, Gorse Hill and that no stateable basis for such an interest has been pleaded. Further, it is asserted that the appellants are not entitled to the relief sought or any relief, and, in particular, that they are not entitled to seek rescission of contracts and transactions to which they were not parties.
80. It would appear that nowhere in the statement of claim or in the replies to the notice for particulars raised on behalf of the Bank is there reference to Mr. O’Donnell and Mrs. O’Donnell being “Excluded Persons” under the Discretionary Trust or of the Bank having actual or constructive notice of that fact, which was a major component of the appellants’ case on the appeal. However, those matters would appear to have featured in the appellants’ submissions in the High Court, and to have been dealt with in the Bank’s response, as they are addressed in the judgment of the trial judge.
The judgment of the High Court
81. In his judgment delivered on 31st July, 2013, the trial judge, having identified the legal issues which appeared to him to fall for consideration, addressed each of those issues.
82. The first issue identified by the trial judge was whether Vico Limited is the full legal and beneficial owner of Gorse Hill. On the evidence before him, he found (at para. 31) that Vico Limited acquired the beneficial interest in Gorse Hill by way of the contracts for sale executed in 1998 and 2000 and that the evidence clearly established that full legal and beneficial ownership of Gorse Hill was conveyed to Vico Limited by the deeds executed in 2006.
83. The second issue identified by the trial judge was what interest, if any, may be asserted by the appellants in Gorse Hill, given the structure of the Discretionary Trust and the associated trust arrangements. In addressing that issue, the trial judge considered the recent decision of the United Kingdom Supreme Court in Prest v. Petrodel Resources Ltd. [2013] 3 WLR 1, which will be discussed later. His finding on the evidence (at para. 40) was that it clearly establishes that the appellants “are beneficial owners of the shares in Vico Limited, but hold no beneficial interest in Gorse Hill”. In relation to the documentary evidence proffered in support of the appellants’ case, consisting primarily of internal memoranda generated by the Bank, the trial judge’s conclusion was that it was “unpersuasive” and he continued (at para. 40):
“These do not unambiguously support the contentions advanced, but in any event these memoranda are of no legal effect, merely representing an officer of the Bank’s interpretation of the subsisting legal situation.”
The trial judge observed (at para. 41) that the appellants had not sought to maintain that the corporate structure of Vico Limited was a “sham”, nor had they alleged that there had been any wrongdoing by Mr. O’Donnell and Mrs. O’Donnell in establishing the trust structure or in their dealings with the Bank. Therefore, he concluded that there appeared to be no basis upon which to depart from the ordinary rules of separate corporate personality in the case. On the hearing of the appeal, counsel for the appellants confirmed that the assertion of a “sham” is not part of the appellants’ case.
84. The third issue identified by the trial judge was whether the Bank was aware of any beneficial interest in Gorse Hill operating in favour of the appellants. He addressed this issue by reference to the equitable principles of constructive trust and knowing receipt. The trial judge (at para. 43) absolutely rejected the appellants’ contention that the Bank had devised the trust structure, stating that the contention was “exposed to be utterly without merit” arising from Mr. O Beirn’s evidence during the trial. Further, he absolutely rejected an argument advanced on behalf of the appellants that the Court should infer constructive knowledge on the part of the Bank that Vico Limited and/or the Trustee had acted in breach of trust or in breach of fiduciary duty in entering into the guarantees, indemnities and securities with the Bank. In this regard, he stated (at para. 45) that he could find “no basis in the evidence upon which to infer any knowledge of a breach of trust or other irregularity on the part of” the Bank. He pointed out that, in entering into the security arrangements, the Bank had sought the advice of Dickinson Cruickshank, who diligently assessed the position, and he quoted extensively from the opinion dated 19th October, 2006. He stated (at para. 46) that it was clear on the evidence that the Bank at all times proceeded on the basis of an understanding that Vico Limited from 1998 held the beneficial interest in Gorse Hill and from 2006 held full legal and beneficial title, “with the shares in Vico Limited being held to the benefit of the appellants”, and he found that the Bank’s understanding correctly reflected the true position.
85. Addressing an argument advanced on behalf of the appellants that they had “an equitable interest in Gorse Hill through the doctrine of knowing receipt”, the trial judge stated as follows (at para. 48):
“While it is clearly established that constructive knowledge may suffice to demonstrate knowing receipt, the [appellants’] assertion on this point is again unfounded. Both of these grounds are premised on the fact of there having been a disbursement of property that is impressed with a trust. The evidence in this case unequivocally demonstrates that Vico Limited was the full legal and beneficial owner of Gorse Hill. Given that[,] there has been no dealing in trust property”
86. The trial judge made a specific finding (at para. 49) as to the knowledge of the Bank, stating that the evidence also showed that the Bank had no knowledge, or reason to believe, that there had been a breach of trust or breach of fiduciary duty on the part of the Trustee or of the directors of Vico Limited. Further, insofar as the appellants’ claim was that the surrounding circumstances should have put the Bank “on inquiry” of the possibility of a breach of trust, he stated that the evidence before him showed that “appropriate inquiries were in fact made, disclosing no difficulties”. Specifically, as regards the appellants’ claim that a “manifest breach of trust” was evident in the fact that Vico Limited entered into an arrangement to guarantee the borrowings of Mr. O’Donnell and Mrs. O’Donnell, who were “Excluded Persons” under the Discretionary Trust and as such were explicitly prohibited from benefiting from the trust, the trial judge stated (at para. 50) that he was satisfied, having heard the evidence of key personnel of the Bank involved in obtaining the securities from Mr. O’Donnell and Mrs. O’Donnell, that the officers of the Bank had no knowledge, actual or constructive, of the specificity of the Discretionary Trust, and, in particular, were unaware of the contents of the provision under which Mr. O’Donnell and Mrs. O’Donnell were “Excluded Persons”.
87. The fourth issue identified by the trial judge was whether the securities given by Vico Limited to the Bank were properly executed and whether they were binding and, in particular, whether the circumstances warranted a declaration that they are void or the making of an order for their rescission. In addressing this issue, the trial judge considered the expert evidence which had been adduced in relation to the law of the Isle of Man as to the vires or capacity of a company incorporated in that jurisdiction. He also considered the submission made on behalf of the appellants that the decision to enter into the security should be deemed to have been in excess of the authority of the directors of Vico Limited, as not having been entered into in the best interests of Vico Limited. He quoted extensively from the minute of the meeting of the board of directors of Vico Limited held on 1st June, 2006 referred to earlier and he referred to the fact that, on the same day, a corporate certificate issued from Vico Limited setting out, inter alia, that the directors had acted “bona fide” in the best interests of Vico Limited. Having noted the waiver given by Mr. O’Donnell and Mrs. O’Donnell on 21st August, 2006, in relation to repayment of the indebtedness of Vico Limited to them until the indebtedness of Vico Limited to Bank would be discharged, he concluded (at para. 57):
“Insofar as this matter falls for my consideration, it appears that the directors of Vico Limited had legitimate regard to the very significant indebtedness of the company to [Mr. O’Donnell and Mrs. O’Donnell], and received from them a waiver with regard to all outstanding loans. There is no evidence before the court to demonstrate a lack of honest belief on the part of the directors that the transactions were in the best interests of the company as a whole, including those of its shareholders . . ..”
Further, he reiterated (at para. 58) that there was no evidence that the Bank was on notice of any abuse or misuse by the directors of Vico Limited of their powers.
88. The trial judge concluded (at para. 59) that no basis had been shown upon which the High Court might set aside the securities based on a lack of capacity of Vico Limited or a lack of good faith by its directors. In this context, he pointed out that, if a cause of action arose from the circumstances against the directors of Vico Limited, the rule in Foss v. Harbottle (1843) 2 Hare 461 would apply and Vico Limited would be the appropriate plaintiff, the appellants not having pleaded that their claim falls within any exception to that rule.
89. In paras. 60 to 67, the trial judge addressed actions by the Trustee. Having recorded that it was accepted by the parties that a ratification by shareholders would in most instances cure any defect in a company’s authority, the trial judge considered the actions of the Trustee and, in particular, what had occurred at the meeting on 1st June, 2006 of the board of directors of the Trustee “acting as trustee of the [Discretionary Trust] and shareholders of Vico Limited”, which he characterised as that the Trustee ratified the decision of the board of Vico Limited. He quoted from the minute of that meeting, including the content of the resolution passed at the end of the meeting – that it was resolved that approval be given to the directors of Vico Limited to enter into the proposed security arrangements relating to the borrowings of Mr. O’Donnell and Mrs. O’Donnell and Hibernia.
90. Dealing further with the appellants’ contention that the giving of security by Vico Limited to the Bank involved a “manifest” breach of trust, given that Mr. O’Donnell and Mrs. O’Donnell for whose benefit the security was created were “Excluded Persons” who might not benefit in any way from the Discretionary Trust, the trial judge, having referred to the relevant provisions of the Discretionary Trust, observed that it was clear that the Trustee enjoyed a wide discretion in dealing with the trust property and that, in assessing the conduct of the Trustee, the Court should have regard to the circumstances pertaining at the time. On the basis of what was contained in the minute of the meeting of the board of directors of the Trustee held on 1st June, 2006, he stated that it was apparent that the expectation that the borrowings would facilitate Mr. O’Donnell and Mrs. O’Donnell to ultimately increase the family estate, which would ultimately benefit the children, the beneficiaries of the Discretionary Trust were “to the fore of the board’s deliberations”. He also observed that it was clear that the board of the Trustee had regard to the fact that Vico Limited was significantly indebted to Mr. O’Donnell and Mrs. O’Donnell and “had received consideration from them, in the form of an undertaking not to seek repayments of the sums advanced by them to Vico Limited” while the guarantees should remain extant. He also observed that the beneficiaries assented to the security transaction by the 2006 Consents. It is necessary to digress from the outline of the judgment to emphasise that it was clear on the evidence that the Bank was not aware of the existence of the 2006 Consents and it did not have sight of the minute of the meeting of the board of directors of the Trustee on 1st June, 2006 when it took the security from Vico Limited. Returning to the judgment, having regard to the matters he had outlined, the trial judge concluded (at para. 65):
“There is no evidence to show that the trustees acted otherwise than bona fide in the best interests of the beneficiaries, based on the information available to them in approving the actions of the directors of Vico Limited.”
91. The trial judge (at para. 66) also reiterated his conclusion that the Bank had no knowledge, actual or constructive, of the provisions of the Discretionary Trust, in particular, of Clause 19, which precluded an “Excluded Person” from taking any benefit of any kind by virtue or in consequence of the Discretionary Trust at any time. He also found that the Bank approached the security transactions with appropriate caution and diligence, and had no reason to suspect a breach of trust. In this context, the trial judge made it clear that, not having received any evidence from any person on behalf of the Trustee (other than an affidavit of discovery, presumably the affidavit referred to earlier), or from Mr. O’Donnell and Mrs. O’Donnell, he had formed –
“no view on this matter save to remark that any remedy that may be available to the [appellants] on the basis of the [Trustee] having purportedly conferring (sic) a benefit on [“Excluded Persons”] should be sought directly against [the] same [Trustee].”
92. The final issue which was identified by the trial judge was what is the effect of the 2011 Statutory Declarations made by the appellants and whether their signatures were procured by way of undue influence or duress, such that the declarations might be declared void or rescinded. In addressing that issue, at paras. 68 to 71, the trial judge concluded that, given his findings that Vico Limited in fact did hold the entire legal and beneficial title to Gorse Hill, and that the appellants were limited to a beneficial interest in Vico Limited, the statutory declarations reflected “the subsisting legal position”, so that it was unnecessary to give any further consideration to that aspect of the appellants’ claim.
93. The conclusions of the trial judge were then summarised and that led to the decision recorded at the outset: that the appellants were not entitled to any of the reliefs claimed by them.
Appellants’ submissions on the appeal and the Bank’s response in outline
94. In the outline written submissions filed on behalf of the appellants, the approach adopted was to challenge the correctness of every key determination made by the trial judge on the basis that such determinations were essentially conclusions of law drawn from underlying primary facts about which, it was asserted, there was relatively little conflict, which I assume means little conflict of fact, between the parties. It was argued on behalf of the appellants that the determination of the trial judge that the sole legal and beneficial owner of Gorse Hill was Vico Limited was incorrect and that at all material times the beneficial interest in Gorse Hill was vested in the appellants. The response of counsel for the Bank was that the Bank was relying on the findings of fact made by the trial judge as to the ownership of Gorse Hill and his rejection of the contention that Gorse Hill was owned by the Discretionary Trust. The ownership of Gorse Hill will be considered first and it will be considered in the context of the emphasis placed by the trial judge on the separate corporate personality of Vico Limited.
95. The re-orientation of the appellants’ case involved the appellants abandoning the contention of a breach of trust and a breach of fiduciary duties by Vico Limited and its directors and, instead, the appellants contending that, in the sanctioning by the Trustee of the giving by Vico Limited of the guarantees and the related securities to the Bank, there had been a breach of trust, so that such interest in Gorse Hill as was acquired by the Bank by virtue of those securities was subject to a constructive trust in favour of the appellants. The appellants’ constructive trust argument was primarily based on the equitable principle of knowing receipt. While counsel for the Bank repeatedly asserted that the appellants were trying to introduce a new case on the appeal, which they were not entitled to do, all of the submissions made on behalf of the appellants were responded to on behalf of the Bank.
96. In relation to the constructive trust argument advanced on behalf of the appellants, the response on behalf of the Bank was as follows:
(a) if there was an arguable breach of trust claim, it was against the Trustee for mismanagement of the assets of the Discretionary Trust, not against the Bank;
(b) on the facts no breach of trust was demonstrated; and
(c) further, on the facts, no actual or constructive notice on the part of the Bank of breach of trust had been demonstrated, which would give rise to the imposition of a constructive trust on the Bank.
Underlying the appellants’ constructive trust argument was the contention that it is not a necessary pre-requisite to the successful pursuit of their claim that the interest of the Bank in Gorse Hill is held on a constructive trust for their benefit that they establish that they have a proprietary interest in Gorse Hill. Although, as will appear, the resolution of the appellants’ dispute with the Bank over Gorse Hill does not necessitate consideration of all the issues thus raised, they will all be considered.
97. While, on the hearing of the appeal, the appellants’ claim that there was wrongdoing on the part of the Bank in relation to the procurement of the 2006 Consents and the 2011 Statutory Declarations was very much relegated to a secondary position, it was made clear by counsel for the appellants that it remained part of their case. Accordingly, it will be considered.
Ownership of Gorse Hill/separate corporate personality of Vico Limited
98. At the outset, some general observations are pertinent.
99. First, it is important to consider the extent to which the issues which the High Court had to determine and the issues which are being pursued on the appeal are governed by the law of the Isle of Man, which was the subject of expert evidence in the High Court. Those issues, focusing, by way of example, on the securities given to the Bank in 2006, which arose in the High Court were:
(a) the capacity of Vico Limited, a company incorporated in the Isle of Man, to give the guarantees, indemnities and related securities which were given to the Bank in 2006, that is to say, whether the transactions were intra vires the powers of the company;
(b) whether the directors of Vico Limited exceeded their authority in entering into those transactions and, if so, the consequences;
(c) whether, if there was any lack of capacity or deficit on the part of Vico Limited to enter into those transactions, it was cured by the approval of the sole shareholder of Vico Limited, the Trustee, to Vico Limited entering into the security arrangements with the Bank through the resolution passed at the meeting of the board of directors of the Trustee on 1st June, 2006; and
(d) whether there was a breach of trust on the part of the Trustee in giving that approval, the terms of the Discretionary Trust being governed by the law of the Isle of Man.
On the basis of the evidence before him, including the expert evidence as to law of the Isle of Man, the trial judge concluded that no lack of capacity on the part of Vico Limited, or lack of good faith on the part of its directors, had been established on the basis of which it could be found that the securities given by Vico Limited to the Bank could be set aside. He also found that there was no evidence that the relevant Trustee acted otherwise than bona fide, thereby, in essence, finding that the Trustee did not act in breach of trust in approving the giving of the securities to the Bank by Vico Limited.
100. In general, while it was not argued on behalf of the appellants that this Court should conclude that the findings of the trial judge in relation to Vico Limited were erroneous, it is difficult to see how such an argument, if made, could succeed, as the findings were supported by credible evidence as to the application of the relevant provisions of the law of the Isle of Man. In re-orienting their case in this Court, the appellants’ argument was that the alleged infirmity in the interest in Gorse Hill acquired by the Bank from Vico Limited is traceable to a breach of trust on the part of the Trustee, it being alleged that, by reason of that breach of trust, the Bank’s interest is subject to a constructive trust in favour of the appellants, as the beneficiaries of the Discretionary Trust. That contention is premised on Gorse Hill being trust property settled by the Discretionary Trust. If Gorse Hill is not trust property, the issue as to whether there was a breach of trust simply does not arise.
101. Secondly, despite the fact that the issues outlined earlier raised by the appellants in the High Court are governed by the law of the Isle of Man, the core issues as to –
(a) the ownership of Gorse Hill,
(b) aside from the capacity and fiduciary duty issues in relation to Vico Limited, the validity of the securities over Gorse Hill taken by the Bank, and
(c) whether a constructive trust over its interest in Gorse Hill may be imposed on the Bank,
are governed by Irish law.
102. Turning to where the legal and beneficial ownership of Gorse Hill was vested at the material times, as has been outlined earlier, the trial judge (at para. 40) found that the evidence had clearly established that the appellants “are the beneficial owners of the shares in Vico Limited, but hold no beneficial interest in Gorse Hill”. While I consider that there is an evidential deficit as to whether the appellants are the beneficial owners of the shares in Vico Limited, the crucial question for consideration is whether any person other than Vico Limited, and, in particular, any of the appellants, has a beneficial interest in Gorse Hill. The trial judge made the finding as to the ownership of Vico Limited of Gorse Hill having considered the decision of the United Kingdom Supreme Court in Prest v. Petrodel Resources Limited [2013] 3 WLR 1. He stated that there was no basis upon which to depart from the ordinary rules of separate corporate personality as between Vico Limited and its shareholder.
103. On the appeal, the position adopted on behalf of the appellants was that the actual decision of the United Kingdom Supreme Court in Prest v. Petrodel Resources Limited on the facts of that case supports the appellants’ submission that Vico Limited was merely a nominee of the Discretionary Trust, in that it was specifically established as a special purpose vehicle and exists solely to hold the asset of the Discretionary Trust, which it was contended is Gorse Hill. I am satisfied that the submission on behalf of the appellants does not stand up to scrutiny.
104. As the trial judge outlined in his judgment (at para. 37), Prest v. Petrodel Resources Limited was decided in the context of family law proceedings, in which, following divorce, Mrs. Prest sought ancillary relief under a specific statutory provision in force in the United Kingdom against Mr. Prest, who was the sole owner of a number of complexly structured offshore companies, the relief being sought by Mrs. Prest being a transfer to her of properties vested in those companies. There were three principal issues addressed in the judgment of Lord Sumption in analysing that claim.
105. The first issue related to the applicability of the principle that a court may be justified in “piercing the corporate veil”. Lord Sumption’s conclusion is set out in the passage in his judgment which precedes the passage quoted by the trial judge. Lord Sumption stated (at para. 35):
“I conclude that there is a limited principle of English law which applies when a person is under an existing obligation or liability or subject to an existing legal restriction which he deliberately evades or whose enforcement he deliberately frustrates by interposing a company under his control. The court may then pierce the corporate veil for the purpose, and only for the purpose, of depriving the company or its controller of the advantage that they would otherwise have obtained by the company’s separate legal personality. The principle is properly described as a limited one, because in almost every case where the test is satisfied, the facts will in practice disclose a legal relationship between the company and its controller which will make it unnecessary to pierce the corporate veil.”
In a succeeding passage, which is quoted in part by the trial judge, Lord Sumption recognised the existence of “a small residual category of cases where the abuse of the corporate veil to evade or frustrate the law can be addressed only by disregarding the legal personality of the company . . .”. He went on to find, in the passage quoted by the trial judge, that the piercing of the corporate veil was not justified on the facts of the case under consideration by reference to any general principle of law. I did not understand the appellants to contend that what was stated by Lord Sumption as to the circumstances in which the corporate veil may be pierced does not represent the law in this jurisdiction. The evidence of Mr. O’Riordan was that it would be regarded as more than highly persuasive by the Isle of Man Courts.
106. The second issue addressed by Lord Sumption, which is of no relevance for present purposes, was whether, if there was no justification as a matter of general legal principle for piercing the corporate veil, there was a special or wider principle applicable in matrimonial proceedings under the statutory provision in issue in the Prest case. He found that there was not. That brought him to the third issue and that was whether the companies in question might be regarded as holding the disputed properties on trust for Mr. Prest, not by virtue of his status as their shareholder and controller, but in the particular circumstances in which the properties came to be vested in the companies. Having considered the factual situation, Lord Sumption stated (at para. 52):
“Whether assets legally vested in a company are beneficially owned by its controller is a highly fact-specific issue. It is not possible to give general guidance going beyond the ordinary principles and presumptions of equity, especially those relating to gifts and resulting trusts. But I venture to suggest, however tentatively, that in the case of the matrimonial home, the facts are quite likely to justify the inference that the property was held on trust for a spouse who owned and controlled the company.”
As recorded by the trial judge (at para. 37), it was held by the Supreme Court, on the facts of the Prest case, that the disputed properties which were vested in the companies controlled by Mr. Prest were held on trust for him.
107. The appellants’ reliance on the decision in Prest v. Petrodel Resources Limited was based on the determination by the Supreme Court on the third issue, which Lord Sumption had characterised as a “highly fact-specific issue”. Counsel for the appellants relied in particular on a passage from the judgment of Lord Sumption in which he addressed the factual situation in relation to six of the properties which had been acquired in the name of a company referred to as PRL. In that passage (at para. 48) Lord Sumption stated:
“All of these properties were acquired by PRL before it began commercial operations and began to generate funds of its own. This was the main basis on which the judge found that the matrimonial home was held on trust for the husband from its acquisition in 2001. Since, as the judge found, no rent was paid to PRL for the family’s occupation of the matrimonial home, this is a particularly clear case of the husband using PRL as a vehicle to hold legal title on trust for himself.”
By analogy to the foregoing factual circumstances, it was submitted on behalf of the appellants that, on the facts established in this case, Gorse Hill was clearly purchased and re-developed and held by Vico Limited for the benefit of the appellants. It was submitted that Vico Limited was at all times used by the Discretionary Trust for the purpose of holding the legal ownership of Gorse Hill and that Vico Limited had no other purpose. There was no rental agreement in relation to the occupation of the premises and Vico Limited never claimed any right to rent or recompense for the use of the asset. In advancing that argument, in essence, what counsel for the appellants was asking the Court to do was to depart from the finding of the trial judge on a “highly fact-specific issue”.
108. The reasons given by the trial judge for his finding that the appellants hold no beneficial interest in Gorse Hill have been outlined earlier. I have no doubt that the finding of the trial judge was supported by credible evidence and that this Court is bound by it on the authority of Hay v. O’Grady [1992] 1 I.R. 210. With the exception of some loose, non-technical language emanating from non-lawyers used in internal bank memoranda, which the trial judge quite properly characterised as “unpersuasive”, and some inaccuracy in correspondence, for example, the letter dated 17th May, 2006 to Dickinson Cruickshank, which emanated from Mr. O’Donnell’s law firm, all of the contemporaneous documentary evidence clearly proves that Vico Limited was the beneficial owner of Gorse Hill from the respective dates of the completion of the purchases of the unregistered portion (February 1998) and the registered portion (June 2000) and that it became the legal owner as well as the beneficial owner of all of Gorse Hill in May 2006. The documentary evidence also clearly proves that it was the issued share capital of Vico Limited which became part of the Trust Fund settled by the Discretionary Trust. Moreover, the documentary evidence also establishes aspects of the relationship of Mr. O’Donnell and Mrs. O’Donnell with Vico Limited in relation to Gorse Hill, which are material to the determination of where the beneficial ownership of Gorse Hill lies, namely:
(a) that a debtor/creditor relationship exists between Vico Limited, as debtor, and Mr. O’Donnell and Mrs. O’Donnell, as creditors, in relation to the costs of acquisition and re-development of Gorse Hill; and
(b) that there was an arrangement between Mr. O’Donnell and Mrs. O’Donnell and Vico Limited under which Mr. O’Donnell and Mrs. O’Donnell and their children would be entitled to reside in Gorse Hill.
In simple terms, what the evidence establishes is that Mr. O’Donnell and Mrs. O’Donnell jointly decided that their family home, not using that expression in any technical sense, would be acquired by them through the medium of an Isle of Man company, Vico Limited, which would be indebted to them for the acquisition and re-development costs, but which would allow them reside there with their children. Contemporaneously, they jointly decided to settle the issued share capital of Vico Limited on the terms of the Discretionary Trust. What Lord Sumption referred to in the Prest case as “the ordinary principles and presumptions of equity” cannot be stretched to justify a finding that the intention of Mr. O’Donnell and Mrs. O’Donnell was that Vico Limited would hold Gorse Hill in trust for the ultimate beneficiaries of the Discretionary Trust.
109. Finally, while neither Mr. O’Donnell nor Mrs. O’Donnell testified in the High Court as to their intentions in relation to the ownership of Gorse Hill in 1998 or subsequently, their position, through the solicitors who acted for them in relation to the Bank’s investigation of the title to Gorse Hill, both in 2006 and in 2011, was that no party other than Vico Limited had a legal or beneficial interest in Gorse Hill. The only witness before the High Court who claimed to be in a position to contradict the documentary evidence which clearly established that, from May 2006, Vico Limited was the sole legal and beneficial owner of Gorse Hill was Mr. O Beirn and the only evidence which sought to contradict that proposition was the evidence of Mr. O Beirn. Blake’s evidence was that he was unaware of the legal structure in relation to Gorse Hill until early 2011. Mr. O Beirn in his evidence made a sweeping assertion that the assets within the Discretionary Trust included Gorse Hill, which was being held by the Trustee in trust for the appellants. The trial judge, who in another respect found Mr. O Beirn’s evidence to be “utterly without merit”, clearly rejected Mr. O Beirn’s assertion, which was understandable, given that Mr. O Beirn, in the accounts he prepared for Vico Limited for 2008, recorded Gorse Hill as being an asset of Vico Limited.
110. As has been noted, on the hearing of the appeal, apart from submitting that Vico Limited held Gorse Hill as a mere nominee for the Discretionary Trust, counsel for the appellants submitted that, in any event, in order for the appellants to establish that the Bank holds its interest in Gorse Hill as a constructive trustee for the benefit of the appellants, it is not necessary for the appellants to demonstrate that they have a proprietary interest in Gorse Hill. Whether or not that was an implicit recognition of weakness in the appellants’ claim to have a proprietary interest in Gorse Hill via the Discretionary Trust, it is not a correct proposition, as counsel for the Bank submitted and as will be demonstrated later.
Alleged breach of trust on the giving of security over Gorse Hill to the Bank
111. To recapitulate, the position as found by the trial judge in relation to the ownership of Gorse Hill, which is correct both on the facts and in law, is that both the legal and the beneficial ownership resides in Vico Limited and that has been the position since May 2006. As legal and beneficial owner, Vico Limited had title to give the Bank a legal mortgage and a charge over Gorse Hill. In 2006 and 2011, when the securities over Gorse Hill were given by Vico Limited to the Bank, the Trustee, as trustee of the Discretionary Trust, was the owner of the entire issued share capital of Vico Limited. Further, in 2006 and in 2011 –
(a) the appellants were potential beneficiaries of the Discretionary Trust, in that the Trustee in its absolute discretion could appropriate the property the subject of the trust to all or some of them, but
(b) Mr. O’Donnell and Mrs. O’Donnell were “Excluded Persons” under the terms of the Discretionary Trust.
112. In summary, the position adopted by the appellants on the appeal was that, in giving its approval to Vico Limited entering into the security arrangements with the Bank, the Trustee acted in breach of trust, because the security arrangements were entered into with the Bank solely for the benefit of Mr. O’Donnell and Mrs. O’Donnell, who as “Excluded Persons” were precluded from obtaining any benefit under the Discretionary Trust. As has been recorded earlier, on the hearing of the appeal, it was not contended on behalf of the appellants that Vico Limited acted in breach of trust. It was asserted that, on the contrary, Vico Limited, having obtained the consent of its sole shareholder, the Trustee, would have a defence to an allegation of breach of trust by the appellants against it. It is against that background that the submissions of counsel for the appellants as to the application of the equitable principles governing the existence of a constructive trust must be considered.
113. While it is asserted in the appellants’ outline written submissions that, if the Bank holds any interest over Gorse Hill, it does so as a constructive trustee, and various judgments and decisions of the superior courts in which the imposition of what has come to be known as the “new model constructive trust” was considered, the most recent being the decision of the High Court (Gilligan J.) in Re Varko Limited [2012] IEHC 278 were cited, the whole thrust of the appellants’ case on the appeal was that the Bank is liable as a constructive trustee on the basis of the equitable principle which is commonly referred to as “knowing receipt”.
Knowing receipt
114. The appellants relied on the explanation of the principle of “knowing receipt” set out in the judgment of the Chancery Division of the English High Court in Agip (Africia) Limited v. Jackson [1989] 3 WLR 1367. In his judgment (at p. 1388), Millett J. distinguished between two main classes of case under the heading “Knowing Receipt”, the first being relevant here. He stated:
“The first is concerned with the person who receives for his own benefit trust property transferred to him in breach of trust. He is liable as a constructive trustee if he received it with notice, actual or constructive, that it was trust property and that the transfer to him was a breach of trust; or if he received it without such notice but subsequently discovered the facts. In either case he is liable to account for the property, in the first case as from the time he received the property, and in the second as from the time he acquired notice.
. . .
In either class of case it is immaterial whether the breach of trust was fraudulent or not. The essential feature of the first class is that the recipient must have received the property for his own use and benefit. This is why neither the paying nor the collecting bank can normally be brought within it. In paying or collecting money for a customer the bank acts only as his agent. It is otherwise, however, if the collecting bank uses the money to reduce or discharge the customer’s overdraft. In doing so it receives the money for its own benefit.”
115. It was recognised by counsel for the appellants that in the United Kingdom the requirement that the recipient has received the trust property “with notice, actual or constructive” that it was trust property and that the transfer to him was a breach of trust has been modified, in that in the Court of Appeal in Bank of Credit and Commerce International (Overseas) Limited v. Akindele [2001] Ch 437, Nourse L.J., having stated that there ought to be “a single test of knowledge for knowing receipt”, continued (at p. 445):
“The recipient’s state of knowledge must be such as to make it unconscionable for him to retain the benefit of the receipt. A test in that form, though it cannot, any more than any other, avoid difficulties of application, ought to avoid those of definition and allocation to which the previous categorisations have led.”
116. The test for establishing liability in equity as a constructive trustee has not been considered by this Court since the decision of the Court of Appeal in Bank of Credit and Commerce International (Overseas) Limited v. Akindele, which has been followed on a consistent basis in the United Kingdom. The current position in this jurisdiction is governed by the decision of this Court in Re Frederick Inns Ltd. [1994] 1 ILRM 387. In that case, Blayney J. adopted and applied the principle set out in the judgment of Buckley L.J. in the Court of Appeal in Belmont Finance Corporation Limited v. Williams Furniture Limited (No. 2) [1980] 1 All ER 395, quoting the following passage from the judgment:
“A limited company is of course not a trustee of its own funds: it is their beneficial owner; but in consequence of the fiduciary character of their duties the directors of a limited company are treated as if they were trustees of those funds of the company which are in their hands or under their control, and if they misapply them they commit a breach of trust . . ..So, if the directors of a company in breach of their fiduciary duties misapply the funds of their company so that they come into the hands of some stranger to the trust who receive them with knowledge (actual or constructive) of the breach, he cannot conscientiously retain those funds against the company unless he has some better equity. He becomes a constructive trustee for the company of the misapplied funds. This is stated very clearly by Jessel M.R. in Russell v. Wakefield Waterworks Co. (1875) L.R. 20 Eq. 474, 479 where he said:
‘In this court the money of the company is a trust fund, because it is applicable only to the special purposes of the company in the hands of the agents of the company, and it is in that sense a trust fund applicable by them to those special purposes; and a person taking it from them with notice that it is being applied to other purposes cannot in this court say that he is not a constructive trustee.’”
Of course, that passage concerns receipt of a company’s assets by a stranger in consequence of breach of their fiduciary duties by the directors of the company. In their re-oriented argument as to the existence of a constructive trust, the appellants are not now asserting in this case that the securities over, and an interest in, Gorse Hill became vested in the Bank in consequence of a breach of fiduciary duty on the part of the directors of Vico Limited. Their case is that it was the Trustee which acted in breach of trust in approving of the giving of the securities to the Bank. Nonetheless, the equitable principles derived from the Belmont case are instructive.
117. While, on the current state of the law on the equitable principle of “knowing receipt”, there is a divergence between this jurisdiction and the United Kingdom in that “knowledge, actual or constructive” of the breach of trust is an ingredient of the test for establishing liability as a constructive trustee in this jurisdiction, whereas in the United Kingdom the corresponding ingredient of the test is whether the recipient had sufficient knowledge of the circumstances of the transfer to make it “unconscionable” for him to retain the benefit of the receipt, the Court does not have to address that divergence, because it was not urged on behalf of the appellants that this Court should adopt the approach which has been adopted in the United Kingdom. It was contended on behalf of the appellants that, in any event, the Bank had constructive notice of the alleged breach of trust.
118. The appellants also relied on the decision of the United Kingdom Court of Appeal in Rolled Steel Products (Holdings) Limited v. British Steel Corporation [1986] Ch. 286, in support of their contention that the Bank is a constructive trustee of its interest in Gorse Hill for the benefit of the appellants. That case, in which the facts were complicated, also concerned the transfer of a company’s assets by its directors in breach of their fiduciary duties. There, two directors of the plaintiff company caused the company to give a guarantee supported by a debenture in respect of the debts of another company owned by one of the directors to a third party, on foot of which the third party’s successor recovered the debt together with interest, having appointed a receiver to the plaintiff company. The Court of Appeal held that the directors of the plaintiff company were acting in breach of the plaintiff’s articles of association and their fiduciary duties to the plaintiff company in purporting to authorise and in executing the guarantee and the debenture and that, as the defendants had notice of that breach when they received the assets of the plaintiff company, they were accountable therefor to the plaintiff company as constructive trustees. In the Court of Appeal, Slade L.J. quoted, inter alia, the passage from the judgment in Belmont Finance Corporation Limited v. Williams Furniture Limited, which was quoted by Blayney J. in Re Frederick Inns Limited. Slade L.J. then stated:
“The Belmont principle thus provides a legal route by which a company may recover its assets in a case where its directors have abused their fiduciary duties and a person receiving assets as a result of such abuse is on notice that they have been mis-applied. The principle is not linked in any way to the capacity of the company; it is capable of applying whether or not the company had the capacity to do the acts in question.”
That passage from the judgment of Slade L.J. was also quoted in the judgment of Blayney J. in Re Frederick Inns Limited. In Rolled Steel Limited v. British Steel Corporation it was held that the plaintiff company was entitled to declarations that the guarantee and the debenture were not the deeds of the plaintiff company, and that the purported appointment of the receiver was invalid.
119. If the appellants were making the case that the directors of Vico Limited were acting in breach of their fiduciary duties in giving the guarantee and related securities over Gorse Hill to the Bank, and if they could establish that case, there would be an analogy between this case and the Rolled Steel case, in that the third party mortgagee in this case (the Bank) and the third party debenture holder in the Rolled Steel case would have received assets of the relevant company giving the security in breach of trust. However, the analogy which counsel for the appellants perceived between the Rolled Steel case and the case being made on the appeal was based on an assertion that the Trustee had acted in excess of, or abused, its power in approving a transaction which conferred no benefit on the Discretionary Trust and, despite being expressly precluded from doing so under the terms of the Discretionary Trust, allowed trust property to be used for the benefit of Mr. O’Donnell and Mrs. O’Donnell, thus resulting in the Bank receiving trust property in breach of trust. Again, in broad terms, the assumption underlying that perception is that Gorse Hill was trust property settled under the Discretionary Trust. It having been found that Gorse Hill was not trust property settled under the Discretionary Trust, the perceived analogy does not exist.
120. Looking more closely at the equitable principle of knowing receipt, counsel for the appellants did acknowledge that, in order that the Bank be found liable as a constructive trustee of the interest in Gorse Hill which it had acquired under the securities given to it by Vico Limited, it had to be established that the components of the first class of knowing receipt as set out by Millet J. in the Agip case existed, namely, that –
(a) the Bank received a transfer of trust property for its own benefit,
(b) the transfer was in breach of trust, and
(c) the Bank received the trust property with notice, actual or constructive, that it was trust property and that the transfer to it was in breach of trust.
Reiterating what has already been recorded, it was submitted that, if the appellants can get over each of those three hurdles, which it was submitted they can, the fact that they cannot establish that they have a proprietary interest in Gorse Hill is immaterial. Whether the appellants can get over all or any of those hurdles will now be assessed.
Receipt of trust property by the Bank for its own benefit?
121. As regards the first hurdle, the Bank did receive a transfer of an interest in Gorse Hill in 2006 and the transfer received was for its own benefit, but crucially it received the transfer from Vico Limited, not from the Trustee. It took the 2006 Mortgage and the 2006 Charge from Vico Limited to secure the indebtedness of Vico Limited to it on foot of the various guarantees and indemnities which had then been given by Vico Limited to the Bank in respect of the liabilities of Mr. O’Donnell and Mrs. O’Donnell and the various companies referred to earlier. In due course, the 2006 Mortgage and the 2006 Charge also secured the liability of Vico Limited to the Bank on foot of the 2011 Guarantee. The importance of the guarantees and the indemnities in this context is that the extent of the liability of Vico Limited thereunder to the Bank defines the extent of the interest which the Bank obtained in Gorse Hill as mortgagee and chargee. The Bank unquestionably obtained that interest in Gorse Hill for its own benefit, because its objective in requiring that Vico Limited give it security over Gorse Hill was to enable the Bank to enforce the security, if Vico Limited defaulted on its obligations to the Bank, so that it could thereby reduce the liability of Vico Limited to it under the totality of the guarantees and indemnities.
122. There remains the question whether the interest the Bank obtained from Vico Limited was an interest in trust property. Given the finding that Vico Limited is, and has been since May 2006, the legal and beneficial owner of Gorse Hill, the answer, from a title perspective, must be that the Bank did not acquire an interest in trust property. However, if one was applying the Belmont principle to the interest in Gorse Hill which the Bank received, it is the actions of the directors of Vico Limited in giving the securities over Gorse Hill to the Bank which would be relevant, because it was the directors of Vico Limited who owed fiduciary duties to Vico Limited at the relevant times in relation to its only asset, Gorse Hill. As already noted, the appellants are not now alleging a breach of their fiduciary duties by the directors of Vico Limited in giving the security to the Bank.
123. The appellants’ argument on the appeal was that the Bank had received a transfer of trust property from the Trustee. When pressed to identify the nature of such transfer, while accepting that it was “slightly ethereal”, counsel for the appellants submitted that the approval of the Trustee to the giving of the guarantees and securities by Vico Limited to the Bank, which it was contended enabled the Bank to obtain such guarantees and securities, constituted the passing of trust property to the Bank. That argument wholly overlooks the fact that the property in issue is Gorse Hill, which was legally and beneficially vested in Vico Limited at the relevant times. It also wholly ignores the fact that Vico Limited had a separate and distinct corporate personality from the Trustee, which owned its entire issued share capital. The proposition advanced is simply incorrect; there was no transfer of trust property, or of an interest in trust property, to the Bank because what the Bank got from Vico Limited was an interest in Gorse Hill which Vico Limited, as the sole legal and beneficial owner of Gorse Hill, had capacity, in accordance with the law of the Isle of Man, and power to pass to the Bank. While, in my view, that is the end of the constructive trust argument, nonetheless the remaining two hurdles will be considered.
Transfer to the Bank in breach of trust?
124. To overcome the second hurdle, it is necessary for the appellants to establish that the transfer of the interest in Gorse Hill to the Bank was in breach of trust. Reiterating what has been noted repeatedly, counsel for the appellants expressly disavowed that there had been a breach of fiduciary duties on the part of the directors of Vico Limited, they having obtained the consent of the sole shareholder of Vico Limited, the Trustee, to Vico Limited entering into the guarantee and security arrangements with the Bank. Further, reiterating what was stated in the next preceding paragraph, that, in my view, is the end of the constructive trust argument, because, as a matter of fact and law, when the relevant securities were given to the Bank over Gorse Hill, Vico Limited was the legal and beneficial owner of Gorse Hill. Vico Limited is not before the Court, either as plaintiff or defendant.
125. At the risk of unnecessary repetition, on the case advanced on behalf of the appellants on the appeal, the breach of trust which it is contended gives an entitlement to the appellants to pursue an equitable remedy against the Bank is an alleged breach of trust on the part of the Trustee, the sole shareholder in Vico Limited, in approving of Vico Limited entering into the guarantee and security arrangements with the Bank. The alleged breach of trust is grounded on the fact that, by approving of the giving by Vico Limited of the secured guarantees and indemnities to the Bank, the Trustee was effectively benefiting Mr. O’Donnell and Mrs. O’Donnell in breach of the express terms of the Discretionary Trust, because they were “Excluded Persons” who were precluded from receiving benefit under the Discretionary Trust. Of course, as in the case of Vico Limited, the Trustee is not before the Court to answer the allegation of breach of trust by the appellants. Moreover, there was no evidence before the High Court from any officer either of Vico Limited or of the relevant corporate Trustee in place in 2006, 2007, 2011 or subsequently. That being the case, it would not be appropriate, and in any event it is not necessary, to express any view on whether the conduct of the Trustee complained of was in breach of the fiduciary duties of the Trustee to the appellants. It is possible to conclude that the appellants have not overcome the second hurdle, simply because, given the overarching finding that the legal and beneficial ownership of Gorse Hill was at all material times vested in Vico Limited, and the consequential finding that there was no transfer of trust property by the Trustee to the Bank, no question of a transfer to the Bank in breach of trust arises.
126. Despite the following matters which, in combination, mark the end of the appellants’ claim based on knowing receipt –
(a) that the appellants do not now contend that the directors of Vico Limited, when they gave the securities to the Bank over Gorse Hill, were acting in breach of their fiduciary duties to that company, and
(b) that the appellants’ submission that, on the creation of the securities over Gorse Hill in favour of the Bank, there was a transfer of trust property by the Trustee to the Bank in breach of trust has been rejected as being incorrect,
for completeness, I propose considering the submissions made on behalf of the appellants on the third hurdle.
Constructive notice of breach of trust?
127. The appellants did not contend that the Bank had actual notice of a breach of trust in the sense that its officials and agents were aware that Mr. O’Donnell and Mrs. O’Donnell were precluded by its express terms from benefiting under the Discretionary Trust. Their contention was that, on the basis of what the Bank’s officials and agents knew, the Bank had been put on inquiry and, not having taken reasonable steps to ascertain what the appellants contend was the true position, the Bank had constructive notice of the breach of trust arising from the action of the Trustee in approving the giving of the securities over Gorse Hill to the Bank, thus providing them with a route to require the Court to undo what Vico Limited did in giving the securities to the Bank.
128. As recorded earlier, the trial judge rejected the claim that a “manifest breach of trust” was evident in the arrangement between Vico Limited and the Bank, on the basis that Vico Limited guaranteed the borrowings of Mr. O’Donnell and Mrs. O’Donnell who were “Excluded Persons” under the Discretionary Trust, because he was satisfied that the officers of the Bank had no knowledge, actual or constructive, of “the specificity of the settlement” and, in particular, were unaware of the contents of the relevant provision of the Discretionary Trust. The basis on which counsel for the appellants challenged that finding and, indeed, all of the findings made by the trial judge, was to assert that he drew the wrong inferences from the totality of the facts.
129. The appellants sought to support their contention that the Bank was put on inquiry, which I understand to mean that the Bank was obliged to satisfy itself that the Trustee was not giving approval to the giving of securities over Gorse Hill for the benefit of persons, namely, Mr. O’Donnell and Mrs. O’Donnell, who were precluded from benefiting from the assets the subject of the Discretionary Trust, in reliance on the internal bank documents referred to earlier, including the credit application dated 25th August, 1999, some of the contents of which are outlined earlier. They also relied on the fact that Mr. Mann’s evidence was that the provisions in the Discretionary Trust, which identified the settlors, Mr. O’Donnell and Mrs. O’Donnell, as “Excluded Persons” and which also specifically excluded the possibility of either of them being added as a beneficiary, were provisions typically found in a discretionary trust governed by the law of the Isle of Man. It was submitted that sufficient instructions had not been given to Dickinson Cruickshank to enable that firm to advise the Bank fully and, in particular, it was suggested that matters such as the existence of the Discretionary Trust and the fact that the appellants were beneficiaries thereof were hidden from Dickinson Cruickshank.
130. The Bank retained Gartlan Furey to act for it in connection with the loan facilities being granted to Mr. O’Donnell and Mrs. O’Donnell and Hibernia in 2006 and the guarantees and indemnities, and the securities over Gorse Hill, which the Bank was to obtain from Vico Limited. As recorded earlier, requisitions on title were raised by Gartlan Furey. I am satisfied that the responses given by the borrowers’ solicitors, Mr. O’Donnell’s firm, to the requisitions, coupled with the opinion of Dickinson Cruickshank dated 2nd June, 2006, considered against the background of the documentary evidence of the title of Vico Limited to Gorse Hill furnished to Gartlan Furey absolved the Bank from inquiring any further as to the capacity of Vico Limited to give the Bank valid security over Gorse Hill in respect of the liabilities of Mr. O’Donnell, Mrs. O’Donnell and Hibernia to the Bank. In reaching that conclusion, I am not overlooking the fact that from late 1997 the Bank was aware that Mr. O’Donnell and Mrs. O’Donnell intended to, and did, settle their assets under a discretionary trust and that their children were the potential beneficiaries of the trust. While some internal memoranda of the Bank, including the credit application dated 25th August, 1999, may reflect a misunderstanding on the part of some officials of the Bank, who were persons without legal experience, as to the property which was eventually settled by the Discretionary Trust, the reality is that Gorse Hill was not settled under the Discretionary Trust. Rather it was the issued share capital of Vico Limited, which from May 2006 onwards was both the legal and the beneficial owner of Gorse Hill, which was settled under the Discretionary Trust.
131. When the additional guarantee and indemnity was obtained by the Bank from Vico Limited in 2011 after the Settlement Agreement was executed, the parties to the Settlement Agreement, including Mr. O’Donnell and Mrs. O’Donnell, were represented by Whitney Moore and the Bank was represented by Arthur Cox. In view of the attitude which had been adopted on behalf of Mr. O’Donnell and Mrs. O’Donnell prior to the commencement of the hearing of the Summary Summons Proceedings, Arthur Cox prudently sought confirmation from Whitney Moore that Vico Limited was the legal and beneficial owner of Gorse Hill and that confirmation was forthcoming and was corroborated by the 2011 Statutory Declarations. Those statutory declarations merely accurately recorded the true title position in relation to Gorse Hill, as found, namely, that Vico Limited holds the entire legal and beneficial title to that property, from which it followed that none of the appellants had any interest in, or any right or title to, that property. Nothing which happened in connection with the implementation of the Settlement Agreement in 2011, in my view, put the Bank on further inquiry as to the title to Gorse Hill.
132. While, as regards the beneficial ownership of the shares in Vico Limited, the statutory declarations appear not to have been wholly accurate at the time they were made, in that they stated that the appellants were the beneficial owners (as distinct from potential beneficial owners) of the shares in Vico Limited, that does not have any bearing on the capacity of Vico Limited to create valid security over Gorse Hill. The fundamental factor, both in 2006 and 2011, was that the Bank obtained proof that the legal and beneficial ownership of Gorse Hill was vested in Vico Limited and that it had the capacity to create a valid security for the liabilities of a third party in favour of the Bank over Gorse Hill. In 2006 the Bank had the additional comfort of the minute of the meeting of the board of Vico Limited, which recorded that its sole shareholder, the Trustee, approved the giving of security. At that stage the Bank did not obtain, and, in order to perfect its title, it did not need to obtain the 2006 Consents. Further, the evidence established that the Bank was not aware of the existence of the 2006 Consents. In 2011 it obtained the 2011 Statutory Declarations for the reason explained by Mr. Hanrahan in his evidence. In any event, those statutory declarations represented the true legal and equitable position in relation to the ownership of Gorse Hill when they were made.
133. I have no doubt that the findings of fact made by the trial judge as to what the Bank and its officials and agents knew about the terms of the Discretionary Trust were supported by credible evidence and that this Court is bound by them on the authority of Hay v. O’Grady. In the light of the foregoing observations, I am satisfied that the trial judge was correct in finding that the Bank had no knowledge of, or reason to believe, that there was a breach of trust on the part of the Trustee and that the Bank was not on any further inquiry than the inquiries which had been made by the solicitors acting for it in relation to the title to Gorse Hill.
Knowing receipt claim: the outcome
134. The outcome of the analysis of the application of the tests for the existence of a constructive trust based on the knowing receipt principle derived from the first class in the Agip case is that the appellants have not overcome any of the hurdles identified in that test. Therefore, the appellants’ claim against the Bank on the basis that its interest in Gorse Hill is subject to a constructive trust for the benefit of the appellants fails. While that is the end of the appellants’ case based on equitable principles, nonetheless, for completeness, I propose to address some other issues which arose on the submissions made by the parties in the context of the constructive trust arguments, including the issue as to the necessity or otherwise of a proprietary interest in Gorse Hill being vested in the appellants in order for them to pursue an equitable claim.
Other issues arising from constructive trust arguments
135. The appellants’ contention that whether they have or have not a proprietary interest in Gorse Hill is immaterial to their claim that the Bank’s interest is subject to a constructive trust in their favour and to their entitlement to equitable declaratory relief that the security given by Vico Limited to the Bank is ineffective or, alternatively, to an order rescinding the security, in my view, is utterly misconceived. Even if it were established that Gorse Hill was trust property and that the Bank had acquired an interest in it by taking security from Vico Limited in circumstances where it was aware that it was trust property and the interest was being given to it as security in breach of trust, the Bank’s obligation in equity to account for the interest it had acquired would be owed to the beneficial owner of Gorse Hill or a person (for example, a trustee not involved in the breach of trust) entitled on behalf of, and accountable to, the beneficial owner. That is fundamental; a person who cannot demonstrate a proprietary interest in the relevant property cannot pursue an equitable remedy against a constructive trustee to account to him or her for the interest in that property acquired in breach of trust by the constructive trustee.
136. Moreover, I am satisfied that all of the authorities relied on by the appellants in which the plaintiff was successful in getting equitable relief on the ground that the defendant held property as a constructive trustee for the plaintiff illustrate that the plaintiff must have a proprietary interest in the property in question. In the Rolled Steel case, for example, the plaintiff company owned the assets over which the debenture was granted in breach of the directors’ fiduciary duties.
137. In addressing their challenge to what the appellants asserted was an error in law and in fact by the trial judge in determining that the appellants had no proprietary interest in Gorse Hill and that Vico Limited should be the party to seek relief, a line of authority (starting with the decision of the Chancery Division of the High Court of England and Wales in In re Lucking’s Will Trusts [1968] 1WLR 866) was cited on behalf of the appellants in their outline written submissions. As counsel for the Bank asserted that the trial judge had not made any express finding that, as Vico Limited owned Gorse Hill, only Vico Limited could sue for its recovery, it is useful to quote what the trial judge said in the summary of his conclusions. He stated (at para. 77):
“If any cause of action arises from these circumstances as against the directors, the rule in Foss v. Harbottle applies and the company should be the appropriate plaintiff in seeking to make good any reflective loss in the value of the shareholding in Vico Limited, held to the benefit of the plaintiffs. Any action in relation to the conduct of the trustees should be brought against the trustees. In making this observation, I offer no view as to whether a cause of action exists against them.”
It was not contended on the appeal that the appellants have a cause of action against the directors of Vico Limited, so that the first sentence in that conclusion was not in issue on the appeal. The second sentence remains alive to the extent that the breach of trust from which it is alleged the constructive trust is traceable is alleged to have arisen from the action of the Trustee. However, as no relief is claimed, or could be claimed, against the Trustee, because it is not a party to the proceedings, the issue does not arise. Nonetheless, it is appropriate to consider the submission made on behalf of the Bank that the authorities cited do not assist the appellants by reference to one of the authorities. The analysis will illustrate the extent to which various legal and equitable principles have been conflated in the appellants’ submissions.
138. The most recent of the decisions cited on behalf of the appellants is the decision of the Court of Appeal of England and Wales in Shaker v. Al-Bedrawi [2003] Ch 350. In that case, the Court of Appeal considered the application of the exclusionary rule commonly known as the Prudential principle, which is derived from the decision of the Court of Appeal in Prudential Assurance Company Limited v. Newman Industries Limited (No. 2) [1982] Ch. 204. In broad terms, the general rule which has become known as the Prudential principle lays down that the shareholders in a company may not sue to recover what is referred to as reflective loss in the value of their shares, as only the company has the right to sue for the actual loss to it.
139. The claimant in the Shaker case claimed to be beneficially entitled to a substantial proportion of a company’s shares, which he alleged were held on trust for him by the company’s sole director. He brought proceedings against a director and other defendants in respect of US$6m, which allegedly formed part of the proceeds of sale of two of the company’s subsidiaries, and he alleged that the director had acted dishonestly and in breach of duties to the beneficiaries under the trust. The defendants sought the determination of a preliminary issue that the claimant was barred from bringing his action as he would be seeking to recover damages that were merely reflective of the company’s loss, in respect of which the company itself had a cause of action. The defendants were successful at first instance. The Court of Appeal allowed the appeal, holding that, since the relevant facts had not been, and could not be, shown without a trial, the Prudential principle should not be applied. However, what is of particular relevance in the context of the appellants’ argument is that the Court of Appeal did consider the applicability of the Prudential principle and in the judgment of the Court delivered by Peter Gibson, L.J., it was stated (at para. 83):
“In our judgment the Prudential principle does not preclude an action brought by a claimant not as a shareholder but as a beneficiary under a trust against his trustee for a profit unless it can be shown by the defendants that the whole of the claimed profit reflects what the company has lost and which it has a cause of action to recover. As the Prudential principle is an exclusionary rule denying a claimant what otherwise would be his right to sue, the onus must be on the defendants to establish its applicability. Further, it would not be right to bar the claimant’s action unless the defendants can establish not merely that the company has a claim to recover a loss reflected by the profit, but that such claim is available on the facts.”
140. Of course, the appellants’ claim here is not “an action brought by a claimant not as a shareholder but as a beneficiary under a trust against a trustee” for loss of profit based on an allegation of mismanagement of the shareholding in the trust. The appellants’ re-orientation of their case, in grounding it on an alleged breach of trust by the Trustee as sole shareholder of Vico Limited in ratifying the transactions between Vico Limited and the Bank, and in not grounding its claim on alleged breach of fiduciary duty on the part of the directors of Vico Limited in entering into those transactions, does not in any way provide an equitable route to enable the appellants’ claim against the Bank, a stranger to the Discretionary Trust and to the respective duties and rights of the Trustee and the beneficiaries of the Discretionary Trust inter se, to be maintained. Throughout the submissions the appellants have conflated the ownership of Gorse Hill and the ownership of the share capital in Vico Limited and they have conflated the separate and distinct duties and rights which arise from the ownership of each.
2006 Consents/2011 statutory declarations
141. In summary, the crucial factors in relation to the 2006 Consents are that –
(a) their existence was not necessary for the Bank to get good title to its security over Gorse Hill; and
(b) the Bank was unaware of their existence.
The first factor arises because, as has been found, Vico Limited was the full legal and beneficial owner of Gorse Hill and the Bank obtained valid securities from Vico Limited over Gorse Hill in relation to the liability of Vico Limited on foot of the various guarantees and indemnities. The second factor arises because it is clear on the evidence that the Bank was not aware of the existence of the 2006 Consents. Nor was it aware, if it were true, that the 2006 Consents were procured by the undue influence perpetrated on the appellants by their parents, or, alternatively, by Mr. O’Donnell solely, as alleged in the submissions on the appeal. Obviously, as Mr. O’Donnell and Mrs. O’Donnell are not before the Court, and as neither gave evidence in the High Court, it would be inappropriate to express any view on the veracity of that allegation. By reason of those crucial factors, the appellants have no cause of action whatsoever against the Bank arising out of the circumstances in which the 2006 Consents were obtained by the Trustee through the medium of their parents, irrespective of the fact that Alexandra was a minor when she executed them, and of the circumstances in which they are alleged to have been obtained.
142. The 2011 Statutory Declarations, as the trial judge stated, on the basis of the finding that the entire legal and beneficial title to Gorse Hill was vested in Vico Limited, merely stated what the subsisting legal position was. Indeed, Mr. Hanrahan’s evidence was that, on the advice of its solicitors, Arthur Cox, the Bank took a “belt and braces” approach to prevent any “purported issues in relation to the beneficial ownership of Gorse Hill being raised”. However, the crucial point is that the appellants have no cause of action against the Bank arising from the circumstances in which the 2011 Statutory Declarations were obtained from Whitney Moore, the solicitors acting for Mr. O’Donnell and Mrs. O’Donnell in the Summary Summons Proceedings, and furnished to the Bank’s solicitors. The characterisation of this aspect of the appellants’ case as a “red herring” by counsel for the Bank, in my view, was wholly justified.
Summary of conclusions
143. The findings of the trial judge that at the material time the full legal and beneficial ownership of Gorse Hill was vested in Vico Limited and that the Trustee, as trustee of the Discretionary Trust, held the shares in Vico Limited rather than any interest in Gorse Hill, are correct. It follows that the appellants’ submission that Vico Limited merely holds the legal estate in trust for the ultimate beneficiaries of the Discretionary Trust is not correct.
144. As, because of the re-orientation by the appellants of their case, there was no issue on the appeal as to the capacity of Vico Limited to grant the guarantees and related securities over its asset, Gorse Hill, to the Bank, and there was no contention that the directors of Vico Limited acted in breach of their fiduciary duties, they having obtained the sanction of the sole shareholder, the Trustee of the Discretionary Trust, to the giving of those guarantees and securities, there is no basis for concluding that the findings of the trial judge, on the basis of the evidence before him as to the law of the Isle of Man, that Vico Limited did have such capacity and that the securities were not given in breach of the fiduciary duties of the directors of Vico Limited were other than correct. Accordingly, those findings stand.
145. The appellants’ contention that the guarantees and related securities were given to the Bank in breach of trust because the Trustee of the Discretionary Trust was acting in breach of trust in sanctioning the giving of those guarantees and securities to the Bank, which were for the benefit of Mr. O’Donnell and Mrs. O’Donnell, who were excluded from any benefit under the Discretionary Trust, so that there is imposed upon interest in Gorse Hill acquired by the Bank a constructive trust for the benefit of the appellants fails for the following reasons:
(a) the overarching finding is that the Trustee, as trustee of the Discretionary Trust, had no interest, beneficial or otherwise, in Gorse Hill at the material or any time; it was the issued share capital of Vico Limited, not the property Gorse Hill, which constituted the Trust Fund under the Discretionary Trust;
(b) accordingly, the approval of the Trustee to the giving of the guarantees and related securities was not necessary to give the Bank good title to the interest created by the securities in Gorse Hill it acquired from Vico Limited, the legal and beneficial owner thereof;
(c) apart from the fact that such approval was not necessary, even if it had been, as the trial judge correctly found, the Bank had no knowledge, actual or constructive, of the specific provisions of the Discretionary Trust which it is alleged precluded the creation of security over the assets settled by the Discretionary Trust for the liabilities of Mr. O’Donnell and Mrs. O’Donnell; and
(d) assuming, notwithstanding the evidential deficit, that since these proceedings have commenced the appellants have become the sole beneficial owners of the property the subject of the Discretionary Trust (that is to say, the issued share capital of Vico Limited) their claims against the Bank in these proceedings must fail because –
(i) any claim they may have in respect of the mismanagement of the assets of the Trust Fund (that is to say, the issued share capital of Vico Limited) lies against the Trustee, not against the Bank; and
(ii) the appellants not having any proprietary interest in Gorse Hill, even if the Bank’s interest in Gorse Hill was the subject of a constructive trust arising from the application of the equitable doctrine of knowing receipt, they would have no remedy against the Bank, because only a person with a proprietary interest in Gorse Hill could pursue a remedy against the Bank for a declaration that the securities held by the Bank over Gorse Hill are of no effect.
146. What is clearly discernible from the foregoing summary is that the appellants have conflated the ownership of Gorse Hill and the ownership of the shares in Vico Limited. They have adopted a stance as to the ownership of Gorse Hill which would necessarily involve piercing the corporate veil around Vico Limited. As a matter of law, that cannot be done. Once the initial finding of the trial judge, namely, that Vico Limited has full legal and beneficial ownership of Gorse Hill, was correctly made, the appellants’ case against the Bank based on alleged breach of trust by the Trustee could not succeed. Therefore, it is not necessary and, given that the Trustee is not before the Court, it would be inappropriate, to express any view as to the conduct of the Trustee.
147. For the reasons outlined in para. 141 above, the appellants have no cause of action against the Bank arising from the procurement of the 2006 Consents. The 2011 Statutory Declarations accurately reflected the ownership of Gorse Hill when they were made by the appellants, who have no cause of action against the Bank arising from their procurement.
Decision
148. Being satisfied that the trial judge was correct in determining that the appellants are not entitled to the reliefs sought by them or any relief, I consider that the appeal should be dismissed.
Murray v. Murray
[1996] 3 IR 251
BARRON J “The defendant married in 1957. He and his wife decided to build their own home and together with three other couples they formed what was known as the Ashgrove Utility Society which built four houses, of which the premises involved in the present action, was one. At the date when it was built it was known as No. 6 Ashgrove, Kill Avenue, Dun Laoghaire, but is presently known as 35 Kill Avenue.
The defendant and his wife never went to live in the premises. An agreement was entered into on the 15th November, 1959, between the defendant and his parents whereby he became entitled to the premises known as “Prague” and his parents were to live in 35 Kill Avenue. On the day before, the 14th November, 1959, the defendant signed a document relinquishing all claims to No. 6 Ashgrove, Kill Avenue, in favour of his sister Elizabeth Murray. However, he says, and I accept, that this arrangement was superseded by the agreement of the 15th, the terms of which were subsequently acknowledged by his parents to have been fulfilled.
The financing of 35 Kill Avenue was as follows: The defendant paid the
initial deposit of £200 to £300. There was an obligation under the lease to build a house of a value not less than £1,850. He borrowed the sum of £1,400 by way of a local authority loan from the Dun Laoghaire Corporation and would have paid all other costs and expenses.
The first person to reside at 35 Kill Avenue was his sister Lily. The plaintiff
is the son of another sister of the defendant. His father died and his mother emigrated. At the age of two and a half he went to live with his grandparents. He lived with them from 1959 to 1962, when all three went to live in 35 Kill
Avenue with Lily.
His grandfather died in 1967 and his grandmother died in 1972. During this period Lily married and her husband lived in the premises, 35 Kill Avenue, from 1965 to 1969. They separated in that year and thereafter Lily and the plaintiff remained on in the premises until her death on the 16th April, 1988. During the period that Lily was resident in the premises she paid the rent, rates and the instalments due on foot of the mortgage. The defendant appears to have paid insurance. It is quite clear that the defendant at all times wished to benefit his sister and wished to transfer the premises to her. Solicitors prepared the necessary documentation in the year 1973, but notwithstanding this Lily never executed the documents which would have transferred the property to her. This beneficial intention continued up to very shortly before her death. There are letters showing that at the end of 1987 and the beginning of 1988, the defendant was prepared to transfer the property to his sister. There was a sum of £400 approximately owing on foot of the mortgage and he was agreeable to pay all the costs involved provided that his sister paid off the mortgage and some water charges amounting to some forty odd pounds. While these sums were paid, no transfer was ever executed and unfortunately Lily died before the arrangement could be completed. Of the several letters which have been put in evidence, the last in time is one dated the 6th April, 1988, written by the defendant’s wife on his behalf to the plaintiff on behalf of his aunt as follows:-
“Dear Ian,
Our solicitor will be away until the end of April. Hopefully, we will be in hand with the deed by then, and we will contact you on his return with news of an appointment. In the meantime I trust all is in order by now from your end and that late April or early May should see a completion of our business.
Regards, Rita.”
Once his sister died it seems that the defendant did no more. The plaintiff was allowed to remain on in the premises. In January, 1992, the plaintiff became engaged and his fiancee came to live in the premises. The defendant was not told of this engagement. He arrived one day at the premises and unfortunately the plaintiff’s fiancee, who did not know who he was, was not prepared to accept that he was entitled to come into the premises. She believed that the house belonged to her fiancee and had no idea that his uncle claimed to be the owner of the premises. From that time on there was a very definite dispute between the parties. Letters of administration to the estate of Lily were granted to the defendant on the 12th July, 1993.
These proceedings have been commenced by the plaintiff because in the Schedule of Assets the defendant made no mention of any interest of the deceased in the premises. These proceedings are brought for a declaration that the entire beneficial ownership in the premises was vested in the deceased at the date of her death. In tum, the defendant counterclaims for rent from the date of the death of his sister upon the basis that the entire legal and beneficial interest was at that date vested in him.
The claim as pleaded relies upon the acknowledgement dated the 15th November, 1959. This case was waived at the trial, the plaintiff relying upon a constructive trust arising by virtue of the payment of the mortgage instalments and other outgoings by the deceased. The plaintiff contends that the circumstances are such that it would be unconscionable for the defendant to rely upon his legal title. Particular reliance is placed upon Hussey v. Palmer [1972] 1 WLR 1286. In that case the plaintiff went to live with her daughter and son-in-law. She had sold her own house and lent her son-in-law the money necessary to build an addition to the house to accommodate her. This was done and she went to live with them. Unfortunately, things did not work out and in a relatively short time she left her daughter and son-in-law’s home and went to live elsewhere. She sought to recover the money which she had lent to her son-in-law for the purposes of the improvement of his house. He refused to pay her back. She brought proceedings based on a contract of loan and withdrew them. She subsequently commenced proceedings claiming that the
payment of the money created a constructive trust in her favour. She succeeded in this claim.
It is, I think, quite clear that the law will impose a constructive trust in all circumstances where it would be unjust and unconscionable not to do so. So far as Hussey v. Palmer [1972] 1 WLR 1286 is concerned, it seems to me thatthe court was satisfied that it would be a severe injustice if the plaintiff did not have some form of security for what was, in her own words, a loan. In my view, the case is an authority for the proposition that in certain circumstances where equity so requires, a debt may well be secured by the device of a constructive trust on the property created by the money involved.
In that case, the law was in effect returning what was hers to the lender. Here the equities to create a constructive trust arise from the payment of monies which have resulted in the property being freed from the mortgage and the owner relieved of other outgoings. The legal owner of the property wished to provide both for his parents and for his sister. He did this by allowing them to live in his property but at the same time requiring them to pay the majority of the overheads. He did this because he and his parents and sister were a close knit family and he had the financial resources which they did not. The situation factually is complicated because Lily apparently refused to accept a transfer of the property. After her death the necessary documents furnished to her in 1973, which she would have been required to execute, were found hidden away behind a cupboard and it is quite clear that she did not intend to take a transfer of the property nor apparently to let anybody know that she had the opportunity to do so.
What I have to consider is what is fair and whether it would be unconscionable to deny the deceased any part of the beneficial interest in the premises and, if so, what share therein. It is undoubtedly true that the defendant intended to benefit his sister and would have done so had she remained alive and had she signed the necessary documents. Equity cannot force him to perfect the gift which he intended to make now that his sister has died. So far as this gift is concerned, his sister would have been a volunteer. Although the promise to make the gift was dependent upon the payments to be made on her behalf, the claim is not made in contract, but upon the basis of trust. The question to be determined is the interest which she would have had in any event without the gift. Having regard to the amount of the loan from the local authority which amounts to approximately three-quarters of the purchase value of the house at the date of its construction, it seems to me that the appropriate share which would have passed to her by reason of her contributions would have been that proportion. Accordingly, I will hold that at the date of her death she was entitled to three-quarters of the beneficial interest in the property.
So far as the counterclaim is concerned, no effort was made by the defendant
to seek any rent until the beginning of 1992. The plaintiff is by virtue of the declaration being made, and his position as a next-of-kin of the deceased, a tenant-in-common occupying the premises and as such would not have been required to pay any rent for such occupation. Nor in the particular circumstances of this case was there any obligation upon him to account to the defendant.”
Kelly v. Cahill
[2001] 2 ILRM 205
The deceased informed his solicitor that he wanted to alter his will since he no longer wished to benefit his nephew, the second named defendant, but intended to leave all his property to his wife, the first named defendant. His solicitor advised him to execute a deed transferring his property into the joint names of himself and his wife to avoid a charge to probate tax subsequently arising and the parties believed that the deed executed included all of the lands owned by the deceased. However, through the inadvertence of the solicitor, the lands comprised in a numbered folio had not been transferred and would pass on the deceased’s death to the first named defendant for life with remainder to the second named defendant, subject to her legal right to half of the lands concerned. Barr J concluded that it had been established that the deceased had expressed the necessary intention to his solicitor and that he had good reason for believing that the deed of transfer had achieved this intention. In these circumstances he held that ‘justice and good conscience’ required that the interest in remainder under the will should be deemed to be held by the second named defendant on a constructive trust for the first named defendant.
BARR J stated at pp. 207-211: “The facts relating to this matter are not in dispute and are as follows: The plaintiff is the sole surviving executor named in the last will and testament of Michael Cahill Senior (the deceased) made on 23 October 1969 who died on 20 March 1996 without having revoked or altered the will. The other executor appointed by the deceased predeceased him and was not replaced. The plaintiff applied for and obtained probate of the
deceased’s will on 22 January 1998 and pursuant thereto entered into the administration of the estate.
The first named defendant (the widow) is the widow of the deceased. The second named defendant is a nephew of the testator. The deceased was a farmer and the owner of substantial holdings of registered land. He died without issue. By his last will the deceased devised all of his property to his widow and his brother, Martin Cahill, as joint tenants for life with remainder to trustees in
trust for his nephew, the second named defendant. Martin Cahill, the deceased’s brother, died on 16 March 1998.
In course of administration of the deceased’s estate certain facts have come to light relating to the ownership of part of the lands comprised in the estate which have caused the plaintiff as administrator to seek directions from the court, thus giving rise to this action. The matters raised by him include:
1. The answers [to] the following questions arising in relation to the administration of the estate of the said Michael Cahill Senior, deceased:
(a) Whether the lands contained in Folio GY043846F of the Register County of Galway pass under the terms of the will of Michael Cahill deceased dated 2J October 1969 to the first named defendant for life and thereafter in remainder to the second named defendant, subject to the widow’s right to one half of the lands pursuant to the provisions of Part IX of the Succession Act 1965.
(b) Whether in the events which have happened, the second named defendant is a constructive trustee of the remainder interest in the lands comprised in Folio GY043846F for the benefit of the first named defendant.
2. Such directions as may appear to this Honourable Court to be proper on foot of the answers to the questions at paragraph l(a) and l(b) above.
3. In the event that the court holds that the second named defendant is a trustee of the lands comprised in Folio GY043846F as a constructive trustee for the first named defendant, an order directing the second named defendant to execute such assurance as may be necessary to vest the said lands in the first named defendant.
The facts which have posed the foregoing questions are deposed to by Mr Joseph O’Hara who was the deceased’s solicitor at all material times and are summarised as follows: In or about the month of January 1994 Mr Michael Cahill, the testator since deceased, and his wife, the first named defendant, called upon Mr O’Hara and he obtained instructions from Mr Cahill that he wished to alter the will which he had made on 23 October 1969. He informed his solicitor that he no longer wished to benefit his nephew Michael Cahill Junior, the second named defendant, and that he wished to leave all of his property to his wife, the first named defendant. There is no doubt that the testator had at that time changed his mind regarding the disposition of his property and had decided that his entire estate should be inherited by his wife absolutely on his death without any remainder provision and that this should be achieved by way of a new or revised will. However, Mr O’Hara foresaw a likely disadvantage for the testator’s wife if his revised testamentary intention was achieved in the way intended by him. The difficulty was that a 2% probate tax had been created by the Finance Act 1993 which the solicitor believed would be payable by the widow on the value of the estate inherited by her. At that time there were no exemptions in respect of such tax. In the light of this Mr O’Hara advised his client, the testator, that he could achieve the same result without liability for probate tax by transferring his lands into the joint names of himself and his wife, the effect of which would be that the property would then pass to his wife, as sole owner if she survived him. The testator agreed to that course of action. Mr O’Hara had also ascertained that all of the other assets of his client and his wife were in their joint names. A deed of transfer dated 14 January 1994 was duly drawn up by Mr O’Hara to give effect to the revised instructions which he had received. The deed provided that lands comprised in Folio 46909 of the Register County of Galway were transferred from the sole ownership of Michael Cahill into the joint names of the latter and his wife, Nellie Cahill. The deed was duly executed and at that time the joint owners and their solicitor believed that it included all of the lands then owned by Michael Cahill. In fact in drawing the deed the solicitor had made an error. He was not then aware that as noted thereon Folio 46909bhad been prior to the date of execution of the deed closed to Folio GY043846F of the Register County of Galway (the second folio) of which Mr O’Hara had no knowledge at that time. The second folio comprised 17 entries of which Nos. 6 to 9 were the lands transferred from Folio 46909. The end result was that through the inadvertence of the solicitor and unknown to the testator and his wife the lands comprised in entries 1 to 5 and 10 to 17 in the second folio were not included in the deed of transfer contrary to the express intentions of the testator. No new will was made and the end result was that having regard to the terms of the original will and of the deed of transfer per se the lands which had not been transferred into the joint names of the deceased and his wife would on his death pass to her for life with remainder to the second named defendant, Michael Cahill Junior, but subject to the widow’s legal right share under the Succession Act 1965 to one half of the lands concerned, should she elect to make such a claim. Mr O’Hara has deposed that he does not believe that that would accord with the stated intention of the deceased, which was that his nephew, Michael Cahill Junior, would not benefit from the estate and that his wife would be the sole beneficiary.
The law
The nett issue which I must address is whether in the light of Mr O’Hara’s inadvertence regarding the folios in question which resulted in a failure to carry out his client’s instructions to include all his lands in the deed of transfer made in January 1994, a constructive trust arises comprising the lands which were not transferred into joint ownership as intended by the testator. This raises the question as to whether in the circumstances under review it is established that a ‘new model’ constructive trust as Keane J described it in Equity and the Law of Trusts in the Republic of Ireland has been established and, if so, whether such a trust has a place in Irish law.
The concept of ‘new model’ constructive trusts is explained by Keane J (as he then was) in the following passage from his learned work at p. 186:
In recent years, there has been much discussion in other jurisdictions as to whether a constructive trust can be said to arise in any circumstances where permitting the defendant to retain the property would result in his being ‘unjustly enriched’. This, it has been said, effectively means treating the constructive trust as a form of remedy intended to restore property to a person to whom in justice it should belong rather than as an institution analogous to the express or resulting trust. The constructive trust, in its traditional form, arises because of equity’s refusal to countenance any form of fraud: in this wider modern guise it is imposed by law ‘whenever justice and good conscience require it’.
The latter is a quotation from the landmark judgment in this area of Lord Denning MR in Hussey v. Palmer [1972] 3 All ER 744 at p. 747. In that case, the plaintiff had been living with her daughter and son-in-law. She had paid
£607.00 to a contractor to build on another room in the expectation that she could live there for the rest of her life. When disputes later arose and she left, she sought the return of the £607.00. Having regard to the informal nature of the arrangement, she was in obvious difficulty in establishing that it was a loan rather than a gift. However, Lord Denning did not consider that problem insuperable. Having observed that it did not matter whether one proceeded by way of a resulting trust or a constructive trust, he went on (at p. 747):
By whatever means it is described, it is a trust imposed by law wherever justice and good conscience require it. It is a liberal process, founded upon large principles of equity to be applied in cases where a defendant cannot conscientiously keep the property for himself alone, but ought to allow another to have the property or a share of it. It is an equitable remedy by which the court can enable an aggrieved party to obtain restitution.
The end result was that the plaintiff was entitled to a share in the house proportionate to her contribution.
Keane J commented (at p. 187) that:
Broadly speaking, it may be said that the application of the principle of unjust enrichment requires the restoration by the defendant to the plaintiff of a benefit which it would be unjust for him to retain. Sometimes this can be done by a simple award of money, e.g., the refund of money paid under a mistake of fact. But sometimes the restoration of the benefit can only be achieved by giving the plaintiff an interest in property. Thus, the constructive trust is imposed by the court as an equitable remedy intended to restore to the plaintiff the benefit of which he has been deprived. In the words of Cardozo J ‘a constructive trust is the formula through which the conscience of equity finds expression’. Beatty v. Guggenheim Exploration Co. 225 NY 380 at p. 386.
I adopt with respect the foregoing assessment of ‘new model’ constructive trusts by Keane J.
It seems to me that the kernel of the question I have to determine is whether
the evidence establishes a clear, positive intention on the part of the testator that his wife should inherit all of his property on his death; that he took appropriate steps to bring that about and that he could not reasonably have known that through his solicitor’s error the deed of transfer, which he and his wife duly executed, did not include all of his lands and that his stated intention to benefit his wife exclusively on his death was defeated in part. In the light of Mr O’Hara’s and the first named defendant’s affidavits, the accuracy of which is not in dispute it is established that the testator expressed such an intention to his solicitor in clear terms and that he had good reason for believing that the deed of transfer did in fact achieve his intention that his wife would acquire absolutely as surviving joint owner all of his lands on his death as Mr O’Hara had advised. In my view it is irrelevant that the second named defendant was neither aware of nor had any responsibility for the error which was made. The essential element is that the testator changed his mind regarding the disposition of his estate after death and that he took appropriate steps to give effect to his revised intention. That having been established, it follows that in the words of Lord Denning, ‘justice and good conscience’ require that the second named defendant should not be allowed to inherit the testator’s property or any part of it on the death of his widow and that his interest in remainder under the will should be deemed to be a constructive trust in favour of the widow. In my opinion a ‘new model’ constructive trust of that nature the purpose of which is to prevent unjust enrichment is an equitable concept which deserves recognition in Irish law. In that regard I note also that it accords with the following observations of Costello J (as he then was) in HKN Invest OY v. Incotrade PVT Ltd [1993] 3 IR 152 at p. 162:
A constructive trust will arise when the circumstances render it inequitable for the legal owner of property to deny the title of another to it. It is a trust which comes into existence irrespective of the will of the parties and arises by operation of law. The principle is that where a person who holds property in circumstances which in equity and good conscience should be held or enjoyed by another he will be compelled to hold the property in trust for another. …
And in that context that the learned judge referred with apparent approval to the judgment of Lord Denning MR in Hussey v. Palmer supra.
In the light of my findings the answers to the questions posed in paragraph 1 of the plaintiff’s claims are:
(a) No.
(b) Yes.
I direct that the second named defendant shall execute such assurance as may be necessary to vest in the first named defendant all of the lands comprised in Folio GY043846 of the Register County of Galway.”
Moore v McGlynn
[1894] 1 IR 74 (Chancery Division)
Chatterton V-C: It is necessary to consider in the first place the defence that the trustees and executors in exercise of the discretionary power given them by the will “to arrange for the settlement of the testator’s children as they may determine,” have decided that the plaintiff’s share of the assets amounted to £60, in addition to £10 cash and £27 10s worth of goods which she received, and that they tendered the sum of £60 accordingly which she refused to accept. The words of this clause are not clear, and do not with any precision express the extent of the power intended to be thereby conferred. “To arrange for the settlement of the children,” if unexplained by the following clause, might fairly be construed as applying only to the settlement of ascertained shares. But the defendants contend, and I think rightly contend, that this uncertainty is sufficiently explained away by the following clause, which provides that in case of disagreement the parish priest should have full and absolute power to determine both as to the amounts payable and the times of payment. As it is improbable that the umpire was intended to possess larger powers than those between whom he was to decide, it seems to me that his powers may be resorted to explain the meaning of the power to the trustees, and that consequently they must be taken to have power to determine the amounts and times of payment. The rule applicable to such cases of discretionary power is that the exercise of such power will not be interfered with or controlled if it be regularly and honestly used. What was done by the trustees was to make out a statement of the available assets for distribution, and to decide that this amount should be divided into ten equal shares, giving each child one-tenth. The division into equal shares is free from objection. But, in my opinion, in the circumstances of this case it is going too far to contend that the ascertainment of the assets so to be divided is not subject to investigation by this Court. The trustees may have had full and absolute authority to arrange and settle the shares to be given to each child of the sum to be divided; but it would be dangerous to hold that there is no control over their ascertainment of the total amount. They would in such case be judges in their own cause. They had from the death of the testator the entire administration of the assets entrusted to them, including the management of the trading carried on by them. The amount distributable among the children of course depended on the due discharge of those duties, so that if their decision on that amount was to be conclusive, it would be in their power to protect themselves against liability for any default. It is not necessary for the cestuis que trust to prove any breach of duty by the trustees for the purpose of having accounts taken of the trust property, as their right to this results from the mere relation between them. I therefore hold, without going for that purpose into the charges made by the plaintiff against them, that their defence on this ground cannot be sustained. There must, therefore, be the usual accounts of the real and personal estate.
The plaintiff claims to have accounts taken not only of the actual receipts of the defendants, but of what they without wilful default might have received. It has been sought to extend this liability in the present case far beyond its proper limits; for it was contended that it applies to possible loss of profits in trading, occasioned by the setting up of a rival business as complained of here. But the very words of the prayer here, which are in the form invariably used, seem sufficient to exclude this contention. Under this prayer, according to the settled practice, an executor or administrator, or a trustee can be charged with assets or trust funds actually in existence, which either came to his hands, or which, by his misfeasance or negligence as to getting them in, have been lost to the estate. I do not mean to say that trustees or executors cannot be held liable for losses sustained by such misconduct as here alleged, but I hold that it cannot be done under a mere direction as to wilful default. Another insuperable objection is that by the settled practice of the Court a plaintiff seeking relief against wilful default must allege in pleading some specific act of wilful default, or, at least, make a strong case for inquiry. Here there has not been any proof of wilful default, nor even any ground for inquiry as to it, in the view that I have expressed of its nature. I shall therefore dismiss the action so far as it seeks to have the accounts so taken.
The plaintiff is entitled to have an account of the profits of the business of the testator carried on by the defendants from his death in the testator’s premises in Bridge-street, Clara.
The next relief prayed is an account of what portion of the trust property has been invested by the defendant Edward McGlynn in his own business, and a declaration that any trust funds or assets so invested were bound by the trusts of the will. The case put forward by the plaintiff as to this was that the defendant Edward McGlynn purchased the premises in Church-street, Clara, in which he set up business with money taken by him out of the testator’s assets. This was positively denied by Edward McGlynn, and in the main, at least, he has completely disproved the charge. The sum paid by him for the purchase of the new premises was £500, which was paid in two sums of £175 and £325, into the Court of Bankruptcy, where the purchase was made. He has proved to my satisfaction that Edward McGlynn borrowed from Messrs Baker, Wardell & Co, on his own personal security, the sum of £300 for the purpose of this purchase, and that they lent it to him as a mere act of kindness, and that he applied it towards payment of the £325. It appears that he passed the cheque he received for the £300 into his bank account, which contained also the cash transactions of the business of the testator, and immediately drew a cheque for the £325 and paid it into the Bankruptcy Court. Then as to the other £200 composed of the first payment of £175, and £25 of the second payment, his case is that both these sums, which were paid out of the same bank account, were his own private moneys. He has made out his own personal account with the business from the bank account showing that he owned a sum of £100 arrears of his salary as manager of the business in the testator’s lifetime (on which he has, probably without sufficient ground, charged interest amounting to £15), and also £200, being the salary of £60 a-year, to which he was entitled under the will, and on which he rightfully charged the interest given him by the will, amounting to £12, and against these sums he shows credits to which the business was entitled, and thus balances the account. No attempt was made to dispute any of these items except the £15 interest, which he seems to have claimed on the ground that the testator gave him by the will interest on any money he might have in the business, which he thought gave him a retrospective claim. Save as to this item he has, so far as the evidence before me goes, disproved the plaintiff’s charge with which I am now dealing. But in order to have this question fully investigated, I shall direct an inquiry at Chambers, whether any, and if so what, portion of the personal estate of the testator was invested by the defendant Edward McGlynn in his own business.
The next relief prayed is the removal of the defendants from the trusteeship. No case has been proved which would call for the removal of the defendant Patrick J McGlynn, whose conduct appears to me to be free from impropriety. When his father died he was living in Dublin in respectable commercial employment. He allowed his uncle and co-trustee to remain in the management of the testator’s business, which he had managed for several years, in conjunction with his brother, the testator, and who by the will was directed to be continued in this management, and was thereby shown to have enjoyed the fullest confidence of the testator. There was, therefore, no default on the part of Patrick in leaving the management in his hands. Then, when Edward McGlynn contemplated setting up in business for himself, Patrick gave up his employment in Dublin, and in February 1891, returned to live in the testator’s house at Clara, and took charge of the business there. I do not find any evidence to bring the case within the rule of this Court, that one trustee standing by, and permitting his co-trustee to commit a breach of trust is liable for a breach of trust so committed. I therefore hold that no case has been made for his removal from the trusteeship, and shall dismiss the action with costs, so far as it prays for his removal.
Then as to the defendant Edward McGlynn. He has been accused of gross breaches of trust on several grounds. The chief complaint is for setting up in business in the same town, which, to a considerable extent, was of the same nature as that carried on in the testator’s house of business. I have not been referred to, nor am I aware of, any case deciding that an executor or trustee of a will carrying on the business of his testator is disabled from setting up a similar business in the same locality on his own account. If he in any way represents to the public that his own business is the same concern as that of which he is trustee, as by using the name of the testator’s concern in connexion with his own business, or otherwise seeking to draw away the customers to his own shop, there might be some ground for an application to restrain him from so doing. But I am not prepared to hold that a trustee is guilty of a breach of trust in setting up for himself in a similar line of business in the neighbourhood, provided that he does not resort to deception, or solicitation of custom from persons dealing at the old shop. I have no sufficient proof here of any such malpractices by the defendant Edward McGlynn. It is admitted that he did, on first opening his shop, send out circulars in the town, stating his having done so. No copy of the circulars has been proved, and I must take them to be such as described by the defendant in his uncontradicted evidence, and as not containing any such misleading statements. It is plain that the setting up of a shop in a small town to a certain extent in rivalry with another must tend more or less to injure the business of any similar shop in the locality, and I think there would be an inconsistency between the duties of the defendant Edward, as trustee and manager of the testator’s business, and the necessary personal interest which he must take in his own. I do not think I could, under such circumstances, grant an injunction to restrain him from carrying on his own business, or direct an inquiry whether any damages were occasioned by his doing so, but I am of opinion that his new position disqualifies him from remaining any longer a trustee, and it would have been better for him to have procured his removal from the trusteeship before setting up for himself. He should not be continued in a position where his duties and his self-interest may conflict. He has himself expressed by his counsel his willingness to retire from the trusts, and I shall remove him from being a trustee and manager, and appoint a new trustee in his place. I shall not appoint a receiver or manager of the business; the effect of my doing so would probably be ruinous to the business, and I have no reason to be dissatisfied with the management by the defendant Patrick J McGlynn.
There was another matter which was made the subject of very strong charges against Edward McGlynn, namely, his having obtained, on the death of the testator, the office of local postmaster at Clara, which had been held for many years by the testator, who carried on the post office business in a part of his shop. He applied to the Postmaster-General for the appointment by a letter, stating his qualifications, and that the business could be still carried on in the same office, and that he was one of the trustees of his brother’s will. He got the appointment, and the business was carried on as before, and he drew the salary and emoluments, and allowed them to go into the general trust fund. I cannot see any impropriety in his having done this.
There was nothing false in his representations, and it must be presumed that he was appointed upon his personal fitness to hold the office. The post was one in the gift of the Crown, and could not be made the subject of purchase, or of any dealing in the nature of purchase. He was absolutely entitled for his own personal benefit to the emoluments of the office, and any trafficking with them would have been illegal and void. I cannot give the slightest countenance to the proposition that there could be anything like a graft upon the former tenure of it for the benefit of the testator’s assets, or any liability on the part of the officer to account for its profits. When he received his salary he was at liberty to do what he pleased with it, and it was his voluntary act to throw it into the fund for the benefit of his cestuis que trust. The utmost of his liability would be to payment of compensation for the use and occupation by him as postmaster of the office on the testator’s premises. But when he set up his new shop he transferred to it the post office, which he must have got leave from the post office authorities to do, and thenceforth he performed the business there, and retained the emoluments for his own benefit. This I consider he had full right to do, as the office was a personal one, and he was the only person recognized by the Crown as the holder of it, liable to perform the duties, and entitled to receive the salary. Strictly speaking, he would have been entitled to the emoluments of the office, and during the period for which the business of that office was carried on by Edward McGlynn upon the premises of the testator, he would be chargeable with a reasonable sum for the use of the post office premises, the result of which would have been less beneficial to the testator’s estate than what was done. I think it would be wrong to permit him now to go back to this course of dealing, nor does he seek to do so. I shall, therefore, not disturb the accounts in this respect; and, on the other hand, I shall not direct him to be charged for the use of the post office premises in the plaintiffs shop, thus allowing one to go against the other.
The writ of summons asks for an injunction against the defendants, but does not say what injunction is sought. In the prayer of the statement of claim no such relief is sought. The plaintiff, by her counsel, on the trial, appeared to expand this into an injunction against the defendant Edward McGlynn carrying on any business in the town of Clara, similar to that carried on by the testator, but, on grounds I have already stated, I decline to do so, and shall dismiss the action so far as it seeks an injunction against him. No case whatever has been made for an injunction against Patrick J McGlynn, and this must be similarly dealt with, except that I must do so with costs.
It was also sought to have the new premises, purchased by Edward McGlynn in Church-street, Clara, and the business carried on by him there, affected with a trust for the benefit of the testator’s estate, and to have an account of his trading there. I consider this to be without foundation, and shall dismiss so much of the action accordingly, and with costs.
The judgment in the case is as follows: Declare that, notwithstanding the alleged exercise by the defendants of the power in the testator’s will, given to the executors and trustees thereof for the settlement of the testator’s children, by which the share of the plaintiff of the testator’s assets was decided to be the sum of £87 10s, the plaintiff is entitled to have the accounts taken, which are hereinafter directed, and accordingly let the following accounts and inquiries be taken and made:
1.Let the real and personal estate of testator be administered, and the usual accounts taken.
2.Dismiss the action with costs, so far as it seeks to have the accounts taken with wilful default.
3.Usual account of the trading of the testator carried on upon his premises in Bridge-street, Clara, by defendants, or either of them, since his death, and direct that, in taking such accounts, any sums received by defendant Edward McGlynn, for salary or emoluments of the office of postmaster, shall not be included, save so far as the same shall appear to have been actually brought into account by said Edward McGlynn, and that no sums shall be charged against him for the use or occupation of any portion of testator’s said premises, for the carrying on the business of the said office.
4.Inquiry whether any, and if so what, portion of the testator’s assets was invested by said Edward McGlynn in his own business, or in the purchase of the premises in Church-street, in which such business was carried on by him.
5.Dismiss the action, with costs, so far as it seeks to remove defendant Patrick J McGlynn from being a trustee of the testator’s will. Discharge defendant Edward McGlynn from the further performance of the duties of trustee of the said will, and manager of the said testator’s business under the same; and adjourn to Chambers to appoint a new trustee of said will in his place, jointly with defendant Patrick J McGlynn. Make no order at present for the appointment of a receiver or a manager of said business. Dismiss the action (1) so far as it seeks an injunction against the defendants, and also so far as it seeks to affect the business carried on by Edward McGlynn in the premises at Church-street, with a trust for the benefit of the testator’s estate.
Adjourn further consideration, and the costs, save those hereinbefore awarded.
Gabbett v Lawder
(1883) 11 LR Ir 295 (Chancery Division)
Chatterton V-C: The plaintiff, as administratrix de bonis non of William Lawder, claims to have it declared that the estate in fee-simple conveyed by the Commissioners of Church Temporalities to Matthew Nesbitt Lawder, the first administrator of William Lawder, in certain lands mentioned in the statement of claim, is personal estate of the intestate. The intestate held those lands under an ecclesiastical lease for twenty-one years customarily renewable, the last renewal to him being a lease of the 1st of February 1870, from the Church Temporalities Commissioners, for twenty-one years. After his death Matthew Nesbitt Lawder, as his administrator, obtained a further renewal from the Commissioners for twenty-one years, dated the 14th of September 1876. Under the 34th section of the Irish Church Act the Commissioners, in whom the reversion in fee became by that Act vested, were authorised to sell it by public auction or private contract; but were bound before selling to the public to offer the purchase to Matthew Nesbitt Lawder as their immediate tenant, at a price to be named by them. They did so offer it, and he declined to buy at the price named. The reversion in fee was thereupon set up by the Commissioners for sale by auction; and Matthew Nesbitt Lawder bought it for a less price, paid for it, and took the conveyance of it from the Commissioners, which the Plaintiff as administratrix contends he took as a constructive trustee for the persons entitled to the personal estate of William Lawder.
The fundamental principle upon which the doctrine of constructive trusts proceeds is, that no person in a fiduciary capacity shall be allowed to retain any advantage gained by him in his character as trustee. His cestuis que trusts are entitled to the benefit of any advantage so gained by him, to any addition or accretion to the trust estate which he may have acquired, and to all profit which he may have made by any dealing with it. It has long been settled by a current of authorities that a trustee of a leasehold interest who obtains a renewal of the lease, whether by covenant or custom, or by the voluntary act of the reversioner, comes within this principle, and that he cannot hold the interest he so acquired for his own benefit, but as a constructive trustee of it for his cestuis que trusts. In such cases this Court will not allow the trustee to say that he did not obtain the additional interest as trustee, or that he procured it from personal favour to himself, or from the refusal of the landlord to deal with the cestuis que trusts, or for any similar reason. If his position could have caused or even contributed to his obtaining the advantage, it is in my opinion enough; and the Court will not undertake the difficult and often impossible task of investigating the motives of the parties to the transaction. If it results in either gain to the trustee, or loss to the cestuis que trusts, the trustee is liable to hand over to them the one, or to make good the other. This principle of course applies to executors and administrators who stand in fiduciary relation to those entitled to the personal estate of their testator or intestate equal to that of any express trustees to their cestuis que trusts, and are subject to the same equities. It was therefore necessarily admitted that the renewal of the 14th September 1876, to Matthew Nesbitt Lawder was a graft on the previous term, and that he held it as trustee for the persons entitled to the personal estate of the intestate. It was however contended by the defendant James Ormsby Lawder that the purchase of the reversion in fee by Matthew from the Commissioners does not come within the principle, and that he took it for his own personal benefit. This contention was based on the cases of Hardman v Johnson 3 Mer 347, and Randall v Russell, before Sir William Grant. These cases appear to have proceeded on the authority of the case of Norris v Le Neve 3 Atk 26, before Lord Hardwicke, which upon a careful examination will be found not to have been a decision on this question. In that case the owner of a reversion in fee, after several prior limitations by his will, made in pursuance of a power in the settlement by which the estate was limited, appointed the settled lands to Norris for a term of ten years, which took priority of the previously existing limitations, upon trust to raise money for payment of debts and legacies; and he did not, either by the settlement or his will, dispose of his reversion in the lands. Norris, who was only a trustee of the term so created, purchased from the heir-at-law this ultimate reversion, which afterwards fell into possession by the failure of the prior limitations. A protracted litigation took place which it is unnecessary to go into; and at a very late stage of it the question was directly raised, whether Norris was not to be held to be a trustee of the reversion so purchased. Lord Hardwicke pointed out the difficulty in that case of saying for whom he was to be deemed a trustee; and while he stated his opinion that the Rumford Market Case and other cases of leases were different from that, he refused, on the ground of the lapse of time and transactions between the parties, to allow the matter to be discussed, and dismissed the petition for rehearing.
The case of Hardman v Johnson 3 Mer 347 came before Sir William Grant before Randall v Russell, ibid 190, though it appears later in the Reports. There a testator, seised and possessed of a leasehold for three lives and twenty-one years, devised it to one of his daughters, Betty, with a gift over to another daughter, Sarah, in case the former should die without issue living at her death, which event happened. Betty obtained a renewal of the lease and devised it to the defendant, who brought an ejectment and recovered possession, and while in possession purchased the reversion in fee. The plaintiff, the husband of Sarah and claiming in her right, brought his bill claiming to be entitled to the benefit of the purchase of the reversion, and insisting that Betty took the new lease obtained by her subject to the limitations in the will. Sir William Grant said that the question of the purchase of the reversion was a new one, but that he should hesitate a good deal before he refused to apply to it the principle which had been established as to the renewal of a lease, and that it would be dangerous to allow the trustee of a term to resort to the owner of the reversion to become a purchaser for his own benefit; for by that means he would debar his cestuis que trust of the fair chance of a renewal, getting into his own hands the power to grant a renewal or not at his option. He took time to consider, and held that the plaintiff was entitled to the benefit of the renewal lease, but not of the purchase of the reversion. It is to be observed that there was no fiduciary relation subsisting at the time of the purchase between the defendant who purchased the reversion and the plaintiff. The defendant insisted on his legal right as devisee of Betty Johnson to the new lease obtained by her, and claimed the interest for his own benefit adversely to the plaintiff. Sir William Grant gave no reason for not acting on the opinion he expressed at the hearing.
In Randall v Russell 3 Mer 190 the bill prayed that a tenant for life of lands held by a testator, under St John’s College, Oxford, as yearly tenant after the expiration of a lease, which appears to have been customarily renewable, should be declared a trustee of a new lease obtained by her from the college, and also of the reversion in fee, which she purchased from a third person, in whom, by a private Act of Parliament sanctioning an exchange, it had after the granting of the new lease become vested. It was held that the renewed lease was subject to the trusts of the will which created the tenancy for life, but that the reversion in fee was not, and that the tenant for life was entitled to hold it for her own benefit. Sir William Grant said that the ground commonly stated on which a renewed lease becomes subject to the trusts of a will disposing of the original lease is that the one is merely an extension or continuation of the other, but that the fee is a totally different subject which the testator had it not in his contemplation to acquire or dispose of. He suggested that it might be different if the purchase had been from the college; for, if so, it might be said that the tenant for life intercepted and cut off the chance of future renewals, and consequently made use of her situation to prejudice the interests of those who stood behind her, and that there might be a sort of equity in their claim to have the reversion considered as a substitution for those interests, though he was not aware of any decision to that effect. He distinguished the case before him from those as to the renewal of leases, on the ground that by the act of the landlord, without any intervention of the tenant for life, the situation of the parties was altered, and the tenant-right of renewal with a public body was gone, a lease at a rack-rent being all that was to be expected from a private proprietor. He held that it was not enough to say that the situation of the tenant for life gave her the opportunity of making the purchase, and that the persons interested in the lease must go on and show what right of theirs she acquired or defeated by making the purchase.
As this case constitutes the main support to the argument of the defendant James Ormsby Lawder, and as at first sight it appears to countenance his contention, it is necessary to consider carefully whether it is substantially distinguishable from the present. If it be not, I should certainly consider myself bound by it, though I should not follow it in a case like this without hesitation; for I think that the rule supposed to be established by it would be a dangerous limitation of the application of the general principle. I first venture to say that Sir William Grant appears to me to have treated Norris v Le Neve 3 Atk 26 as a decision of Lord Hardwicke on the point, which for the reasons already stated I do not think it is. I also think that there is a material difference between that case and the present, in this, that there, as in Hardman v Johnson 3 Mer 347, the purchase of the reversion was made by a person who before and at the time of the purchase did not stand in any fiduciary relation to the persons who claimed to have the benefit of it. There is no such relation between successive remaindermen or person entitled under successive limitations of any kind. It is the fact of a renewal being obtained by the possessor of an interest earlier in the series that creates de novo the fiduciary relation in the nature of a constructive trust. The position of a trustee or personal representative, who fills the fiduciary relation altogether independently of and prior to such a purchase, and therefore has duties to his cestuis que trusts to discharge in respect of property of which he is already the legal owner, seems to me to impose on him the disability to hold for his personal benefit any advantage he may obtain which is attributable, or possibly attributable, to that position. This distinction would accord with the views expressed by Sir William Grant in Randall v Russell ibid 190, which would otherwise appear opposed to the general rule. It would sustain his decision in the case of renewals by persons having limited interests, by placing such cases on what he states to be the common ground for holding them to be subject to a constructive trust, namely that the new lease is deemed a continuation of the former, and therefore within the possible contemplation of the author of the limitations; and not upon the ground of any supposed pre-existing fiduciary relation which would impose on such persons the disability which attaches to trustees, and it would probably support the distinction he takes between such renewals and purchases of the reversion in fee. It would explain the reason assigned by him for this distinction, namely, that the testator may have had the former in his contemplation, but not the latter; for this reason could well apply to cases between persons taking under successive limitations, whereas it would be altogether inapplicable to cases of pre-existing fiduciary relations, which may have been created without either will or deed or other written instrument, as in that before me, where the relation flows from the office of administrator; cases in which the existence of the relation creates the disability, no matter what may be the subject of the trust. I cannot think that he intended to apply to cases of ordinary fiduciary relation the proposition that it is not enough to say that the situation of the person making the purchase gave him the opportunity of making it, but that the persons interested must go on and show what right of theirs he acquired or defeated by making the purchase. His language on this is in express terms applied by him to the case of a purchase by a tenant for life, and the rights arising therefrom to the other persons interested in the lease; and I must understand him as confining his argument to such cases. I do not think that his decision can affect a case like the present, where a leasehold interest with a statutory right of renewal is vested in an administrator as such, where he takes the legal estate with all its incidental rights, not for his own benefit, but merely as a trustee for the creditors and next-of-kin of the intestate. The law casts upon him the duty of protecting the interests of those entitled to the personal estate; and he is in duty bound to realise for them every right incidental to it. Even in the case of persons respectively entitled in succession, the principle upon which Sir William Grant appears to have proceeded was not confined to renewals strictly so called, but extended to acquisitions of higher interests.
In Giddings v Giddings 3 Russ 241 the leasehold interest which was held in trust was an underlease of premises called the Byde Mill, for eighteen years, carved out of a superior lease for twenty-one years of these and other premises, which was again carved out of a lease made by the Bishop of Salisbury. The tenant for life of the underlease purchased the interest in the superior lease, and obtained renewals of it from time to time from the immediate tenant to the See, the last of which bore date in the year 1819; and on his death the person entitled in remainder under the will which created the trusts of the underlease filed his bill against the representative of the tenant for life, to have it declared that the new lease of 1819, which it will be remembered was a renewal of the superior lease, was held upon the trusts of the will. The defendant claimed to hold the renewal in his own right, and not as trustee; and his counsel relied on Randall v Russell 3 Mer 190 and Hardman v Johnson ibid 347, and contended that those cases proceeded not on any peculiarity in the nature of a reversion in fee, but on the ground that the purchase of the reversion was not an extension or continuation of the preceding lease, and did not defeat any right of the remainderman. Lord Lyndhurst, then Sir J Copley, MR, says:
“If an underlessee who has only a life estate in his lease, instead of taking a renewed lease, purchases the interest of an immediate lessor, and obtains from the superior lessor a renewal of the lease which he has so purchased, will he under such circumstances be entitled to the property absolutely? That state of things falls within the general rule; the mere circumstance of the lease being taken not from the immediate lessor but from a superior lessor cannot defeat the right of a remainderman; and the remainderman will still be entitled, on the principle that a lease obtained by a tenant for life enures for the benefit of all in remainder. What difference can it make in the application of that principle whether the lease be taken from the immediate lessor or from a superior lessor?”
He stated that he did not think that the cases before Sir William Grant established a contrary principle, for they were cases where the reversion in fee was purchased, and there was no longer a leasehold interest existing. He deemed that the lease of 1819, so far as regards the Byde Mill and the premises held therewith, ought to be held upon the trusts of the will.
It will be observed that the Master of the Rolls did not declare that the original underlease was to be kept up out of the superior interest purchased by the tenant for life, but that the new lease of 1819, which was a renewal of the lease so purchased, was itself subject to the trusts of the will. Again, in Buckley v Lanauze Ll & Gt Plunk 327 a tenant for life of a lease for lives without any covenant for renewal obtained from the landlord a new lease for three lives (one of whom was the surviving cestui que vie in the former lease), with covenant for perpetual renewal at a largely increased rent. He sold his newly-acquired interest for valuable consideration; but, as it was held, with notice, and though a similar argument based on Randall v Russell 3 Mer 190, and also on Norris v Le Neve 3 Atk. 26, was put forward for the defendant the purchaser, Lord Plunket held that the new lease was a graft on the old one, and decreed accordingly. He no doubt, as well as Sir J Copley, distinguished the case from those cited to him for the defendant, as not being a purchase of a reversion in fee, and also on some special circumstances; but he expressed doubt as to the effect of the decision in Randall v Russell 3 Mer 190, and pointed out that in reality the question was not affected by Norris v Le Neve 3 Atk 26.
The case of Postlethwaite v Lewthwaite 2 J & H 237, before Sir WP Wood, was cited in argument, but has not much application to this case. It was a purchase of a reversion in fee from the Ecclesiastical Commissioners of England by an immediate lessee, and an underlessee with a toties quoties covenant for renewal claimed a declaration that the interest so purchased was subject to his underlease. The Vice-Chancellor considered that the relation of a purchasing lessee was very much that of a fiduciary or partner with respect to his sublessee, and held that the equity of the latter was to call for a conveyance of the fee of the particular property comprised in his underlease, upon the terms of paying his share of the expenses of acquiring it. The question there was rather as to the terms on which the plaintiff was so entitled and the construction was therefore different. In Trumper v Trumper LR 14 Eq 295 the plaintiff sought to charge certain sums, which were originally charged upon an estate for lives renewable for ever, upon the reversion in fee which had been purchased by a tenant for life of the leasehold interest subsequently to the creation of the charges. The defendant, who was the devisee of the reversion so purchased, disputed this claim. Bacon, VC, held that the plaintiff was entitled to the relief he sought, and that the charges should be raised out of the entire estate in the lands. He held that, upon the general principles applicable in a Court of Equity to the circumstances, there ought to be no doubt, and that there could be no danger in holding, that a trustee or person in any degree in a fiduciary position who had acquired the legal possession of and dominion over an estate subject to a covenant for perpetual renewal, and who should so deal with the property as to make the renewal impossible by his own act, and for his benefit, would be bound to give full effect to the charges on the trust estate, and to satisfy these charges out of the acquired estate so far as might be necessary. He referred to the cases of Evans v Walshe 2 Sch & Lef 519, and Randall v Russell 3 Mer 190, as confirming his view, and said that the dangers which would attend the exclusion of the principle were so numerous and so serious that they would go near to destroy the fixed rules by which the dealings of persons in a fiduciary position with respect to trust estates and interests are governed. This case is an important authority in favour of the plaintiff here; and I fully concur, not only in the decision, but in Sir J Bacon’s statement of the equitable principle on which he placed it. His decision was affirmed by the Court of Appeal in Chancery LR 8 Ch App 870. James, LJ, does not in terms apply to it the broad principle relied on by Sir J Bacon, and in his judgment says that the right of the plaintiff would not be to claim the fee, but only a right to a leasehold interest subject to the life estate of the defendant, and with a right of renewal; and on that basis discuss the position of the tenant for life as paying off a charge on the entire leasehold interest – a question having no bearing on the case before me. His observations to which I refer would appear to be in accordance with those of Sir William Grant in Randall v Russell 3 Mer 190, as to the extent of the right of a quasi remainderman of a leasehold interest to the benefit of a purchase of the fee by a prior tenant for life. It was not necessary for him to go farther than to hold that the charges on the original interest must under the circumstances of that case be let in on the fee; and he expressed no dissent from Sir James Bacon’s statement and application of the general principle. The only relation between the parties in that case also was that of tenant for life and remainderman.
In none of the cases which have been cited in argument, or which I have found, is there any distinction taken as to the nature of the additional estate or interest acquired save in those between tenant for life and tenant quasi in remainder. I certainly am not disposed to extend this distinction to any other cases, and I am of opinion that it does not apply to cases like the present where the relation is expressly fiduciary, and existed independently of the purchase. I think it would be impossible to hold that, if Matthew Lawder had accepted the offer of pre-emption given by the 34th section, he would be entitled to the reversion in fee so acquired for his own benefit. It would have clearly been an estate acquired by him by virtue of his fiduciary position, which alone entitled him to the tenancy in possession to which the Act accords that right. It is, no doubt, true that the 34th section enacts that any person purchasing the reversion shall hold it subject to all tenants’ rights of renewal to which the same was subject in the hands of the Commissioners at the time of the sale. That would not, however, be the measure of the right of the creditors or next-of-kin, for their trustee, qua trustee, would have gained an additional estate, presumably an advantageous one, but certainly one which they could claim as their own on recouping him what he had given for it. Surely the rule supposed to have been laid down by Sir William Grant could not have applied to such a case. I have no doubt that he never intended to express so wide a proposition.
I had occasion to apply this general rule to the acquisition by an administratrix of a new tenancy from year to year, in the case of Kelly v Kelly IR 8 Eq 403, where the old tenancy had been determined by notice to quit, and a new letting made to the widow of the former tenant, who was also his administratrix; and though there were circumstances relied on as showing that the new letting was to her as the widow, not as the administratrix, I refused to entertain that question, and held her to be a constructive trustee. Again, in McCracken v McClelland IR 11 Eq 172, I had to deal with a purchase by an executor of a farm subject to the Ulster tenant-right custom, which he paid for with his own money, and obtained a new letting of, according to the custom of the estate; and on the same principle I held him to be a trustee. In those cases I stated my views of the principle applicable to them; and I am of opinion that that principle applies with equal force to cases like the present.
It was urged here, as in those cases, that the circumstances of the purchase show that the administrator did not buy in his fiduciary capacity, but for his own personal benefit. It was contended that the statutory offer of pre-emption having been refused, he was at liberty to bid for the estate as any other member of the public could. If this were so, it would open a wide door to fraud, for a trustee, whose duty it is to secure for his cestuis que trusts every advantage incident to the trust property, would be at liberty for his own purposes to decline the offer of pre-emption, and thus secure the setting up of the estate by public auction, and then buy, as he did here, at a less price, and hold the property as his own. The fact of his being the possessor of the leasehold interest might, and probably would, be a reason for his getting it at a less price than a stranger. But into these probabilities this Court, in such cases, declines for wise reasons to enter, and holds that every advantage which may possibly arise from the fiduciary position shall enure to the benefit of the cestuis que trusts. If no statutory right of pre-emption had been conferred, and the reversion at once set up for public sale, a purchase by a trustee would, according to the opinion I have expressed, be held so to enure. It seems to me to make the case stronger against a trustee that he had previously been offered the purchase and declined it. I do not mean to say that Matthew N Lawder declined the offer of the Commissioners fraudulently, with a view to a purchase by auction for his own use, and he possibly had no other reason for so doing, but that he thought the price too high. That consideration is, however, beside the question, for actual fraud is not necessary in cases between trustee and cestui que trust.
I am accordingly of opinion that Matthew N Lawder became a constructive trustee of the reversion so purchased, for the persons entitled beneficially to the personal estate of Wm Lawder, and that it forms part of such personal estate; the persons claiming the benefit of it, of course, paying the purchase-money and all expenses incurred by MN Lawder in the purchase.
Dempsey v Ward
[1899] 1 IR 463 (Court of Appeal)
Lord Ashbourne C: This is an appeal from a judgment of the Master of the Rolls dismissing the action, and it presents some curious phases. Upon reading the statement of claim, one view is presented clearly, but anyone who heard the argument of the plaintiff’s counsel in Court, and who afterwards read the statement of claim, would not consider there was much resemblance between the pleading and the case argued. The case put forward by the statement of claim states that a man named Dempsey, a farmer in the county of Meath, died in May 1876, being possessed of certain lands called Killegland, containing 192 acres, which he held under lease for a term of years, which had expired, and for lives, of which he was the last survivor. He left a widow, Mary Anne Dempsey, and nine children. She continued in possession after his death, at the rent of £250, the former rent, and remained in possession till the month of July 1887. It states that she was entitled to one-third of this tenancy for herself and the children were entitled to two-thirds as a graft upon the tenancy which had determined with her husband’s life. The fifth paragraph states: “In the month of December 1886, the said Mary Anne Dempsey by an agreement in writing purported to sell the said tenancy in the said lands to one William Bobbett for the sum of £400,” and the pleading states that there was fraud in the transaction, as the said Mary Anne Dempsey had not any independent advice and assistance on the occasion of the sale, that the solicitor for Bobbett acted for both parties on the occasion, that Mrs Dempsey did not understand the full nature of the transaction into which she was induced to enter, and that the sale was at a gross undervalue, as the farm was worth a great deal more than £400. It then states that the plaintiff, one of the sons, went to America and only returned in 1896, that he obtained letters of administration to his father on the 23rd August 1897, and that Bobbett died having left the holding to the defendant by his will. The relief prayed for is that the present tenancy subsisting in the lands may be declared to be a graft upon the interest of James Dempsey, in other words that the mother’s tenancy was a graft on the father’s expired tenancy, and that Bobbett’s tenancy was a graft on the mother’s.
The statement of defence states that Bobbett became tenant in 1887, that he died in January 1888, having left his interest in this farm to his daughter, the defendant, and she sets out the facts and circumstances of the sale. She states that what occurred was this – Mrs Dempsey being indebted to Charles P Aungier, the landlord, in the sum of £625, two and a-half years’ rent of the lands, a writ of possession, issued on foot of a judgment obtained in an action of ejectment for non-payment of rent at the suit of Charles P Aungier, was duly executed by the sheriff of the county of Meath, and possession of the lands was given thereunder to Mr Aungier, and Mrs Dempsey’s interest determined. After the statutory period for redemption had expired Aungier demised the lands to Bobbett. The said Mary Anne Dempsey did not sell, or purport to sell the said tenancy in the said lands to William Bobbett; she had no interest in the lands to sell, and Bobbett did not purchase any estate or interest in the lands from her. The defendant further states that no such sum as £400 was paid by the said William Bobbett to Mrs Dempsey, but the sum of £230 was given by Bobbett, who was apprehensive of being boycotted, to Mrs Dempsey by way of gratuity, and in order to secure her good-will. It then states that subsequently to the ejectment Mrs Dempsey remained for a period of about seven months as caretaker in care of the said lands, and in 1887 she was put out under a magistrate’s order, and since then Bobbett has remained in possession.
There is a wide difference between the facts and circumstances as we now have them and the simple and innocent case put forward by the statement of claim. The first branch of the argument was the point presented to the Master of the Rolls – that there was a sale to Bobbett, that Mrs Dempsey being in possession for her own interest sold to Bobbett, and that Bobbett must be regarded now as having the tenancy which is a graft upon hers. The Master of the Rolls seems also to have been pressed with the further point, although not in so much detail as it was pressed here, that the ejectment was void. The Master of the Rolls decided in favour of the respondent, and the case has been fully discussed before us on appeal. The counsel for the appellant have presented two broad branches of argument – (1), the question on the facts, that the tenancy was a graft on the old tenancy; and (2), the effect of the ejectment.
On the facts the argument addressed to us was this, that we ought to regard the substance of the transaction, that Bobbett had succeeded Mrs Dempsey by virtue of the transaction with her, and that that transaction was handing over the interest or good-will, that it was a sale between Bobbett and Mrs Dempsey, and that we were to ignore the fact that there was no evidence of a contract between Bobbett and Mrs Dempsey. We were to pass that by because in Bobbett’s will there is a statement that he purchased the farm from Mrs Dempsey for £400, and because there is another statement in a letter written by Mr Davoren to the Land Commission that Bobbett’s rent was the same as the former tenant’s, Mrs Dempsey, whose good-will he purchased. That is, roughly speaking, the contention of the appellant as to how we should look at the case on the facts. I am not much impressed with the argument on the words of the will. The will is not well expressed, but the somewhat lax use of words by a testator cannot alter rights. As to the letter written by Mr Davoren, that can scarcely affect the question. Bobbett was endeavouring to be a present tenant, but the idea seemed to have existed that he could not do this unless he was in the shoes of Mrs Dempsey. But Holmes, LJ, drew attention to the form of the order made by the Land Commission. The Land Commission struck out all reference to the former tenancy, and made the order simply certifying that the agreement was filed declaring the fair rent of the holding. Upon the facts, and the evidence, and the probabilities of the case, I hold that his was a new letting from the landlord to Bobbett, and it was not a sale or transfer from Mrs Dempsey to Bobbett. In the position in which things stood, Bobbett would go to the landlord if he wanted a new tenancy clear of any complication, and he would only go to Mrs Dempsey if he wished to have a transfer of the old tenancy with its obligations. On the evidence the arrangement made by Bobbett was with the landlord, and not with Mrs Dempsey.
The question of graft plays a considerable part in the argument, but I am not going through all the cases on the doctrine of graft in detail. A man taking a new letting who is in a fiduciary position, that is one case; a man who is an executor taking a new letting, that is another; or a guardian of a minor, or a person who is a limited owner, and who gets the new letting by virtue of the position in which he stands in relation to the property; these are other instances in which the letting has been held a graft. The case of O’Brien v Egan 5 LR Ir 633 decided by the Vice-Chancellor is, without doubt, the strongest that can be found. But the facts of that case were quite different from those of the case now before the Court. There the person, to whom the new letting was made, was in possession of the holding, under the provisions of her husband’s will, and on the expiration of the lease she obtained a new letting. That is very different from this case, where the term expired with the life of James Dempsey, and the landlord thought right to give the widow a new letting. But I do not rest my judgment on that. What did Mrs Dempsey give Bobbett? If Mrs Dempsey was there in possession of the old tenancy, and Bobbett purchased her interest, that would be another question, but that is not my reading of the facts. I hold that Bobbett came into possession by a contract with the landlord, that the £400 was paid under this arrangement to Mr Charles Aungier, and it was quite legitimate to pay £230 to the widow not for her good-will, but for her good word.
Assuming the facts to be as I have stated, there is another question to be decided. Mr Price and Mr Matheson say you are leaning on a broken reed, the ejectment is void, because there were two joint tenants entitled to the reversion, and only one of them was joined as plaintiff in the ejectment. That is a strong way of putting the case, to suggest that there are several joint tenants entitled to the reversion, and the fact of one of them being omitted defeats the action, although the defendant did not raise the objection, or deny the plaintiff’s right to recover. I can quite understand that in an ejectment for non-payment of rent, a defendant can say that a party ought to be added. But I am not aware of any case like this, where, after the lapse of twelve years, a person who was not a party to the ejectment comes forward to raise the point of non-joinder of a plaintiff. It is curious to consider what the result would be. What is the position and status of Bobbett, or of those who represent him? The contention would sweep away the tenant of the Aungiers, from whom they have been getting rent for eleven years, and affects their position without any notice to them, and without any representation to them in this action. Again it is sought to do this, though Mrs Dempsey is not a party to the present action, while she was defendant in the ejectment. Then again, there is no notice to the landlord, although Mrs Dempsey received £230 for her one-third interest in the holding. There is no case where such a thing was done after verdict and judgment, and after such a lapse of time. We have been familiar with Rules of pleading for ever so long, which have been passed for the purpose of preventing actions from being defeated from non-joinder of parties, and the matter was dealt with in the Rules of 1891 by Order XVI r 11, and yet we are asked to hold that this action of ejectment was void because one joint tenant was not added as a co-plaintiff. In my opinion, the question is one of title, rather than of jurisdiction. It is admitted that this single plaintiff could distrain, that he could give receipts for rent, and that he could serve a notice to quit. It is also admitted that he could bring an ejectment in his own name, if he acted for himself and others. In my opinion it would be indefensible for us to hold this ejectment to be void after such a lapse of time, and with some of the parties affected by it not before the Court, even if we held different views on the facts of the case.
Upon those facts I am entirely against the appellant, and in my judgment the decision of the Master of the Rolls is right, and should be affirmed, and the appeal should be dismissed with costs.
FitzGibbon LJ: I concur. In my opinion, the plaintiff fails on the form in which the action has been framed, on the equitable question of graft, on the legal determination of the tenancy, and on the evidence. Though I shall express my opinion on each of these matters, any one of them would be a sufficient answer to the action.
What is the nature of the suit? The plaintiff sues as the personal representative of James Dempsey the former tenant. One of the defendants, Margaret Mary Ward, is a legatee under the will of William Bobbett, and the two other defendants are his personal representatives. To sustain the action the plaintiff must, therefore, show title to something which is personal estate of James Dempsey. The claim is independent of heirship, and independent of devolution. Accordingly, before the plaintiff can succeed, he must show that the existing tenancy in the farm in question is an accretion to the personal estate of the late James Dempsey.
Furthermore, the claim is for two-thirds of the land in specie, and without terms of any kind. No one is brought before the Court who might have any equity, claim, or interest in or against the two-thirds of the land. No terms can be imposed except what Bobbett, if living, could have given. The landlord is not a party; Mrs Dempsey is not a party, and unless a clear and unconditional title is established by the plaintiff, the suit, as framed, cannot succeed.
In my opinion there are four fatal objections to the case of the plaintiff. 1. There is no proof that the tenancy which Mrs Dempsey originally got was a graft on her husband’s interest. 2. The tenancy which Mrs Dempsey got from the landlord after her husband’s death was determined before Bobbett came in. I think that it was determined by the judgment in ejectment; but if not, it was determined by Mrs Dempsey by act and operation of law. 3. I agree with the Master of the Rolls that the evidence proves that Bobbett became tenant and got possession, not by purchase from Mrs Dempsey, but by direct contract with the landlord; and, 4. The new letting to Bobbett was not grafted on anything which had gone before, but became a new root of title. The only difficulty which I feel upon this part of the case arises on the language of Mr Davoren’s letter of January 27th 1887.
Not for the first time, I have to observe that I entertain grave doubts as to the extent to which the doctrine of graft has been pushed in this country. The use of the term “graft” is peculiar to Ireland. English Judges have found fault with our Irish use of the terms “graft” and “salvage” to designate separate heads of equity; they object to metaphor, and prefer to speak of “derivative equities.” The terms have been used for a long time in Ireland; they happily express what is meant, but their use ought not to extend the doctrines of equity. To have a graft at all, there must still be life in the old stock. The vital principle of all the cases is to be found in Keech v Sandford 1 Wh & Tud LC 48, where a trustee took a renewal of a lease for his own benefit, the lease being vested in him as guardian of an infant, and it was held that he could not hold the renewal against his ward.
In Kelly v Kelly IR 8 Eq 403 the personal representative took possession of a tenancy from year to year, and though an ejectment was brought, and possession was formally taken, the administratrix continued to occupy at the same rent, and was held to be in the same position as a trustee purchasing part of the trust property for his own benefit, and therefore incapable of acquiring beneficially for himself.
In McCracken v McClelland IR 11 Eq 172 the executor actually surrendered the holding to the landlord, while the old tenancy was in existence, and in compliance with the custom of the estate he was given the new tenancy because he was an old tenant. In other words, he gave up part of the assets as the consideration for the new tenancy. This was the same case as Randall v Russell 3 Mer 190.
Then came O’Brien v Egan 5 LR Ir 633. With all respect, I treat that as, at best, a frontier case: whether it goes beyond the true line, it is not necessary now to decide. But whenever it comes to this Court for decision, it will be open to serious question whether the argument of Serjeant O’Hagan was sufficiently answered. Where a specific piece of property, such as a tenancy for a fixed term, which is subject to certain rights, comes to its natural end, and ceases to exist, I shall require argument to satisfy me that a person who had an interest in what so came to an end, is under any disability, or is subject to any equity, which will affect him in an honest dealing for a new interest, in any way in which a stranger would not be affected. That does not seem to me to be the case of grafting on an old stock, but of acquiring or planting a new root. But, however that may be, all that it is now necessary to say of O’Brien v Egan 5 LR Ir 633 was well expressed by Holmes, LJ in the course of the argument: “there is a chasm between that case and this.” In O’Brien v Egan 5 LR Ir 633 there had been a continuing possession of the property which was surrendered. Here it is not even alleged, far less proved, that Mrs Dempsey originally got into possession through her husband. The statement of claim alleges that James Dempsey was entitled to the lands of Killegland held under a lease for years and lives made prior to the year 1870. It then states:
“The term of years had expired long prior to his death, and the surviving life was that of the said James Dempsey. Immediately after the death of the said James Dempsey, the said Mary Ann Dempsey entered into possession of the said lands, and was accepted by the landlord thereof, one Mark Aungier, as, and became tenant of the said lands at the yearly rent of £250, and remained in possession thereof as such tenant from the said 1st May 1876, down to the month of July 1887.”
It is not stated that Mrs Dempsey was an over-holding tenant, or that she became tenant on the terms of the expired lease; or that she was accepted through any consideration of her relationship to James Dempsey, or that she took advantage of her relationship in any way. The statement of claim alleges no equity against her, and none has been proved.
In my opinion, where a tenancy has ended, and where it is in the power of the landlord to make a new letting to whomsoever he chooses to accept as tenant, there is no necessary disability attaching to the members of the family of the previous tenant, which, per se, and without more, prevents any one of them from taking and keeping a new tenancy, unencumbered by grafts or equities which would not affect other people. It is every day’s experience. The tenant for his own life dies: if the landlord likes, he can turn the family out on the spot. The widow and sons go to the landlord’s office, to see whether he will accept one or more of them, to succeed the old tenant. He may prefer the widow, because she is thrifty and industrious; or because the children are young. Or he may prefer the eldest son, because he is likely to work the farm well, or even because, if it was a freehold before, he wishes the son to succeed the father as a freeholder. Or he might prefer the second son, either because he was a better man than his eldest brother, or because the elder brother already had another farm. What equity is there, in such cases as those, in “grafting” liabilities, or disabilities, on new tenancies? The first effect of such a graft must be to make the grafted interest assets of the late tenant, and to bring in the creditors even before the beneficiaries. It appears to me that there is a “chasm” between such cases and the principle of Keech v Sandford 1 Wh & Tud LC 48, and in the present case I find nothing to connect James Dempsey’s tenancy with his widow’s tenancy, except that she was his widow, and was living in his house when his tenancy ended by his death.
As to the second question – Whether the tenancy was determined? – I think the ejectment determined it. In McSheffry v Doherty [1897] 2 IR 191 we were driven to hold that the ejectment was void. There was a mortgage of the interest supposed to be evicted, which was admittedly still existing. The pleading was wrong; it deliberately omitted part of the demised lands; and parties not bound by the ejectment were still interested in, and were in possession of, those lands. The existence of the mortgage, and the continuance of the demise in the outstanding lands, were alike incompatible with the validity of the eviction. No such difficulty arises here; the plaintiff who sued and recovered in the ejectment was in the position of bailiff for the co-owners, and it does not lie in the mouth of any party to the proceedings to say that possession was not recovered by him for himself and his co-owners. But, at all events, there was sufficient evidence to satisfy s 24 of the Landlord and Tenant Act of 1860, that the plaintiff in the ejectment was the landlord of the defendant, and in an ejectment brought by a landlord by estoppel against a tenant by estoppel, it cannot, in my opinion, be open after judgment to treat the eviction as void, merely on the ground of non-joinder of parties.
Besides, Mrs Dempsey put an end to any tenancy with which she was capable of dealing, by act and operation of law.
The third question is one of fact. The whole dealing was between Bobbett and Mr Aungier. The widow had become a permissive occupant; she could be put out by a magistrate’s order; and Bobbett undertook to give her something, not for her tenancy, but for her “good-will.” The suggestion that the tenancy was sold for less than it was worth is unfounded. The new letting to Bobbett was independent of the previous caretaker’s occupation. It ought not to be lost sight of that the tenancy which Bobbett got was not one to which the advantages of a “present tenancy” attached. Care was taken to make it clear that what Bobbett purchased was an evicted farm, and not a subsisting tenancy, and therefore he got it cheap.
Lastly, an attempt to graft an equity on this new tenancy of Bobbett’s would at once bring the parties seeking the equity under the obligation of doing equity by paying the mortgage that has been referred to, and discharging all the other liabilities of the deceased tenant. If the plaintiff here could succeed at all, he could do so only in a suit bringing the landlord, Bobbett’s representative, and the mortgagee, all before the Court, and offering to pay the landlord his rent, the mortgagee his debt, and to take a fair account with Mrs Dempsey of the rents and profits.
In my opinion, the action wholly fails, and the appeal must be dismissed with costs.
Holmes LJ: It does not often happen that a case comes into this Court in which the plaintiff fails so completely in both law and merits as in the present instance. Objection has been taken to the action on the grounds that the proper parties are not before the Court that the relief claimed has been misconceived, and that there are other defects of a comparatively minor character. I do not stop to examine these defences, inasmuch as the plaintiff’s cause of action depends upon his establishing two propositions neither of which can be sustained. The foundation of his alleged right is that the letting of Killegland to Mary Anne Dempsey on the death of her husband created a tenancy which became at once part of the husband’s personal estate. I am clearly of opinion that it did not. James Dempsey the husband had a freehold lease of these lands which terminated with his life. His wife went to Liverpool to see the landlord and obtain from him a new letting. She asked for a freehold lease which the landlord declined to give, but he made her tenant from year to year. There was no intention on either side to increase the assets of the deceased. There was no trust declared. Neither the widow, nor any one else, except the landlord had any interest, legal or equitable, in the land; and when she applied to be made tenant, she had never occupied any fiduciary position in relation to it. The doctrine recognised in Keech v Sandford 1 Wh & Tud 48 has been pushed in some instances very far, but it is impossible to apply it in the present case. The landlord was probably influenced in making the letting by a desire to benefit the widow of an old tenant; but, if so, it was a personal benefit he wished to confer on her, and not to create an interest that might be laid hold of by the creditors of the deceased.
On this ground alone the action must fail. But even if Mrs Dempsey became a trustee for everyone interested in her husband’s assets, the letting made to her has long since come to an end; and the tenancy to which the defendants are now entitled is a new and different interest. There has been a good deal of argument as to the nature and effect of the transactions which led to William Bobbett becoming the tenant; but the inference from the evidence is clear: res ipsa loquitur. Mrs Dempsey fell behind in her rent, and in May 1886, she owed on account of it £625. Her interest in the land was valuable; and the first idea of the landlord was to sell it under a judgment to be obtained by him for the amount due; but it was discovered that the sheriff would not have been able to seize the tenancy under a writ of fieri facias on account of a mortgage that affected it. A judgment in ejectment for non-payment of rent was then obtained; and when the writ of habere was executed, one of Mrs Dempsey’s sons was made temporary tenant pending the period of redemption. I have no doubt that she would have sold while there was yet time, if she could have got a purchaser willing to give a price that would cover the rent due and the mortgage debt; but none such was to be found, and as there would have been no advantage in a sale for a smaller sum, the period for redemption was allowed to expire, and the tenancy came to an end. When the landlord was proceeding to take possession, Bobbett turned up. He was willing to give £400; but I have no doubt that he would only give it to the landlord on getting the land from him. He is dead himself; but the landlord’s solicitor, Mr Davoren, tells us what happened when the arrangement was made. The £400 was paid to the landlord, and it was left to the latter to say what sum he would give as a matter of charity to the former tenant. The amount was fixed by him at £230; and this she got, not as the purchase-money of her tenancy which was gone, but for the purpose of obtaining the personal good-will of herself and her family.
It has been argued that the ejectment was a nullity because the reversion expectant on the tenancy was vested in two trustees jointly, and only one of them was named the plaintiff. He could, however, have given a good discharge for all the rent, and I doubt if the tenant could have taken advantage of the non-joinder of the other even before judgment. In any case, I am of opinion that it was too late to raise this objection years after judgment and execution. Besides, if the tenancy was not determined, the arrangement I have mentioned amounted to a surrender of it by Mrs Dempsey.
It was part of the arrangement between the landlord and Bobbett that the latter should be given a statutory tenancy; and this is the only thing which affords some shadowy reason for saying that Bobbett had purchased the old tenancy. The usual form of agreement was altered by striking out all reference to an old rent or to a present tenancy; and nothing appears upon the face of the document to show that before its date any tenancy existed in the holding. It is, however, argued that inasmuch as such an agreement could only have been entered into when the tenancy had been in existence before 1881, it must be now assumed that this tenancy was of that duration. The cases, however, which decided, or are supposed to have decided that a landlord and tenant could not create a present tenancy by agreement did not arise until long after this transaction; and at that time it was not unusual to have a fair rent fixed by consent on the creation of a future tenancy. I cannot hold that the subsequent judicial determination of a doubtful point of law can throw any light on the real nature of a previous transaction. Neither do I attach any importance to Mr Davoren’s letter to the Land Commission which, in my opinion, does not bear the construction sought to be placed upon it.
For these reasons I hold that the plaintiff has failed to establish either of the propositions which are necessary for his course of action.
McGrattan v McGrattan
[1985] NI 28 (Court of Appeal)
The facts are set out in Kelly LJ’s judgment.
Kelly LJ: This is an appeal by the first-named defendant from the decision of Gibson LJ sitting in the Chancery Division relating to a company called W McGrattan & Sons Limited (which I shall call “the company”). The plaintiff and first three defendants are brothers and all hold shares in the company, which is a private company. Article 10 of the company’s Articles of Association adopted in August 1965 provided:
“Edward McGrattan shall be the Governing Director of the Company and Chairman of the Board of Directors until he resigns the office or dies and while he retains that office he shall have authority to exercise all the powers authorities and discretions vested in the Board of Directors generally. John McGrattan and Gerald McGrattan shall be Permanent Directors and each shall be entitled to hold office as such so long as he lives and either of them may at any time convene an Extraordinary General Meeting of the Company.”
Article 13 provided:
“The remuneration of the Governing Director and of the Permanent Directors(that is to say their salaries and fees) from 1st March 1965 shall be calculated as follows:
(a)Five thousand pounds yearly to the said Edward McGrattan while he remains Governing Director.
(b)£1,200 yearly to the said John McGrattan.
(c)£800 yearly to the said Gerald McGrattan.
(d)Any additional remuneration to be paid to Directors shall be divided as follows:
(i)one half thereof to the Governing Director while he remains Governing Director.
(ii)three tenths thereof to the said John McGrattan and
(iii)one fifth thereof to the said Gerald McGrattan.
(e)The Permanent Directors or either of them may insist on a full distribution of the profits of the Company (after deductions of payments under (a), (b) and (c) hereof) as certified by its auditors up to £13,000 per annum.”
The issued share capital of the company is 901 shares. Prior to July 1960, the plaintiff, Edward McGrattan, was registered as the holder of 250 shares, the second-named defendant Gerald McGrattan, was registered as the holder of 200 shares, the third-named defendant, Patrick McGrattan, was registered as the holder of 200 shares, and the one remaining share was held by Mr Patrick Fegan, an employee of the company. In July 1960 the plaintiff borrowed £30,000.00 from the first-named and second-named defendants and, to secure the loan, 160 of the plaintiff’s shares were transferred to, and registered in the name of, the first-named defendant and 80 of the plaintiff’s shares were transferred to, and registered in the name of, the second-named defendant. The loan was repaid by the plaintiff in or about 1965 but the 160 shares and the 80 shares were not transferred back to the plaintiff and remained registered in the names of the first-named defendant and the second-named defendant respectively. Dissension subsequently arose between the plaintiff and his brothers and by notice dated 18th September 1981, the first-named and second-named defendants requisitioned an extraordinary general meeting of the company to be held on 21st October 1981, for the purpose of proposing a special resolution revoking the Articles of Association which conferred on the plaintiff the position of Governing Director and the preferential rights of remuneration. The resolution to be proposed at the meeting of 21st October 1981 was a special resolution which by virtue of Section 135(1) of the Companies Act (NI) 1960 required a majority of three-fourths of the votes cast. The meeting was attended by the first-named defendant and Mr Patrick Fegan personally and by a proxy for the second-named defendant. The plaintiff did not attend, having been advised that as registered owner of only 10 shares he could not prevent the passing of the proposed resolution. The resolution was proposed and seconded and on a show of hands the first defendant voted in favour of it and Mr Fegan abstained. The resolution was then declared to have been passed. However, if the 160 shares and the 80 shares had been transferred back to the plaintiff and he had attended the meeting on 21st October 1981, and had demanded a poll, he could have cast his 250 votes against the special resolution and the resolution would have been defeated.
At the hearing before Gibson LJ it was conceded by counsel for the defendants that the first-named and second-named defendants held the 240 shares as bare trustees for the plaintiff. Gibson LJ held that:
“As it is not possible to split one’s vote on a show of hands, (the first-named defendant) must be deemed to have voted as the registered owner not only of his own 250 shares but also as owner of the 160 Shares of the plaintiff. To that extent, therefore, he was in breach of trust in casting his vote for a resolution which to his knowledge was detrimental to the interests of the plaintiff … I declare that the purported resolution passed on October 21, 1981 is null and void and in consequence that the plaintiff is still Governing Director of the Company in accordance with the Articles of Association of the Company as adopted on 10 August 1965.”
Mr Campbell appeared for the appellant, Mr John McGrattan, in this court, but had not appeared for the appellant before Gibson LJ. Mr Campbell, with the permission of this court and contrary to the concession made in the court below, submitted that the first-named and second-named defendants were not trustees in respect of the voting rights attaching to the 240 shares but were legal mortgagees of the shares and were therefore entitled to vote as they chose, and he relied on the judgment of Swinfen Eady MR in Siemens Bros & Co Ltd v Burns [1918] 2 Ch 324 at page 336:
“In the ordinary way, where shares are transferred to and registered in the name of a mortgagee it follows, from his position as owner at law of the shares, that the ownership carries with it the voting right, that this vested in the owner of the shares; and it would require a contract to exclude that right. Sometime, where shares from a security, there is a contemporaneous collateral agreement as to the mode in which, and the extent to which, voting rights in respect of the shares shall be exercised. But in the absence of any such agreement with the voting rights would be with the legal owners of the shares, and it would require a contract to control the exercise of those rights.”
However, in my opinion, the principle stated by Swinfen Eady MR applies to a mortgagee while the debt remains unpaid but once the debt and all the interest thereon has been repaid by mortgagor the mortgagee becomes a bare trustee for the mortgagor: see Brotherston v Hatt (1706) 2 Vern 574 at page 575, 23 ER 973 at page 974. I would therefore hold that at the material time the first-named defendant was a trustee in respect of the voting rights attached to the 160 shares. Therefore the question which arises is whether the first-named defendant acted in breach of trust in voting in favour of the resolution on the show of hands. In my judgment this issue is governed by the rule stated by Lord Upjohn, and which he described as the wider rule, in Phipps v Boardman [1967] 2 AC 46 at page 123:
“The relevant rule for the decision of this case is the fundamental rule of equity that a person in a fiduciary capacity must not make a profit out of his trust which is part of the wider rule that a trustee must not place himself in a position which his duty and his interest may conflict, … It is perhaps stated most highly against trustees or directors in the celebrated speech of Lord Cranworth LC in Aberdeen Railway v Blaikie, where he said: ‘And it is a rule of universal application, that no one, having such duties to discharge, shall be allowed to enter into engagements in which he has, or can have, a personal interest conflicting, or which possibly may conflict, with the interests of those whom he is bound to protect.’ The phrase ‘possibly may conflict’ requires consideration. In my view it means that the reasonable man looking at the relevant facts and circumstances of the particular case would think that there was real sensible possibility of conflict, not that you could imagine some situation arising which might, in some conceivable possibility in events not contemplated as real sensible possibilities by any reasonable person, result in a conflict.”
It is clear on the facts of this case that the passing of the resolution to deprive the plaintiff of his position as Governing Director and of his preferential rights of remuneration would conflict with the interests of the plaintiff. It is also clear that this detriment would have been obvious to the first-named defendant. At the meeting the first-named defendant held 250 shares beneficially and 160 shares as trustee for the plaintiff and the second-named defendant held 200 shares beneficially and the 80 shares as trustee for the plaintiff. If there had been a poll the first-named defendant and the second-named defendant, by his proxy, could have split their votes as permitted by Section 132 of the 1960 Act and could properly have cast their own 450 votes in favour of the resolution and the 240 votes attaching to the trust shares against the resolution; as Harman J stated in Re Gee [1948] Ch 284 at 295:
“A who holds the majority of the shares in a limited company becomes the trustee of the estate of B, a holder of a minority interest; this cannot, I think, disentitle A to use his own shares to procure his appointment as an Officer of the company, nor compel him to disgorge the remuneration he so receives, for he cannot be disentitled to the use of his own voting powers, nor could the use of the trust votes in a contrary sense prevent the majority prevailing.”
But on a show of hands a shareholder can cast only one vote and, therefore, when the first defendant cast his vote on the show of hands in favour of the resolution the question arises whether he thereby acted in breach of trust. Gibson LJ held that he did act in breach of trust as he must be deemed to have voted as the registered owner not only of his own 250 shares but also of the 160 shares which he held in trust for the plaintiff. I respectfully agree. Whilst if there had been a poll the first-named defendant could properly have cast his own 250 votes in favour of the resolution, I consider that on the show of hands where each member present could cast only one vote, the vote of the first-named defendant must be attributed to the 160 trust shares as well as to his own 250 shares. In Ernest v Loma Gold Mines [1897] 1 Ch 1 the Court of Appeal in England considered the position where a member is the proxy for an absent member and votes on a show of hands. Lindley LJ stated at page 8:
“Absent members, who vote by one and the same proxy when no poll is demanded, vote not separately as if they were individually present, but as an aggregate, their proxy, if a member, holding his hand up and so giving one vote, but only one for himself and them.”
And Buckley on the Companies Acts (14th Ed) Vol 1 at page 970 commenting on this decision states:
“Upon a show of hands, each hand means one vote and one only, although it may be that of a member who is there to act for himself, and as proxy for absent members. The chairman cannot upon a show of hands ascertain how many votes a hand is intended to convey.”
In addition I consider that the first-named defendant was in breach of trust because in voting on a show of hands instead of calling for a poll he put himself in a position where his personal interest conflicted with the interests of the plaintiff whom he was bound to protect whereas, having regard to the persons present at the meeting, if he had demanded a poll the votes attaching to the shares which were not trust shares would have amounted only to a maximum of 451 for the resolution whereas the trust votes, which the first-named defendant and the second-named defendant by his proxy would have been under a duty as trustees to cast against the resolution, would have been 240, so that the solution would have been defeated as a three-fourths majority would not have been obtained. Mr Campbell submitted that the vote of the first-named defendant did not constitute a breach of trust on two grounds. The first ground was that the duty of the first-named defendant was only to protect the value of the 160 shares and that there was no evidence that the passing of the resolution had detrimentally affected their value. I do not accept that submission. The duty of the first-named defendant was not solely a duty to protect the value of the shares which he held on trust for the plaintiff, he was also under a duty to avoid placing himself in a position where his own personal interest conflicted with the interests of the plaintiff, and it is clear that he placed himself in such a position when he voted for the resolution and failed to call for a poll. The only way he could properly avoid a conflict would have been to call for a poll. The second ground relied on by Mr Campbell as establishing that there had been no breach of trust was that the plaintiff could have adopted a number of courses to protect his interests before the resolution was put to the vote. These courses included requiring a transfer of the 240 shares back to him or instructing the first-named and second-named defendants to demand a poll and then to cast the 240 votes against the resolution, and seeking an injunction against the first-named and second-named defendants to enforce these instructions. But I consider it to be clear that the duty of a trustee to avoid a conflict of interests continues to exist notwithstanding that the beneficiary fails to take steps which may be open to him to protect his own interests and that the trustee’s duty does not cease by reason of such failure on the part of the beneficiary. Therefore I hold that the first named defendant acted in breach of trust in casting his vote for the resolution. Mr Campbell’s final submission was that, even if the vote of the first-named defendant constituted a breach of trust, nevertheless this breach of trust did not enable the court to set the resolution aside, because the company was not affected by an equitable interest in the shares. Section 114 of the Companies Act (Northern Ireland) 1960 provides:
“No notice of any trust, expressed, implied or constructive, shall be entered on the register, or be receivable by the registrar.”
And Article 7 of Table A provides:
“Except as required by law, no person shall be recognised by the company as holding any share upon any trust, and the company shall not be bound by or be compelled in any way to recognise (even when having notice thereof) any equitable, contingent, future or partial interest in any share or any interest in any fractional part of a share or (except only as by these regulations or bylaw otherwise provided) any other rights in respect of any share except an absolute right to the entirety thereof in the registered holder.”
Mr Campbell submitted that if the court set aside the resolution because the trustee of shares had voted in breach of trust the court would be acting in disregard of the provision in Article 7 that “the company shall not be bound by or be compelled in any way to recognise (even when having notice thereof) any equitable … interest in any share …” I do not accept that submission. Article 7 is intended to protect the company if it deals with the registered holder of shares (for example, by paying dividends to him), even if it has notice that the shares are held on trust for a third party, but I consider that Article 7 does not operate to prevent an equitable owner of shares obtaining an order from the court designed to protect his equitable interests, even if that order operates against the company as well as against the trustee of the shares. In Binney v Ince Hall Coal and Cannel Company (1866) 35 LJ Ch 363 an equitable mortgagee of shares sued the company to restrain a payment to the holders of other shares. Article 142 of the company articles was similar to Article 7 of Table A and the company argued in reliance on this article that the equitable mortgagee of the shares had no right to sue the company. This argument was rejected by Kindersley VC at page 368:
“I now come to consider the plaintiff’s position. It has been contended that he has no right to come here are all, and I have been referred to the 142nd clause of the deed, upon which it has been argued, in effect, that the company may repudiate the plaintiff, and say he has no right to bring them into a court of equity for any relief against them at all. But it appears to me that such a contention really cannot be maintained, because the effect of that clause is not that the company is not to be affected by a trust, or that no trust is to be created on any share, but that the company shall not be affected by any notice of any trust; that is to say, although they have notice that A is a shareholder, and B is a cestui que trust, payment of dividend to the person standing on the books shall, notwithstanding the notice of the trust, be a good discharge. That is the whole effect of this clause. But it does not preclude a cestui que trust of A’s shares from coming and saying ‘Do not pay my trustee the monies as if they belonged to him, but pay them to me’. Nor does it preclude the plaintiff from coming to the company and saying, ‘You are injuring these shares in respect of a right which attaches to them; you have no right to make this application of the profits against Mr Lancaster, my trustee, and therefore you have no right as against me.’ It appears to me that there is nothing in this deed to prove any such right on the part of the company; in fact, it would be enabling a company to take upon themselves to say, ‘We will by our deed make a provision, that whatever injustice we choose to perpetrate there shall be no remedy against that injustice in any court of equity.’ I am not saying that the company is doing anything of the kind; I am only putting it at the extreme. Therefore, I think that the plaintiff has a full right, first, as between himself and Mr Lancaster against the company, to say, ‘You must not pay Mr Lancaster any portion of dividend, but must pay it to me instead.’ And, if necessary, a receive must be appointed not to receive anything belonging to the company, but only to receive from the company, and intercept from Mr Lancaster, that which would otherwise be paid to Mr Lancaster. And then the plaintiff has, I conceive, a right to say, ‘If the company is taking any part of the profits which belong to these shares of Mr Lancaster, and is appropriating them in a manner in which it has no right to appropriate them in paying off capital to the detriment of Mr Lancaster’s shares, I shall go into a court of equity and seek to restrain the company from doing that’”.
In the course of his submissions Mr Campbell posed the case of a resolution being passed at a general meeting of a large public company, which resolution had an important effect in relation to the business of the company and which was passed by reason of the votes cast in support of it by a trustee shareholder who voted contrary to the interests of his beneficiary. In such a case would the court be entitled to set aside the resolution at the suit of the equitable owner of the shares, with all the consequent detriment to the affairs of the company? I find it unnecessary to express a concluded opinion on that point, but in such a case, where the setting aside of the resolution might have a detrimental effect on the company and on many other shareholders and on the other third parties and where the beneficiary had neglected to seek an order against the trustee before the passing of the resolution, the court might decline to set aside the resolution on the ground stated by Cumming-Bruce LJ in Miller v Jackson [1977] QB 966 at 988C, which ground applies to other forms of equitable relief as well as to injunction:
“Courts of equity will not ordinarily and without special necessity interfere by injunction where the injunction will have the effect of very materially injuring the rights of third persons not before the court. The principle has recently been accurately stated in a textbook:
‘Regard must be had “not only to the dry strict rights of the plaintiff and the defendant, but also the surrounding circumstances, to the rights or interests of other persons which may be more or less involved”. So it is that where the plaintiff has prima facie a right to specific relief, a court of equity will, if occasion should arise, weigh the disadvantage of hardship which he will suffer if relief were refused against any hardship or disadvantage which would be caused to third persons or to the public generally if relief were granted’. See Spry on Equitable Remedies (1971), p 365, and the cases referred to in the footnote.”
I affirm the decision of the learned trial judge in declaring that the purported resolution of the 21st October 1981 is null and void.
Hutton J: I concur.
EN v RN
[1992] 2 IR 116; [1992] ILRM 127 (Supreme Court)
Finlay CJ: This is an appeal by the plaintiff against an order made in the High Court on the 27th June 1989 by Barron J in certain proceedings instituted by the plaintiff against the executors of her deceased husband in which she claimed a declaration that she was entitled to a 50% beneficial interest in the property of the family home consisting of a house situate in the City of Dublin. The learned trial judge held that she was entitled to a one-fifteenth share only in the said premises. The facts out of which the claim arose, which were not in dispute, no evidence being adduced on behalf of the defendants, were as follows. The plaintiff married her late husband in 1964. At the time of the marriage he was a qualified architect carrying on practice in the City of Dublin, and she was a state registered nurse who was employed in the City of Dublin. Upon marriage the plaintiff gave up her employment so as to be a full-time wife and three children were born of the marriage, a son in June 1965, a daughter in May 1967 and a second daughter in January 1969. Except for extremely limited, temporary employment, the plaintiff did not work as a nurse after the marriage until the youngest of the children was quite grown up, and resumed employment again only in 1983. From then until 1987 she was full-time employed for a period and part-time employed for a further period as a nurse.
In 1987 she ceased to be employed, apparently due to a disability.
Her husband died in April 1988. In January 1966 the husband purchased the property concerned in this action for the sum of £5,000. That purchase money was provided from a bequest made to him by his late father and also by a further gift from his mother. He borrowed by way of mortgage on the house a further sum of £5,000 to renovate the house and convert it into apartments. The plaintiff and her husband and the one child who was then born then occupied one apartment, which the family did for the rest of the husband’s lifetime, and the balance of the house was converted into bedsitter apartments. The title of the house was in the sole name of the husband. From the commencement of the occupation of the house after it had been renovated, the evidence which was accepted by the learned trial judge was to the effect that the plaintiff took over the entire management of the bedsitter apartments which originally numbered nine, but which in 1984, when the husband moved his office to the house, were reduced to five. Throughout the entire period up to the date of the death of the husband, the plaintiff had, on the evidence, managed these apartments to the extent of making the lettings in them, dealing with complaints, collecting the rents and providing for and organising the maintenance of the apartments. At all stages the rents of the apartments would appear to have been devoted either directly or indirectly towards the payment of interest on the mortgage. In the first instance on the mortgage of £5,000, the entire of the sum went directly towards that purpose; later at periods it may have gone into a mixed family fund out of which mortgage repayments were made. The evidence established that a total of five mortgages were raised on the premises during the lifetime of the husband, that four of them had been discharged in his lifetime and that the fifth was discharged because it was an insured endowment policy which was redeemed at his death. These mortgages were as follows:
1.To the Lombard & Ulster Bank on the 13th June 1966 for £5,000. The purpose of this mortgage was, as has been indicated, the renovation and conversion of the house so as to create nine bedsitters and a garden flat.
2.To the Lombard & Ulster Bank in October 1966 for an unascertained sum.
3.To Allied Irish Banks for a sum of £6,000, the date of which was not established.
4.To Lombard & Ulster Bank in 1975 for £5,000.
5.To the Irish Nationwide Building Society for £15,000 in 1977. With regard to this mortgage the evidence was that it was taken out largely for the purpose of adding a single storey extension to the house.
Evidence was given that due to difficulties in the husband’s architectural practice the family’s financial situation deteriorated significantly in the years prior to his death, having been quite comfortable previously. In particular, it would appear that arrears of income tax had built up with regard to the practice which left his estate at the date of his death apparently insolvent.
For that reason steps were taken by the husband, shortly before his death, to try and ascertain whether he could give to his wife, in the event of his death, an interest in the house which, in a sense, would be protected against debts which he had incurred. Though he was willing to execute any necessary documents to grant to her a 50% interest in the house, no transaction had actually taken place.
The judgment in the High Court
The claim for a declaration of a 50% interest in the premises was substantially based in the High Court on a submission that on the facts of the case the learned trial judge should follow the decision of Barr J in L v L [1992] 2 IR 77, to the effect that where a wife and mother worked in the home and rendered services of substantial value in looking after the home, providing for the husband, housekeeping and looking after the children, instead of going out to work, that, having regard to the provisions of Article 41 of the Constitution it was open to the courts in their discretion to declare such a wife entitled to an appropriate share, probably in most cases to be an equal share of 50%, in the family home. The learned trial judge rejected that submission and stated that he was unable to follow the decision of Barr J. With regard to the alternative claims, the learned trial judge concluded, firstly, that he must reject any assertion that the plaintiff by reason of her work in the home as a mother and housekeeper was entitled to any share in the family home and, secondly, that he must reject any claim arising from the wife’s activities in looking after the rented bedsitters, on the one hand, or her subsequent earnings from 1983 to 1988, on the other hand, except in so far as her original organisation and running of the rented bedsitter apartments contributed to the discharge of the interest and capital of the loan on the £5,000 mortgage which was obtained for the purpose of renovating and converting the house and except in so far as some contribution must be taken to have been made by her to the £15,000 mortgage taken out in 1977 which also yielded improvements to the house in the form of the extension. With regard to the latter contribution the learned trial judge concluded that they did no more than to keep alive a one-fifteenth interest which the original contributions, by way of management of the apartments, had made to the £5,000 mortgage which in turn had yielded an ascertained increase in the value of the premises of £3,000.
The decision
With regard to so much of the appeal as was based on an assertion that the learned trial judge erred in failing to follow the decision of Barr J in L v L, I have just delivered judgment in the appeal which came before this Court in the case of L v L, and have reached a conclusion, which is supported by the other members of the court, to the effect that that decision cannot be upheld. For the reasons set out in my judgment in that case I would, therefore, reject this appeal in so far as it was based on an assertion that the decision should have been followed by Barron J.
With regard to the other submissions that have been made, I have come to the following conclusions.
The reasoning contained in my judgment in L v L is based upon the fact that it does not appear to me that the court has got jurisdiction, by reason of the constitutional provisions contained in Article 41 of the Constitution, or by reason of any general principle to be derived from them, to make specific declarations concerning ownership of the property consisting of the family home which are derived from a principle of reward or implied benefit not known to the existing doctrines of resulting or constructive trust.
Having regard to that fact, I am satisfied that no matter how desirable it may be, that a wife who is also a mother should if at all possible work in the family home and carry out the duties involved, in particular, of rearing children there rather than be employed outside, if she does not wish so to be employed, I do not consider that it is possible from that constitutionally preferred course of conduct to construe any form of resulting or constructive trust, even on the basis, as was submitted in this case, that by so doing she made a saving to what otherwise would have been a probable expenditure from the husband’s earnings for the housekeeper or nanny, and therefore enabled him with greater facility to discharge outgoings on the house, including the repayment of mortgages raised from time to time.
For the same reason, namely, the confining of the rights to interests in the family home to the broad concept of resulting and constructive trust which would arise between persons other than husband and wife, I do not consider as I indicated in my decision in W v W [1981] ILRM 202, that a direct contribution, even in money’s worth, to an improvement made on the family home by a wife, where the husband is the sole owner of it, can, in the absence of express or readily implied agreement constitute a claim for a beneficial interest in it. To that extent it appears to me that the rejection by the learned trial judge in this case of a specific claim arising from the fact that the mortgage to which the plaintiff contributed, certainly, from 1983 onwards, by contributions to the family funds from her earnings as a nurse, which was used for the extension constituted an additional percentage interest in the beneficial ownership of the home, was correct.
Where, however, it seems to me the learned trial judge in this case has fallen into an error, is in his refusal to have regard to the mortgages which were raised and apparently repaid on the premises, between the initial mortgage of £5,000 in 1966 for the conversion into bedsitter apartments and the later mortgage in 1977 for the extension of the house.
In the course of my judgment in W v W dealing with the situation where a wife contributed either directly towards the repayment of a mortgage or to a general family fund, thus releasing her husband from obligations which facilitated his redeeming a mortgage, I stated (at pp 204, 205) as follows:
“It is not expressly stated in the decisions to which I have referred, but I assume that the fundamental principle underlying this rule of law is that the redemption of any form of charge or mortgage on property in truth consists of the acquisition by the owner or mortgagor of an estate in the property with which he had parted at the time of the creating of the mortgage or charge, and that there can be no distinction in principle between a contribution made to the acquisition of that interest and a contribution made to the acquisition of an interest in property by an original purchase.”
I would adhere to that view and its application to this case means that throughout the period of the ownership by the wife and husband of this house between 1966 and 1988, the wife has made contributions to the discharge not only of the first and fifth mortgages, as was found in the High Court, but of all the five mortgages which were raised and which have been redeemed. Those contributions consist, firstly, of the contribution by the wife throughout the entire of that period, consisting of her total management of the bedsitter apartments, the organisation and collection of the rents payable in respect of them and their general maintenance and care. Such activities are different from and not to be identified with the activities of a wife and mother in the home. Secondly, from the year 1983 to 1987, when she was earning as a nurse, she made contributions into the family fund which indirectly contributed towards the repayment of the amounts due on mortgages. This was at a time when the family finances were not as good as they had been and constituted a very important contribution.
Having regard to my view of the extreme importance on the evidence accepted by the learned trial judge of the contribution made by the wife in this case in the entire management of the bedsitter units and the position that the rental from them took in the family finances, over all the years, and having regard to the fact that I am satisfied she is entitled to credit for contribution towards the redemption of all the mortgages, it follows that the share of one-fifteenth assessed by the learned trial judge in the value of this house as being the share of the wife, is quite inadequate.
Having regard to all the considerations which are appropriate, I take the view that the proper share to which she is entitled on the facts as established and accepted by the trial judge is one-half. I would allow the appeal and vary the order of the High Court accordingly.
Hederman J: I agree.
McCarthy J: I also agree.
O’Flaherty J: I agree.
Egan J: I agree.
Alleyne v Darcy
(1854) 4 Ir Ch R 199 (Chancery)
Brady LC: In this case, in which Robert Augustus Alleyne, by Hugh Massey, his next friend, is petitioner, and Nicholas Conyers Darcy and Elizabeth Alleyne are respondents, the prayer is, that the respondent Darcy may be declared a trustee for the petitioner of a sum of £400, which the petitioner charges to have been lost to him by the negligence or by the contrivance of Mr Darcy. The petitioner claims this sum as a portion of the general assets of his father Richard Dunscombe Alleyne, to which the petitioner was entitled under the trusts of his father’s will, in the events which have occurred. The charge here is, that the respondent Mrs Alleyne, having possession of this fund as executrix of her husband, had, in that capacity, lent it on insufficient personal security; and that the respondent Darcy was so implicated in the transaction, as to entitle the petitioner to require payment from him of the amount, either in the capacity of a trustee, or as subject to the same liability as a trustee, under very peculiar circumstances: I may assume that the petitioner was entitled to the beneficial interest in this money; that does not now seem to be seriously disputed, though it was said, on behalf of the respondent Darcy, that there had been no investigation or administration of Mr Alleyne’s affairs, so that the title of the petitioner was not clear. However, the executrix does not make that objection, and it now seems conceded that this fund is the property of the petitioner, as beneficially entitled to the assets of his father. In the consideration of the case, very many important topics were discussed, which, doubtless, involved questions of no small moment to the respondent personally, and to the general body of the profession. The respondent Mr Nicholas C Darcy was engaged, at any rate to some extent professionally, in lending this money; I limit the statement, for there is some doubt as to the extent to which he was retained; but at all events, he was engaged in this way, that he received a sum of money from Mrs Alleyne, for the purpose of being handed over to the party to whom it was to be lent. To that extent, at least, it is admitted he was engaged in the lending; and it is contended that he has so involved himself in the transaction as to make himself liable to restore the fund. In the first place, that necessitates the consideration of the liability of an attorney under such circumstances; for it would be a serious proposition to lay down, that an attorney employed in negotiating a loan of trust-moneys, in no other way in privity with the transaction, should, from the mere fact of the fund being trust-moneys, in addition to his liability for negligence as an attorney, be held liable as a trustee of the fund. That is a startling proposition, and if I were to affirm it, it would make it almost impossible for any attorney to attempt to negotiate a loan of trust funds. Here, however, the question is, whether there are not circumstances added, which place Mr Darcy in a more responsible position than that of an ordinary solicitor? The allegations in that respect are in substance these: that knowing this fund to be trust-money in the hands of Mrs Alleyne the executrix; and knowing, or being bound to know, that the loan on personal security was a breach of trust; and knowing that the person to whom the money was lent, and his security, were in circumstances which rendered it perilous to advance this fund to them, he, notwithstanding all this, advised the employment of the assets in thus making such a loan, and by means of such employment made them available for his own purposes: that, in fact, he was so much involved in this transaction, and received so much of this money, that he must be taken to have acted in concert with the borrower, and must be held to have been implicated in the breach of trust. The above is a short statement of the case on behalf of the petitioner. The facts clearly proved in the case are not many, but they are very important. That Mr Darcy was well acquainted with the nature of the fund; that he knew it was the produce of a policy part of the assets of Dr Alleyne, whose will, leaving it to the petitioner, he had prepared, is not in any way denied; that he knew, or as an attorney was bound to know, that a loan of trust funds on personal security was a breach of trust, are all allegations which cannot be questioned. That, therefore, he knew that this money was lent in violation of duty, and that it was so lent to persons with whom he had been engaged in pecuniary transactions, is plain; and it is further plain, that he well knew, that at least one of the borrowers was deeply distressed for present means, whatever might be the case as to the ultimate value of the property to which he was entitled. It is clearly proved that Mr Darcy was employed to compel payment from him of a sum of money due by him to other persons, by threatening and even by commencing proceedings, and that he had in point of fact full knowledge of the circumstances of both borrower and security. It is also plain, that notwithstanding all this, the money was lent without investigation, inquiry or searches, merely upon the bond and judgment of the principal and surety; that out of the amount lent to them, Mr Darcy retained more than a fourth, and that he has that sum, or equivalent advantages procured with it, still in his possession. The question then arises, whether those circumstances establish the claim of the petitioner against Mr Darcy?
When the case came before me on a former occasion, it assumed the form of a criminal charge; the case was treated as one in which the conduct of Mr Darcy, as a solicitor, rendered him amenable to the summary jurisdiction of this Court. It then seemed to me, however, that that extent of liability was not made out with sufficient clearness to warrant me in acting on it. Mrs Alleyne, the executrix, at whose instance the charge was made, seemed to have involved herself so much in the negotiation of the loan, and the statements in the affidavits were so contradictory and conflicting, that the liability of Mr Darcy seemed to me to belong to the ordinary, not to the summary jurisdiction of this Court, and I gave him the benefit of that better construction of his conduct which is due to all persons criminally charged. When that case was argued, it was much pressed on me that Mr Darcy is chargeable in a Court of Law for negligence as an attorney, and that therefore this was not the proper forum for determining the questions raised in the suit; but in this case there exists the distinction, that the claim is not made by Mrs Alleyne herself – that it is not made by the person who was actually Mr Darcy’s client in the loan transaction; but that, on the contrary, this suit is one to make both Mr Darcy and Mrs Alleyne responsible to the cestui que trust. Another objection was made in the present suit, that this belongs to a class of cases where the Court refuses to proceed against third persons, if there be no charge and no proof of collusion between the executor and such third persons. I perfectly understand the doctrine on which the respondent wishes to rely in making that objection; but I do no think it has any application to such a case as the present, which is impressed with a perfectly different character. If the petition had been filed against Mr De Massey and Mr Power, this rule would have been applicable, but here there is this distinction, that the petitioner seeks not to raise the fund from the persons to whom it was lent, but to convert Mr Darcy into a trustee, and to treat him as a trustee, on the ground of his having so dealt with the assets as to assume the responsibilities of that character; I consider the case free from all objection upon that doctrine. Then it said, that the relief lies against Mrs Alleyne in the first instance; but the case of Wilson v Moore 1 M & K 126, 337 establishes that, at all events, there is no primary liability in cases of breach of trust, all being equally liable. I do not think that the doctrine of want of privity can be applied as against this case, which rests on considerations of a totally different character, and which, I think, discloses grounds sufficient to maintain the relief sought. The circumstances immediately in relation to this loan are substantially as follows: Mr Darcy appears to have been concerned for Mr De Massey and Mr Power in certain transactions, the precise character of which does not distinctly appear; but it is asserted that there were several money and bill-discounting transactions prior to and about the time of this loan of £400. That there were such dealings is expressly charged, and not denied; and it further appears that Darcy was concerned as solicitor for Mr De Massey, and that he was at the same time engaged in pressing him on behalf of another client for the payment of some money. It is clear that Mr De Massey was in fact exposed to considerable pressure. It further appears that Mr De Massey was only tenant for life of his property, and that this property has since been sold, under the order of the Incumbered Estates Court, for a sum which proved insufficient to pay the incumbrances prior to the life estate; and further, it appears that Mr Darcy, being aware of the precise position of his property, obtained the security of Mr Power, step-father of Mr De Massey. There has been much discussion on the subject of Power’s circumstances. It appears that he was supposed to be an extensive farmer, in good circumstances: it turns out that within a year after the execution of this security he was arrested for debt, and discharged as an insolvent debtor, and that his property was sold and applied in payment of incumbrances and judgments prior to this. Then, to return to Darcy and the position in which he stood; it is certain that he was concerned in the lending, so far as to make him responsible in his professional character. His case is, that he was not Mrs Alleyne’s attorney; that he was employed to draw the bond – that he drew it, and then ceased to act as her attorney; that he entered the judgment, and then ceased to act; that he registered it, and then ceased to act; in short, that instead of being employed as attorney in the transaction in general, he was merely employed to accomplish several isolated matters, after each of which his functions ceased. However, there was no other attorney employed by either party, and it would be difficult to hold that the solicitor who had in point of fact performed all the professional business in the transaction was not to be considered the attorney of the person for whom he had accomplished the various professional acts. Whatever may have been the case as to the suggestion of adopting the security of Mr Power’s liability, there can be no doubt that the proposition of making the loan at all, as between Mrs Alleyne and Mr Darcy, emanated from Mr Darcy. It is said that she wished to obtain the security of Mr Power, that she was perfectly satisfied with his liability, and insisted on obtaining it but she evidently did not know the real state of his circumstances. Perhaps Darcy entertained the belief that he was solvent; though it is singular that he seems never to have apprised her of one fact, with respect to Power, which would most probably have induced her to act cautiously. Darcy appears to have been engaged on behalf of Mr Power in a most important matter, in which an investigation of his property took place when he was justifying as security for a receiver, and it seems that a portion of his property then proved to be subject to a very large amount of judgment debts. In answer to that, it is asserted that there was personalty which he was empowered to charge in exoneration of the rest of the property, and which was of sufficient value to discharge these debts; but it appears that in that investigation a statement had been made on his part, which was, to say the least, extremely uncandid, and that the personal property was not in point of fact his own at all, nor available for his purposes. All that may have occurred from negligence; but it seems strange that when Darcy shelters himself under the opinion of the Master, that Power was in the enjoyment of considerable property, he did not mention these circumstances to Mrs Alleyne. It is said that he proposed another investment to Mrs Alleyne. The question here, however, is not with respect to other suggestions which he may have made, but relates simply to the particular transaction which is now the subject of investigation. As I said, this transaction began in a proposal to hand this money to Mr Massey; no other solicitor is employed on behalf of Mrs Alleyne. Darcy conducted the whole affair from the beginning to the end, and retained out of the fund at least one-fourth; the borrower, as I feel bound to observe, being so much pressed, at least for ready money, being in point of fact in such distress as to pay £25 as commission for the procuration of a loan of £400. Under these circumstances, it seems to me impossible to consider Darcy as a mere agent of Mrs Alleyne, and in no way personally involved in the improper investment. I do not say whether there may not be foundation for the exercise of the summary jurisdiction of the Court over solicitors in respect to transactions of this nature. As I have already said, when the case came before me in that form, I rested my decision chiefly on the ground that I was bound to give Mr Darcy’s conduct the most favourable construction, the proceeding being in the nature of a criminal charge; but when I am to decide on this as a mere legal question between party and party, it must be considered on the inferences to be drawn from plain facts proved in the cause. Now what is the summary of those facts, which, as I have stated, are clearly proved or admitted? – that Mr Darcy obtained from Mrs Alleyne a sum of money which she held as trustee, knowing that it was so held; that he obtained it from her for a purpose which was in itself a breach of trust; that he placed it in the hands of a person whom he knew to be deeply distressed, at least for ready money, and who had no title to his property beyond a life interest, which proved to be absolutely without value; that he obtained as security another person, without any investigation of his circumstances. It is not too much to say that he overlooked everything in his anxiety to get the money into his hands. I do not say that this was the motive, but it lay upon Darcy to remove the imputation, which he has not done.
The case of Fyler v Fyler 3 Beav 550 is the nearest to the present which I have been able to find. It is true that in that case the attorney was exonerated, but it is a remarkable circumstance that all the facts, on the non-existence of which Lord Langdale relies in that case, as reasons for refusing to charge the attorney, are facts which do exist here. In that case the Court was of opinion that the solicitors did not induce their client to commit a breach of trust; that they did not apply to him, but were applied to by him to find an investment, and that the trustees did not rely on the solicitor’s advice alone; but the contrary of all those circumstances has been proved in this suit.
I have therefore come to the conclusion that Mr Darcy is not in the mere position of an attorney, but must be considered as having advised Mrs Alleyne to lend this money to parties whose possession of any portion of the fund was in itself a breach of trust, and as having involved himself in the responsibility of the transaction. Upon these grounds I think Mr Darcy must be held liable to make good the money, and pay the costs of the suit.
Carey v Ryan Ltd
[1982] IR 179; ILRM 121 (Supreme Court)
Henchy J: The plaintiff was 19 years of age when he sustained a serious injury while working in June 1977, for his employers, a company named WH Ryan Ltd. Suing by his father and next friend, the plaintiff instituted proceedings in the High Court against Ryans and claimed damages. Ryans Ltd had arranged employer’s liability insurance at Lloyds, under which they would be indemnified against liability for an accident of this kind. The indemnifiers were two syndicates of underwriters. They are represented in the present proceedings by the second and third defendants, whom I shall call “the underwriters.”
Upon receipt of the plaintiff’s statement of claim, and having investigated the circumstances of the accident, the underwriters instructed their Dublin solicitors to lodge in court with the defence the sum of £39,053 without admission of liability. This their solicitors did on the 25th April 1978. This sum was apparently adequate to meet the plaintiffs claim. At least, there has been no suggestion that it was inadequate, and ever since the plaintiff became of full age in March 1979, he has been anxious to be allowed to take the lodgment in full satisfaction of his claim.
However, certain difficulties intervened to prevent the plaintiff getting or being credited with the amount lodged in court. Under Order 22, r 4, of the Rules of the Superior Courts 1962, a plaintiff may serve, within 14 days of receipt of the notice of payment into court, a prescribed notice of acceptance; whereupon, in the words of the rule, he “shall be entitled to receive payment of the accepted sum.” Such a notice of acceptance was not served in this case. This was, presumably, because the plaintiff was an infant and because r 10 of Order 22 provides that no compromise or payment or acceptance of money paid into court in the case of an infant plaintiff shall be valid without the approval of the court. Consequently, it was inescapable that, before the money lodged in court with the defence could operate to settle the plaintiffs claim, the matter would have to come before the court on a motion by the plaintiff’s next friend seeking approval of acceptance of the amount lodged.
Meanwhile, a matter of considerable moment came to the notice of the underwriters. They discovered that the policy of insurance (under which they were expected to indemnify Ryan Ltd against an action such as this) had been entered into by them as a result of fraudulent mis-statements made by Ryan Ltd as to the amounts of wages and salaries paid or payable by them to their employees, thus distorting the correct amount of the premium and, indeed, vitiating the whole policy. Understandably, when they became aware of this breach of the good faith which a would-be insured is bound in law to show, the underwriters repudiated the policy. They gave notice to Ryan Ltd that the policy was a nullity and that they were not prepared to make any indemnity in respect of the liability of Ryan Ltd for the accident to the plaintiff.
Ryan Ltd refused to admit that they had nullified the relevant contract of insurance by their conduct. In those circumstances the underwriters were driven to bringing proceedings in the High Court seeking, inter alia, a declaration that the policy of insurance upon which Ryan Ltd relied was void because of the fraudulent representations made by that company. In those proceedings the plaintiff in the present proceedings was joined as a defendant. The suit came before Mr Justice McWilliam who, after a full oral hearing, made the declaration of nullity of contract sought by the underwriters. His order of the 20th December 1978, has not been appealed.
It is therefore res judicata, and binding on both the plaintiff and Ryan Ltd, that at the time of the plaintiff’s accident there was no liability on the underwriters to indemnify Ryan Ltd, either wholly or in part, for any liability incurred by that company to the plaintiff as a result of the plaintiffs accident. It follows that the sum of £39,053.00 which was paid into court by the underwriters was paid by them under a mistaken assumption of liability, which assumption was induced by the fraudulent misrepresentations of Ryan Ltd. This is unquestionably so and it does not lie in the mouth of the plaintiff to say otherwise. To be fair, his counsel has not attempted to contend otherwise in the present hearing. He merely says, quite correctly, that the plaintiff was not a party to the fraud, and he submits that, in the events that have happened, the plaintiff should be allowed, in satisfaction of his claim, to take the money lodged with the defence.
The present action between the plaintiff and Ryan Ltd lay dormant until the action between the underwriters (as plaintiffs) and the plaintiff Ryan Ltd (as defendants) was determined by Mr Justice McWilliam on the 20th December 1978.
On the 2nd January 1979, a notice of motion was issued in the present action on behalf of the plaintiff (who was still an infant) seeking an order extending the time for accepting the money lodged in court with the defence. It has to be said that this notice of motion was misconceived and a nullity because the time fixed for accepting money which has been lodged in court with a defence (Order 22, r 4) does not apply to cases where the plaintiff is an infant: see Order 22, r 10. When a plaintiff is an infant, there can be no question of accepting a sum lodged by the defendant in satisfaction of a claim for damages – unless the court makes an order approving the acceptance and disposition of the sum. It is a misapplication of the time-extension rule to enlarge time for doing an act under a rule when that act could not have been legitimately done within the time limited by the rule. The rule in question here (Order 22, r 4) is a general rule which is qualified by the particular restraints of rr 10 and 13 of Order 22.
Following on that notice of motion, the underwriters caused a notice of motion to be served on the 11th January 1979, seeking an order that the money lodged in court be paid out to them.
The two motions (which were brought in the present action) were heard together by Mr Justice Hamilton on the 31st January 1980. The plaintiff reached full age on the 3rd March 1979. Having regard to the views expressed by Mr Justice McWilliam in his judgment in the underwriters’ action against the plaintiff and Ryan Ltd, Mr Justice Hamilton made an order joining the underwriters as defendants in the present action. Having heard the two motions together, he delivered a reserved judgment on the 8th February 1980. In that judgment he gave liberty to the plaintiff to proceed in his own name, extended the time fixed by the Rules for acceptance of the money lodged in court with the defence, and dismissed the underwriters’ claim to have the money in court paid out to them. It is against that judgment that the underwriters have taken the appeal now before this Court.
The general rule is that where a person purports to pay money directly to another, or to pay it to his credit, and that other has notice that the payment has been induced by fraud, the payee or would-be payee does not get any title to the money: see Nelson v Larholt [1948] 1 KB 339. If the money has reached the payee then, while it is in his hands, he is a constructive trustee of it for the rightful owner who has been defrauded into paying it and the payee can be compelled to repay it. If it has not been paid to the payee, but remains in the hands of an intermediary who becomes aware of the fraud, then the intermediary becomes a constructive trustee of the money for the defrauded payer and can be ordered to return it to him.
In the present case the money paid into court by the underwriters never reached the plaintiff and he never acquired title to it. It remained in court and stands (as the certificate of funds shows) not to the credit of the plaintiff or of Ryan Ltd or of the underwriters but to the credit of the account specified by the title and serial number of the action. Its ultimate beneficial destination awaited an order of the court. As the plaintiff was an infant, he could not get any title to it without an order of the court: see Order 22, r 10(1). If Ryan Ltd (or the underwriters after they became a party) wished to withdraw the money lodged or to vary it, they might be allowed to do so by the court if there were special circumstances justifying such a course of conduct: see Goodman v Whyte & Co (1949) 83 ILTR 159. As Goddard LJ said in Cumper v Pothecary [1941] 2 KB 58 at p 70 of the report:
“Indeed, we think it is desirable to say that it must not be thought that a defendant who has paid a sum into court is entitled, as of right, to resile from that step. He must, in our opinion, show that there are good reasons for his application – for instance, the discovery of further evidence, which puts a wholly different complexion on the case, as in the two cases cited (Frazer & Haws Ltd v Burns (1934) 49 Ll.L. Rep 216; Williams v Boag [1941] 1 KB 1), or a change in the legal outlook brought about by a new judicial decision, as in the present case, and there may be others.”
The present litigation is a classical example of a case where subsequent events rendered the lodgment nugatory. When it was made, it was made by the underwriters under a mistake of law. But, as Lord Denning said in Kiriri Cotton Co. Ltd v Dewani [1960] AC 192 at p 204 of the report: “The true proposition is that money paid under a mistake of law, by itself and without more, cannot be recovered back.” (Emphasis supplied). When the money was paid into court, both the underwriters and the plaintiff were ignorant of the fraud that had induced the underwriters to deposit the money in court. In the absence of a contract of insurance unvitiated by fraud, the underwriters were under no obligation to the plaintiff for the consequences of his accident and, therefore, they were under no obligation to lodge any money in court in satisfaction of his claim. When they did so, the plaintiff did not become entitled (because of the rules of court) to the money lodged: the finding to the contrary is a central flaw in the judgment under appeal. While he was an infant the plaintiff could not become so entitled without getting a court order to that effect. No such order was made.
By the time an effort was made to establish the plaintiff’s entitlement to the money lodged, the situation had radically changed. The underwriters had established by judicial order that it was the fraud of Ryan Ltd that had hoodwinked them into making the lodgment in the first place. The same judicial finding of Mr Justice McWilliam had brought that fact home beyond yea or nay to the plaintiff, who had been made a party to that action. From being an infant who was ignorant of the fraudulent misrepresentation that had led the underwriters to make the lodgment, the plaintiff had become a man of full age who was thoroughly aware of the fraud of Ryan Ltd and of its implications to the underwriters and who, nevertheless, was trying to take advantage of that known fraud and of the equally known erroneous lodgment which that fraud had generated. If, while he was ignorant of the fraud, the plaintiff had been allowed to take the money and had spent it or used it irretrievably the position might have been different. But the money remained with the accountant of the Courts of Justice in what was virtually a suspense account; it had to remain there until the court exercised its discretion as to who should be held entitled to it.
In coming to court and asking to have the money paid out to him, the plaintiff is asking the court to overlook the fraud, to ignore the fact that the underwriters would never have parted with a penny of this money if they had known of the fraud, to treat as irrelevant the fact that the plaintiff now fully knows that the money he is seeking is the fruit of a tree poisoned by fraud and, in short, to exercise its discretion by making an order which would have the effect of robbing Peter to pay Paul.
In such circumstances the Court’s discretion can be exercised in only one way which is by ordering that the money in court be paid back to the underwriters, who were plainly gulled into paying it into court by the fraud of Ryan Ltd. If the order sought by the plaintiff were to be made and the money paid out to him, the Court would thereby be wrongly exercising its discretion for, by such an orders it would give efficacy to a course of fraudulent conduct on the part of Ryan Ltd. It is, of course, unfortunate that the plaintiff should be left to pursue his claim against uninsured defendants, but the alternative of allowing him to take in settlement the sum of £39,053 which the underwriters were induced to lodge in Court by the fraud of Ryan Ltd, and which has lain there for almost four years awaiting the exercise of the High Court’s discretion as to its disposition, would make the Court virtually an accessory to the consummation of a fraudulent scheme whereby the underwriters, because of a blameless error into which they were led by fraud, would be dishonestly deprived of £39,053.
I would allow the appeal to the extent of directing that the money in court be paid out to the underwriters and dismissing the plaintiff’s claim to it.
Griffin J: I agree with the judgment which has been delivered by Mr Justice Henchy.
Henchy J: Mr Justice Kenny, who is unable to be present to-day, wishes me to say that he is in agreement with my judgment.
Dublin Corporation v Building and Allied Trade Union
[1996] 2 ILRM 547 (Supreme Court)
The facts are set out in the judgment of the Court (Hamilton CJ, O’Flaherty, Blayney, Barrington and Keane JJ) given by Keane J.
Keane J: In 1982 the plaintiffs/respondents (whom I shall refer to as ‘the corporation’) acting in its capacity as road authority decided to widen Cuffe Street. To that end, they made a compulsory purchase order which was duly confirmed by the Minister for the Environment on 2 September 1983. One of the properties affected by the order was a building known as the Bricklayers’ Hall which was owned by the defendants/appellants (whom I shall refer to as ‘the union’) who were then described as ‘the Ancient Guild of Incorporated Brick and Stonelayers’. The front facade of the building was, appropriately enough, a fine example of the stonemasons’ and bricklayers’ craft.
At an arbitration conducted by Mr Sean M McDermot, the duly nominated property arbitrator, to determine the amount of compensation to be paid to the union, its secretary, Mr Kevin Duffy, gave evidence on oath that:
(a)the Bricklayers’ Hall was an integral part of the union’s activity,
(b)the union was unlikely to be in a position to rent similar premises with the same facilities, and
(c)it was the intention of the union to rebuild the Bricklayers’ Hall and to reinstate the facade.
Two alternative bases for the assessment of the compensation to be paid to the union were presented to the arbitrator. The first was on the basis that the corporation acquired the entire building, and not merely the front portion required for road widening, and sold or similarly disposed of the remainder to recoup their expenditure. The second was on the basis that the corporation only acquired so much of the property as was needed for road widening, thereby enabling the union to reinstate the building, complete with facade, on the reduced site.
Prior to the arbitration the corporation and the union, acting through their professional advisers, sensibly agreed the sums that would be payable, depending on which basis the compensation was to be assessed. Under the first method, it was £87,857. Under the second, it was £224,414. The arbitrator, having heard the evidence, issued his award on 27 May 1985 and awarded the union the latter sum, together with the costs and expenses of preparing and submitting its claim and the costs and expenses of and incidental to the reference to arbitration.
By a conveyance of 30 December 1985, the portion of the site the subject of the compulsory purchase order was conveyed to the corporation by the union in consideration of the sum of £224,414 paid to the union.
Following the award and prior to that conveyance, most of the Bricklayers’ Hall was demolished by the union and since then no attempt has been made to rebuild the buildings, including the facade, on the site which it retained.
The corporation thereupon instituted the present proceedings, in which it claims:
(a)a declaration that the union holds the sum of £224,414 in trust for the construction of the Bricklayers’ Hall and the reinstatement of the front facade;
(b)a mandatory injunction requiring the union to apply the money in the reconstruction of the Bricklayers’ Hall and the reinstatement of the facade;
(c)payment by the union to the corporation of the sum of £136,557 (the difference between the two agreed sums) together with appropriate interest, as being an amount by which the union has been allegedly unjustly enriched.
The relief sought in paragraph (c) was obviously sought as an alternative to the reliefs claimed in the preceding paragraphs to provide for the contingency that the union might have put it out of its power to reinstate the building by disposing of the cleared site. A defence was delivered on behalf of the union in which it was pleaded that the statement of claim disclosed no cause of action and that the corporation were in any event estopped by the doctrine of res judicata from making the claim. It also denied that the union was under any duty to the corporation to reconstruct the Bricklayers’ Hall or reinstate the facade, that the sum of £224,414 was held by it on any trust for the corporation or otherwise and that it had been unjustly enriched.
The case was at hearing in the High Court for eight days. Most of the hearing, was, however, taken up by legal submissions; the facts, as already summarised in this judgment, were not in dispute. Evidence was given on behalf of the corporation by Mr John Faley, a valuer, Mr Eugene Farrelly, a quantity surveyor, Mr Charles Clancy, an architect and Mr Michael Reynolds, an architect and town planner. No evidence was given on behalf of the union.
In a lengthy judgment, Budd J concluded that the claim of the corporation was well founded and that it was entitled to be paid the sum of £158,957 by the union. From that judgment, the union have now appealed to this Court. On behalf of the union, Mr Patrick Keane SC submitted that the proceedings were an undisguised attack on the finality of the award in the arbitration proceedings. He said that the High Court had been invited, in effect, to consider the award of the property arbitrator in the light of changed circumstances and reassess the compensation which he had awarded. He further submitted that the union was under no legal obligation to reinstate the building and there was no evidence to support the case made, implicitly if not expressly, on behalf of the corporation that it had in some sense acted in bad faith.
There was no allegation that the award of the arbitrator had been procured by fraud and, in those circumstances, the union was entitled as a matter of law to the sums paid to it on foot of the award.
Mr Keane further submitted that there was no evidence of any representation by the union to the corporation or any commitment on its behalf that the building would be reinstated. The agreement entered into between the professional advisers to the corporation and to the union as to the cost of reinstatement was no more than that; it was in no sense an undertaking on behalf of the union that, in the event of being awarded compensation on that basis, it would carry out the work in question. There was also no evidence, he said, to support the corporation’s contention that the corporation paid over the amount of the award as a result of “a mistake of fact”. He said there was no evidence to support the contention that, as of December 1985 when the existing building was allegedly demolished, the union had changed its mind. Those facts, even if proved, which, he said, they were not, only supported an inference that the union did not propose to proceed with the reinstatement in the precise terms of the plans which formed the basis of agreement as to the amount of the compensation.
In a further elaboration of his submission that the corporation were precluded by the doctrine of res judicata from pursuing its claim, Mr Keane submitted that, insofar as the decision in Moses v Macferlan (1760) 2 Burr 1005 was authority for the proposition that a final judgment of a court or tribunal of competent jurisdiction could be reopened where it appeared to another court unjust and inequitable, it had been strongly criticised and should not be followed by this Court. He relied in this context on the decision of Eyre CJ in Phillips v Hunter (1795) 2 H Bl 402 and the statement of the law in Goff & Jones on the Law of Restitution, 4th ed, at pp 763-4.
Mr Keane further submitted that, if the legislature had intended that monies paid on foot of an award made in accordance with the relevant statutory provisions could be recovered by the acquiring authority in circumstances such as the present, they could have so provided but had chosen not to do so.
On behalf of the corporation, Mr Eoghan Fitzsimons SC submitted that the proceedings instituted by the corporation were not in any sense an attempt to reopen the arbitrator’s award. He said that the corporation accepted that it was bound by the arbitrator’s finding that, at the date of the hearing before him, the union bona fide intended to reinstate the building. Nor was it suggested on their behalf that the union was precluded from subsequently changing its mind, as it obviously had, in declining to proceed with the reinstatement. He submitted, however, that it was unconscionable for the union to change its mind and retain the compensation which it had been awarded on the basis of reinstatement. He submitted that the doctrine of unjust enrichment had been firmly established in Irish law, at least since the decision in East Cork Foods Ltd v O’Dwyer Steel Co Ltd [1978] IR 103, and that all the requirements for its invocation in the present case were met. The corporation had not simply asserted that the unarguable enrichment of the union was “unjust” in any loose or imprecise sense; it relied on the specific circumstances of the present case as rendering the enrichment unjust.
Mr Fitzsimons submitted that the circumstances in the present case which rendered the enrichment unjust were the unqualified representation at the arbitration that the building would be reinstated, the effective demolition, within a few months of the publication of the award, of the building, putting it out of the power of the union to reinstate the building in accordance with the plans furnished to the corporation and the failure of the union to give any evidence at the hearing in the High Court as to why it had changed its mind. He submitted that, since the trial judge had given it every opportunity of adducing evidence, it was reasonable to infer that the reasons for its change of mind were such as to render its retention of the money inequitable.
Mr Fitzsimons submitted that in these circumstances the corporation were clearly entitled to the repayment by the union of such an amount as would undo the unjust enrichment which had occurred. Alternatively, Mr Fitzsimons submitted that the monies paid on foot of the award were impressed with a constructive trust, citing in support the much quoted words of Cardozo J in Beatty v Guggenheim Exploration Co (1919) 225 NY 380 at p 386 that: “A constructive trust is the formula through which the conscience of equity finds expression.”
In considering these submissions, I should at the outset refer to the statutory provisions applicable to the payment of the sum of £224,414 to the union.
Section 2 of the Acquisition of Land (Assessment of Compensation) Act 1919 (hereinafter “the 1919 Act”) which, it was accepted, applies to this as it does to many other forms of compulsory purchase, provides (as amended) that:
“In assessing compensation, a property arbitrator shall act in accordance with the following rules …
(2)The value of land shall, subject as hereinafter provided be taken to be the amount which the land if sold in the open market by a willing seller might be expected to realise: Provided always that the arbitrator shall be entitled to consider all returns and assessments of capital value for taxation made or acquiesced in by the claimant.
(5)Where land is, and but for the compulsory acquisition would continue to be, devoted to a purpose of such a nature that there is no general demand or market for land for that purpose, the compensation may, if the property arbitrator is satisfied that reinstatement in some other place is bona fide intended, be assessed on the basis of the reasonable cost of equivalent reinstatement.”
Section 6, as amended, provides that:
“(1) The decision of a property arbitrator upon any question of fact, shall be final and binding on the parties, and the persons claiming under them respectively, but the property arbitrator may, and shall, if the High Court so directs, state at any stage of the proceedings, in the form of a special case for the opinion of the High Court, any question of law arising in the course of the proceedings, and may state his award as to the whole or part thereof in the form of a special case for the opinion of the High Court.”
Section 41 of the Arbitration Act 1954 provides that:
“An award on an arbitration agreement may, by leave of the court, be enforced in the same manner as a judgment or order to the same effect and, where leave is so given, judgment may be entered in terms of the award.”
Section 27 of the same Act provides that:
“Unless a contrary intention is expressed therein, every arbitration agreement shall, where such a provision is applicable to the reference, be deemed to contain a provision that the award to be made by the arbitrator or umpire shall be final and binding on the parties and the persons claiming under them respectively.”
Both of these provisions are applicable to arbitrations under the 1919 Act except to the extent that Part II of the 1954 Act is inconsistent therewith.
The compulsory purchase procedure under which the corporation acquired the land in question from the union is different in almost every respect from a purchase by agreement. Although rule (2) provides for the assessment of compensation on the basis of the value of the land on the open market, some of the other rules, and the manner in which they have been judicially construed, make it clear that the assessment of compensation is more in the nature of an award of damages for the expropriation of his property against the wishes of the owner. Although the acquisition is effected in the public interest, both parliament and the courts have been at pains to ensure that the award of compensation reflects, not merely a price that might have been agreed by a willing vendor and purchaser, but also all the elements of loss suffered by someone dispossessed of land against his will.
Hence, the provision in rule (5) for the assessment of compensation on ‘the reasonable cost of equivalent reinstatement’ where that is appropriate. Where the arbitrator is satisfied that the owner bona fide intends to reinstate the building, be it a church, a museum or whatever, on some other site, the extent of his loss will not necessarily be reflected in the open market value of the land, since he will be unlikely to find a purchaser who will be prepared to pay him that sum if it happens to exceed the market value.
The “equivalent reinstatement” basis of compensation thus provides the machinery, in cases where it is appropriate, of compensating the owner of the property in full in circumstances where he would not be fully compensated by being awarded the open market value. I emphasise this aspect of rule (5), because the learned High Court judge at a number of points in his judgment appears to treat the corporation as having acquired, in consideration of the payment of the compensation, a benefit in the form of the preservation of the facade of the building. That approach, however, overlooks the fact that the acquisition was not being effected by the corporation in its capacity as a planning authority and the question as to whether or not, in that capacity, it would have stipulated the preservation of the facade was irrelevant to the amount of compensation which it was required to pay arising out of its acquisition of the land in question as a road authority.
It is accepted by the corporation that the award in this case was final and binding on both itself and the union. The doctrine of res judicata applicable to this, as to every final judgment or award of any competent court or tribunal, has the consequence that the parties are estopped between themselves from litigating the issues determined by the award again. The justification of the doctrine is normally found in the maxim interest rei publicae ut sit finis litium and it is important to bear in mind that the public interest referred to reflects, in part at least, the interest of all citizens who resort to litigation in obtaining a final and conclusive determination of their disputes. However severe the stresses of litigation may be for the parties involved – the anxiety, the delays, the costs, the public and painful nature of the process – there is at least the comfort that at some stage finality is reached. Save in those exceptional cases where his opponent can prove that the judgment was procured by fraud, the successful litigant can sleep easily in the knowledge that he need never return to court again.
That finality is, of course, secured at a cost. The defendant who discovers as soon as the case is over that the award of damages against him is grossly excessive because of facts of which he was wholly unaware and was unable to bring before the court cannot, in the absence of fraud, resist the enforcement of the judgment against him. The plaintiff who similarly finds out that his damages are far less than those which would have been awarded had the court been in possession of evidence not available at the hearing is equally precluded from disputing the finality of the judgment. The interest of the public in that finality is given precedence by the law over the injustices which inevitably sometimes result.
These principles apply with even greater force to an award under the 1919 Act. Not merely is a disappointed claimant precluded from reopening the award should he find that there was evidence which he could have brought before the arbitrator which would have resulted in a far higher level of compensation: he has not even the opportunity, available to those claiming damages arising out of civil wrongs as opposed to a statutory expropriation, of having the findings at first instance tested on appeal.
It is claimed, however, on behalf of the corporation that, in the case of assessments carried out under rule (5), that finality is significantly abridged. It is conceded, and inevitably so, that had the union elected to give evidence which demonstrated, that, owing to circumstances unforeseen by it at the time of the arbitration, it was no longer possible for it to reinstate the building and that the costs of acquiring suitable premises elsewhere would in any event exhaust the award, no question of ‘unjust enrichment’ would arise. It is quite right in submitting that, given the remarkable alacrity with which the union proceeded to demolish the building, it is singularly unlikely that the union would have been in the position to give any such evidence. But the general principle for which it contends cannot be solely tested by reference to the facts of the present case. A claimant who, without any element of fraud, is awarded compensation on the basis of equivalent reinstatement is either entitled to treat the litigation as at an end or he is not. If he can be called to account for his conduct in not reinstating the building at some indeterminate stage in the future, then, however else the award in his favour may be described, it is certainly not final in any meaningful sense. Thus, if the case made on behalf of the corporation is well founded, a body which has given evidence in good faith to the arbitrator that it intends to reinstate the building on another site and which subsequently discovers that, because of difficulties arising from planning constraints, problems of title, the effect on neighbouring properties or a myriad of other considerations, reinstatement is impossible and which also finds that the money awarded will do no more than cover the acquisition of another building, may legitimately be subjected to all the hazards of a further court action at some stage in the future. It will be in vain for it to plead res judicata: on proof by the acquiring authority that it has not in fact reinstated the building, it will be compelled to adduce evidence as to the reasons why it has not done so.
It is necessary to emphasise again that there is nothing to suggest that such were the circumstances in the present case, but the question as to whether the award is in every sense final or is merely final in a qualified sense cannot be determined solely by reference to the facts of one case. That would be a classic instance of hard cases making bad law. It must be determined as a matter of legal principle.
It also follows inevitably from the submissions on behalf of the corporation that s 6(1) of the 1919 Act must be read as though it were subject to a proviso that, in the event of the compensation having been assessed by reference to rule (5), and the equivalent reinstatement not having been thereafter effected, the owner must refund to the acquiring authority such proportion of the compensation as a court of competent jurisdiction deems to be just and equitable. It is of interest to note that in the Local Government (Planning and Development) Act 1963 (which itself, in the Fourth Schedule, introduced additional rules to those contained in the 1919 Act) a provision of such a nature was expressly enacted to deal with certain cases where an owner of property suffers loss as a result of a decision involving a refusal of planning permission or a grant of such permission subject to conditions. Section 73(1) provides that no person is to carry out any development to which that section applies on land in respect of which an award of compensation has been registered at any time during the succeeding fourteen years without making an appropriate repayment to the planning authority.
These consequences – the qualified application of the res judicata principle and the amendment by implication of the 1919 Act – are, it is submitted, necessitated by what is said to be the application of the concept of unjust enrichment to the facts of the present case.
It is clear that, under our law, a person can in certain circumstances be obliged to effect restitution of money or other property to another where it would be unjust for him to retain the property. Moreover, as Henchy J noted in East Cork Foods Ltd v O’Dwyer Steel Co Ltd, this principle no longer rests on the fiction of an implied promise to return the property which, in the days when the forms of action still ruled English law, led to its tortuous rationalisation as being “quasi-contractual” in nature.
The modern authorities in this and other common law jurisdictions, of which Murphy v Attorney General [1982] IR 241 is a leading Irish example have demonstrated that unjust enrichment exists as a distinctive legal concept, separate from both contract and tort, which in the words of Deane J in the High Court of Australia in Pavey & Matthews Pty Ltd v Paul (1987) 162 CLR 221 at pp 256-257:
“… explains why the law recognises, in a variety of distinct categories of cases, an obligation on the part of a defendant to make fair and just restitution for a benefit derived at the expense of a plaintiff and which assists in the determination, by the ordinary process of legal reasoning, of the question of whether the law should, in justice, recognise the obligation in a new or developing category of case.”
The authorities also demonstrate that, while there is seldom any problem in ascertaining whether two essential preconditions for the application of the doctrine have been met – ie an enrichment of the defendant at the expense of the plaintiff – considerably more difficulty has been experienced in determining when the enrichment should be regarded as “unjust” and whether there are any reasons why, even where it can be regarded as “unjust”, restitution should nevertheless be denied to the plaintiff.
As to the first of these difficulties, the law, as it has developed, has avoided the dangers of ‘palm tree justice’ by identifying whether the case belongs in a specific category which justifies so describing the enrichment: possible instances are money paid under duress or as a result of a mistake of fact or law or accompanied by a total failure of consideration. Whether the retention by the union of the entire compensation in the present case falls within such a category or not, however, it would in any event be necessary to consider whether restitution is precluded because of other factors. In the latter context, the following passage from the judgment of Henchy J in Murphy v Attorney General, at p 314 is of particular significance:
“Over the centuries the law has come to recognise, in one degree or another, that factors such as prescription (negative or positive), waiver, estoppel, laches, a statute of limitation, res judicata, or other matters (most of which may be grouped under the heading of public policy) may debar a person from obtaining redress in the courts for injury, pecuniary, or otherwise, which would be justiciable and redressable if such considerations had not intervened.”
In the present case, confronted with this difficulty the corporation seek to rely on Moses v Macferlan, as authority for the proposition that, in the circumstances of this case, it would be unjust for the union not to refund the money at least in part.
The facts in that case, which is usually regarded as the starting point of the lengthy and fitful journey of English law towards a doctrine of unjust enrichment, can be briefly summarised. The plaintiff, Moses, endorsed to the defendant, Macferlan, four promissory notes in order to enable Macferlan to recover the money in his own name. However, before endorsing the notes, Macferlan agreed that Moses should not be liable for the payment of any part of the money. Contrary to this agreement, Macferlan sued Moses in the Court of Conscience for the sums in question and that court, holding that they could not admit any evidence of the agreement between the two, gave judgment against Moses. Moses having paid the money into court and Macferlan having taken it out, Moses brought an action on the case in the King’s Bench Division before Lord Mansfield. A verdict was found by him in favour of Moses, but subject to the opinion of the court upon the question:
“whether the money could be recovered in the present form of action, or whether it must be recovered by an action brought upon the special agreement only.”
The hearing of the motion to set aside the verdict in favour of the plaintiff entered by Lord Mansfield at nisi prius having come before the full court, the question was resolved in favour of Moses. Lord Mansfield, who again delivered the judgment with which all the other members concurred, said that:
“this kind of equitable action, to recover back money which ought not in justice to be kept, is very beneficial and therefore much encouraged … in one word, the gist of this kind of action is that the defendant, upon the circumstances of the case, is obliged by the ties of natural justice and equity to refund the money.”
However, while that statement of the law was the genesis of the law of unjust enrichment as it ultimately became, there has been little or no support for the view of the court in that case that the “ties of natural justice and equity” justified the setting aside of the decree of a court of competent jurisdiction. In Phillips v Hunter, Eyre CJ said that: “The case of Moses v Macferlan is, I believe, the only decided case that countenances such an action, but I cannot subscribe to the authority of that case …”. Having gone on to consider the case in some detail, he summarised his view as follows: “I believe that the judgment did not satisfy Westminster Hall at the time; I never could subscribe to it; it seemed to me to unsettle foundations.” In Goff and Jones on the Law of Restitution (4th ed), the learned editor, having observed (at pp 763-764) that: “this maxim (interest rei publicae ut sit finis litium) is as important in the law of restitution as in any other branch of English private law” adds:
“Lord Mansfield’s decision, although just, was a blatant attack upon, and a de facto reversal of, the judgment of a competent court, and his observations have not been accepted as authority for any exception to the principle of res judicata.”
I am satisfied that Moses v Macferlan is not a satisfactory authority for the proposition that the doctrine of res judicata can be significantly abridged by the invocation of the concept of unjust enrichment. Res judicata, on the contrary, as Henchy J pointed out in Murphy v Attorney General, is one of the factors the application of which may render a seemingly unjust enrichment irreversible. I am also satisfied that in the present case, for the reasons I have elaborated, its successful invocation would involve the addition by judicial decision of a significant qualification to the operation of rule (5) in s 2 of the 1919 Act, which the legislature, as was their privilege, decided not to enact.
I think it is unnecessary to determine whether the retention by the union of the entire compensation constituted an unjust enrichment of it, because I am satisfied that those two considerations – public policy as reflected in the doctrine of res judicata and the exclusive role of the Oireachtas in legislation- are such as to render any such unjust enrichment, in the circumstances of the present case, irreversible.
I would allow the appeal, discharge the order of the learned High Court judge and substitute therefor an order dismissing the claim of the corporation.
Pennefather v Pennefather
(1873) IR 7 Eq 300 (Chancery Appeal)
The facts are set out in the judgments.
Lord O’Hagan LC: This case comes before the Court by way of appeal against a decree of the learned Vice-Chancellor, which was pronounced on the 5th of November 1872.
Some time has elapsed since it was argued before us, and I shall make my judgment more intelligible if I briefly state the circumstances out of which it has arisen.
By an Indenture of Settlement, dated the 15th of November 1852, and executed on the marriage of William Pennefather and Kate Scott, William Pennefather granted and demised to certain trustees the lands and premises described in it, to hold for the term of 1000 years from the solemnisation of the marriage, upon trust, inter alia, in case there should be two children of the marriage, to raise the sum of £3000 for their portions; and if there should be three or any greater number, to raise the sum of £4000 for the portions of those children. And the settlement reserved to William Pennefather a power of appointment amongst the children of those sums of £3000 and £4000, and in default of his exercising it, a similar power to Kate Scott, his intended wife, and in default of its exercise by her, then the £3000 or £4000, as the case might be, was to be divided amongst the children equally, at the times and in the manner prescribed by the deed.
There were ten children issue of the marriage – five boys and five girls. William Pennefather, who was the father of the plaintiffs, the five sons, and of the defendants, the five daughters, made his will on the 9th of October 1866; but did not, as is conceded on both sides, exercise by it his power of appointment. He directed the sale of all his landed property, the produce to be divided so as to give three of his daughters £1000 each, and the residue, after paying off all incumbrances, to go equally amongst his five sons. It is not necessary to state the bequests more fully. To that will he made a codicil, dated 26th May 1869, on the construction of which the question in this case has been raised, as between the sons and the daughters. That codicil is in these terms: (His Lordship read the codicil.) William Pennefather made a further codicil on the 31st of May 1869, but did not, by it, execute his power of appointment, or in any way alter or affect the character of the former codicil, so far as it dealt with the trust fund of £4000.
In this state of things, William Pennefather died on the 2nd of June 1869.
It is conceded, that William Pennefather never executed the power of appointment by any deed or deeds, and that it remained unexecuted, save in so far as the codicil of the 26th May 1869, unrevoked and unaltered by the subsequent codicil, may be held to have been a valid execution of it.
Mrs Pennefather survived her husband. The children were made wards of the Court of Chancery. The lands comprised in the term of 1000 years were sold, in accordance with the directions of the will of William Pennefather, and the sum of £4000 was paid into Court. The expectations of the testator as to the produce of the sale were disappointed; and a controversy then took place as to the effect of the first codicil to his will, and its operation as an execution of the power of appointment. Under the advice of counsel, Mrs Pennefather made a deed-poll of the 18th of June 1872, by which she purported to execute the power as still existing. She gave £1100 to her son, William Pennefather, and £600 to each of her other four sons; and, thereupon, on application to the Court, it was ordered that a proceeding, by way of special case, should be instituted in order to obtain a decision on the effect of the codicil as an execution of the power. Under this order, two questions were submitted for the Vice-Chancellor’s opinion – viz, Whether the codicil of the 26th May 1869, to the will of William Pennefather, operated as an execution by him of the power of appointment reserved to him by the indenture of marriage settlement over the sum of £4000, raiseable under the trusts of the term of 1000 years thereby created, as and for the portions of the children of William Pennefather and his wife? And second, who should pay the costs of the special case and of the proceedings incident thereto?
In answer to the first of these questions, the Vice-Chancellor decided that the codicil operated as an execution of his power of appointment by William Pennefather; and, to the second, that the plaintiffs and the defendants respectively were entitled to the costs of the incidental proceedings out of the sum of £4000. After much consideration, I have felt myself constrained to differ from the learned Judge as to his answer to one of the queries, whilst I adopt his answer to the other.
The principles which are applicable to cases such as this are well established, and no longer open to contention or cavil. In the latest of the cases to which our attention has been called, Garth v Townsend LR 7 Eq 223, “the true test” is suggested by Lord Justice James in the question – “Is there a distinct intention to execute the power?” It is always a question of intention – and of “distinct” intention. Before we can hold that a power has been executed, we must satisfy ourselves that the donee of it intended its execution, and acted distinctly for the purpose of executing it. Lord St. Leonards says (Sugd Pow 350), “It is the intention that in these cases governs; therefore, where it can be inferred that the power was not meant to be exercised, the Court cannot consider it as executed.” And Lord Thurlow put it in strong language, which has been since approved, in numerous cases, that the act which can be deemed an execution by the donee of a power must be of such a character, “that it is impossible to impute to him any other intention than that of executing the power:” Andrews v Emmot 2 Bro CC 303. I need cite no other authority to show that the question is of intention, and of intention distinct and unequivocal, which, according to Lord Tenterden (Denn v Roake 10 Moo 142), should be “clearly demonstrated or manifested by the will.”
We have next to consider how such an intention can be so demonstrated? And this, according to the cases, may be done either by an express reference to the power, and a specific declaration of the purpose to execute it, or by a reference to the subject-matter on which the power was designed to operate, and a plain indication of design to do such acts in relation to it as can only be accomplished by the execution of the power. It is not necessary, in this second view of the matter, that there should be a recital of the power, or that the donee of it should consciously design to execute it, or even that he should be aware of the possession of it, at the moment. If he intends to convey property or arrange it in such a mode as makes the exercise of the power an essential condition of its validity and effect, the presumption will be, that he did intend to execute it. Lord Romilly states the doctrine thus in Carver v Richards 27 Beav 495: “It is, as I consider, the rule of this Court, that if the intention to pass the property, subject to the power, be clearly established, even though the intention to dispose of it under or by virtue of the power is not shown, still that equity will give effect to the disposition, and hold that the property passes under the power.”
It is important to observe that in all the cases in which intention to execute the power has been presumed in the absence of specific reference to it, the intention on the part of the donee to “pass the property,” or do an act with reference to it operative under the instrument which he signs, has been clearly indicated. He must intend to make the gift which is to be validated by implication. In Adams v Adams 1 Hare 540, the Vice-Chancellor says:
“Where a testator in one part of his will has recited that he had given a legacy to a certain person, but it has not appeared that any such legacy was given, the Court has taken the recital as conclusive evidence of an intention to give by the will, and, fastening upon it, has given to the erroneous recital the effect of an actual gift. Where, however, the testator says that only which amounts to a declaration that he supposes the party who is referred to has an interest independent of the will, such a recital is no evidence of an intention to give by the will, such a recital is no evidence of an intention to give by the will, and cannot be treated as a gift by implication.”
The distinction between the two cases is obvious. In the former, the erroneous recital is evidence of an intention to give by the will, inadvertently not expressed. In the latter, as is observed by Mr Jarman, “such recitals do not in general amount to a devise: for, as the testator evidently conceives that the person referred to possesses a title independent of his own, he does not intent to make an actual disposition in favour of such person.” And so, I think, it will be found that, in the various cases adopting the doctrine that the execution of a power must be presumed when it is necessary to validate an act, the act has been always the act of the donee – the gift has been the gift of the donee, meant by him to have effect from himself, of his own will and by his own authority, through the instrument which he executes, and not through some other, establishing a title independent of him and not believed by him to derive force or validity from any interest or choice of his. So it was in Andrews v Emmot 2 Bro CC 303. So it was in Innes v Sayer 3 M & G 606. So it was in Hunloke v Gell 1 Russ & M 525, and in Maples v Brown 2 Sim 326. In all these cases, and many others, the want of a reference to the power involved the necessity of mention of the property which it affected, and of that property as dealt with by the owner of the power and by the instrument held to execute it. If this be absent – if the property be not so dealt with – there can be no presumption of intent that the power has operated. And, further, if there be not only such absence of presumable intention to execute, but proof that the owner meant not to execute it, the presumption becomes still more clearly impossible.
These seem to me the principles deducible from a careful consideration of the authorities; but though they are very intelligible in themselves, they are sometimes difficult of application. It is often, as was said in Carver v Richards 27 Beav 496, “extremely difficult to distinguish or define the limits between an intention not to execute a power, and the case of no knowledge of the existence of the power; in which case, strictly speaking, there is no intention to execute it; while, in the former, there is an intention not to execute it. The facts from which such intention and such absence of intention are to be inferred may very often run very near to each other, and possibly lead in some cases to very nice and perhaps technical distinctions.” And I am not sure that, in the cases before the Court, I might not fairly borrow the words of the Vice-Chancellor in Westcott v Cullingford 3 Hare 269, and say that “satisfactory reasons might be stated for a decision in favour of either the plaintiffs or the defendants.”
But, some things are manifest. There is not in the codicil with which we are dealing any reference to the power created by the settlement, or any declaration of a design to exercise that power. And, therefore, it cannot be considered to be an execution, within the principle affecting the first class of cases to which I have adverted. The question is – does it come within the principle governing the second class? Has the testator done such an act, in relation to the trust fund of £4000, as would require for its validity the execution of the power, and so demonstrated an intention to execute it? Or, having done no act in relation to that fund, and leaving it to be operated upon not by his will, but by the provisions of the settlement, which he believed, erroneously, to have put it beyond his control, has he failed to demonstrate any such intention?
It is, further, plain that the testator acted in error when the codicil was signed. He believed that his daughters were actually “entitled” to the £4000. He did not advert to the estate given to his wife, and the power vested in her after his own decease, and he assumed that, without intervention of his or hers, the trust fund was vested distributively in the children.
Making the assumption and acting upon it, he added to the bequests given by his will to his daughters, and directed that his sons should not receive any portion of the produce of his estate until those bequests and the £4000 should have been paid off. But, quoad the £4000, this provision added nothing to the operation of the will, which only gave the sons the residue “after paying off all incumbrances,” including that £4000, which the settlement had charged upon the estate.
Now, in this state of facts, have we any grounds to say that the action of the testator, as to the £4000, was such as to warrant the imputation of intention necessary to the Respondents’ case? Did he affect to pass any property in it? Did he purport to make any gift? Did he pretend to do any sort of thing which would have needed the exercise of the power to give effect to it? It appears to me that he did not. He gave legacies to his daughters; he imposed conditions on his sons. In these things he was active – manifesting intention, and giving it force: but, as to the £4000, looking on it as vested in his daughters, he left it as he found it, exerting no volition, and shaping his course in the belief that he could not exert any. There is no indication that, by the will, he meant in the least degree to deal with the interest of his daughters in the £4000. He treats it as a thing disposed of by another instrument, irrespective of any purpose of his, and incapable of being made subservient to any. Mr Jarman (Wills, I 490) considers the case of a testator showing by a recital that he incorrectly supposes a third person to have title to property belonging to himself, and he says:
“Such recitals do not amount to a devise, for, as the testator evidently conceives that the person referred to possesses a title independently of any act of his own, he does not intend to make an actual disposition in favour of such person; and though it may be probable, or even apparent, that the testator is influenced in the disposition of his property by the mistake, yet there is no necessary implication that, in the event of the failure of the supposed title, he would give to the person the benefit to which it is assumed he is entitled.”
And he cites in support of this proposition the case of Wright v Wyvell 2 Vent 56, where it was held that certain expressions, erroneously implying that lands had been settled on a widow, did not amount to a devise, on the ground “that the testator did not mean to devise her anything by his will, for he mentions that she was estated in it before.” And so here, the testator can scarcely be held to have intended to exercise a power in disposing of property to which he declares that his daughters are already entitled, and which he does nothing whatever to effect.
If there had been only a reference in the codicil to the £4000, and the interest of the daughters in it, as given by and under the settlement, could it have been considered an execution of the power? Could it then have been said that there was any intent to execute it? And yet that seems to me exactly what is, in substance, set forth in the codicil as it stands. The daughters are said to be “entitled” to the fund. How entitled? Only under the settlement. They had no other title. And is not the implicit reference quite as effectual as if it had been express, to negative the notion that the title, so created and so subsisting under an anterior instrument, could be and was meant to be made better or worse by the exercise of a power unnamed and unthought of?
Or, suppose there had been no reference whatever to the £4000 in the codicil, would not the effect on the daughters have been precisely the same? Would not they have taken, in addition to the several legacies of £1000 each, whatever the settlement secured to them, and nothing more?
The codicil seems to me to have been designed not to alter the disposition of the settlement, but, by reference to it, whether correct or erroneous, to guard against any presumption that the legacies were meant to stand in substitution for the £4000, but not to alter the fixed relations to, and interest in, that fund, whatever they might be.
We have been pressed by an argument, founded on the provision that the sons shall not have the produce of the sale of lands until the legacies shall have been paid to the daughters, over and above the equal distributive share of the £4000. But this ignores the condition of the will that the sons shall only take their share of that produce – “after paying off all incumbrances,” one of which was the trust fund in question; so that, as I have already said, the codicil made no change in that regard.
The attention of the learned Vice-Chancellor does not appear to have been called in any way to the terms of the will, which in this respect, are material for consideration. The testator only applied the general provision for the discharge of incumbrances to one of them specially, leaving it to be determined from the settlement, under which he believed the daughters to be “entitled” what was its character and effect.
I do not, therefore, see evidence of that clear intention to execute the power which governs in such cases. Whilst, on the other hand, if there be necessity for observing the distinction, it has not unfairly been urged that an intention not to execute it is more apparent when we find the testator – in error, it is true, but according to his own conception and belief, – alleging a title in his daughters which could really have accrued to them only by reason not of the execution, but of the non-execution, of the power. They were to be “entitled” under the settlement to “equal distributive shares,” if that power remained unexecuted by their father and their mother: and when we find the father averring that they are entitled to such shares, is there ground for the inference of intent to execute it? Or is it not rather to be inferred that he did not contemplate for himself or his wife any such execution? If, as it seems to me, he dealt with the £4000 as disposed of definitively and beyond his control, by the settlement, it is not easy to reach the conclusion that the title he assumed, erroneously, to exist was helped by any execution of a power which, by its exercise, would have removed the conditions creating the very foundation of that title.
For these reasons, I am of opinion that the codicil ought not to be held an execution of the power. I do not think that any of the authorities cited to support the opposite view do really sustain it, when well-considered. In none of them has intention been presumed, under such circumstances as exist in this case to negative it, or without such proof of purpose to do an act, or make a gift necessitating such a presumption for the purpose of its validity as, in my judgment, is wanting here.
It has been argued that, though an erroneous statement of a person’s rights, independently of the will, and a clear intention to do him a service, will not avail to give him those supposed rights, it is otherwise when the testator has made his arrangements relying on the correctness of his own mistaken assumption. But I do not find that, without clear indication of intention, this doctrine has ever been applied; and in Westcott v Cullingford 3 Hare 272, which Mr Jarman (I 492) cites to sustain it, I observe that Sir J Wigram makes the matter clear, distinguishing that case from Adams v Adams, also decided by himself, to which I have already had occasion to refer, and which had been pressed on him as warranting the refusal of the relief which was sought. “In that case,” he says, “I refused relief to the widow, because I could not find any expression of intention to confer any benefit on her by the will itself.” And so, in this case, although there is indication of a clear intention to bestow the legacies by the codicil, there is none of such an intention to bestow by it the £4000, although the accomplished fact of its bestowal by the settlement is asserted and connected with the bequests probably for the purpose I have already suggested.
Then we were very properly pressed by the considerable authority of Wilson v Piggott 2 Ves Jun 351. But that case is clearly distinguishable upon its special circumstances, as pointed out by Lord St Leonards (On Powers, 202). There, an erroneous recital in a settlement described the intended wife as entitled to £1000, and to another sum, “both of which would belong to her husband.” “In the settlement,” says Lord St Leonards, “he (the father) declares her entitled to this sum, to which she could only be entitled by his appointment, and the husband makes a settlement in consideration of it. He could have compelled the father to execute the appointment. It is a covenant by the father.” And again: “As appointments had been made to some of the other children, there was no mode in which Sarah could take a full fourth, except by an appointment, and the recital was treated as a contract with the husband that he should have the £1000, which was treated as a contract to exercise the power.” I need not dwell on the manifest points of distinction between that case and this. The contract, the covenant, the consideration, the necessity of appointment – all are absent here. But, on the other hand, we have a wife who brought to her husband a substantial fortune, and, in consideration of it and of marriage, purchased the power which her husband, who was no purchaser, could not take from her but by his own previous exercise of it in favour of his children. She has exercised that power after his decease, and it has been not unreasonably urged, that we ought not lightly to declare her execution of it a nullity, or strain equitable principles, or go beyond decided cases, to deprive her of a right which she claims for the benefit of her family.
And this brings me to the last observation which I shall make. It is said that, if the codicil be not held an execution of the power, we shall defeat the testator’s intention in favour of his daughters. I answer, first, that it is not enough for us to find he had a desire to serve them; we must find whether he meant to execute the power. In Garth v Townsend LR 7 Eq 221, the mother’s purpose to benefit her children and her relations was expressed strongly and with minute details, but it failed of effect, because her power was left unexecuted. Next, I see no reason why we should be astute to maintain the execution by the, at the least, obscure and equivocal codicil of her father, as against the mother’s distinct and unmistakable execution by deed. And, finally, I feel some relief from anxiety as to the consequences of our decision, when I remember that, confessedly, the testator acted in error as to the operation of the settlement, and in worse error as to the state of his property, and that, in sustaining the action of his wife, warranted by accurate knowledge of the law and facts of the case, we not only, in all probability, are doing that which is practically best for his family, but that which he would himself have done, if he had lived to obtain that knowledge.
On the whole, I am of opinion, on the first question differing from the learned Vice-Chancellor and on the second agreeing with him, that the codicil was not an execution of the power, but that the costs of both parties should be borne by the trust estate.
Christian LJ: Although the question which this special case has invited the Court to answer is whether a power has been exercised, nevertheless, the case is quite unembarrassed by the specialities of that kind of learning. It is simply a question of construction of a few words of a codicil. If, by construction, we can educe an intent to alter existing rights, the power has been exercised. If we cannot educe that intent, the power has not been exercised. What, as matter of mere construction, is the true meaning of this passing and parenthetic reference, which, while distributing among his children property that was his own, the testator has made to other property which was theirs already, but over which he had a distributing power? Did he make this allusion to the settled fund with the purpose of putting his will in the place of the settlement, as the distributing instrument, or rather with the purpose of excluding all idea that his will should interfere in any way with the settlement? That is the whole question, and it is purely one of construction.
It sometimes happens that the argument in favour of a particular instrument operating as an exercise of a power is aided conclusively by the nature and occasion of that instrument. A contract for valuable consideration stands in this, as in so many other particulars, on a very different footing from a merely voluntary act. For example, supposing that the clause in question, instead of being in a will, were in the recitals of a settlement on the marriage of one of the children, and the settlement had then gone on (the father being a party to it) to settle to the uses of the marriage the subject matter of the recital, there, although, literally, the recital would be but a reference to an existing right, and not an expression of intent to create a new one; nevertheless, there could be no doubt at all but that the power would be well exercised. For there the thing would speak for itself. The occasion would construe the act. The necessities of the contract, the obligation to keep faith with the parties to the marriage treaty, would make it necessary to hold that the father of the intended wife had done what he had the power to do, and what he in effect contracted to do. It would be simply Wilson v Piggott 2 Ves Jun 351, and Poulson v Wellington 2 P Wms 533, over again. But such guidance is wholly wanting when the instrument is a will. There the occasion furnishes no aid to the construction. You have nothing to go upon but the words that have been used. There is no bias in favour of the power being exercised. Rather (if anything) the other way, for the burthen of construction is on him who asserts that it has been exercised. It is for him to show that the widow’s right to a survivorship of the power, and the other children’s chances of a survivorship of the fund, have been taken away or diminished by the will of the husband and father. As Lord Redesdale once expressed it, Blake v Marnell 2 B & B 38, n(a), “When a person voluntarily executes an instrument which may have effect under a power, he must demonstrate that he meant to execute the power; but when a person acts for valuable consideration, he is understood in equity to engage with the person whom he deals with to make the instrument as effectual as he has power to make it.”
The degree before us declares that the will operated as an execution of the power but, strangely enough, it has not told us how. The parties interested are left to find out as best they can what rights this appointment created, and in whom. This is the more unfortunate, as the two learned counsel who appeared in support of the decree were unable for a time to agree as to those matters amongst themselves. In the leader’s view, it was an appointment of the whole fund to all the ten children in equal shares; but the junior thought that it operated only to give £400 each to the five daughters, leaving the remaining £2000 unappointed. The leading counsel gave us his idea as to the exact modus operandi with which the will did exercise the power. It was, he said, this – it stereotyped (I think that was the word) that clause of the settlement which provided for a default of appointment; by which I understood him to mean that the testator took that clause, which was in itself, of course, liable to be defeated at any time by an exercise of the powers, and made it indefeasible by adopting it as his appointment. Well that does seem to be a somewhat whimsical, not to say fantastic, mode of accomplishing a very simple purpose. If the testator wished to divide the whole fund among his ten children, as one counsel thought, or half the fund among his five daughters, as his learned colleague thought, he might have said so in plain words, instead of stereotyping a clause in another instrument, which was meant for the case of there being no appointment at all. It scarcely prepossesses one in favour of a contention to find it needing such far-fetched support. But is there no construction which will give to this clause a signification more simple and natural?
One thing is plain. The main purpose, at all events, for which this testator proceeded to make his will was that of disposing of his own property. If it were not for this parenthesis thrown in near the end of the codicil, the conclusion would be inevitable that he had either forgotten his marriage settlement, or intended to ignore it. There is no recital of it, no recognition of the charge it had created, still less any intimation of an intention of exercising his power over that charge. He treats the estate as all his own, measures the amount of the purchase money which he expects the sale of it will bring, and then goes on to distribute the whole of that as if it were all subject to his will. Each daughter is to have £1000 of it, and the residue is to be divided among the sons. And with the purpose merely of making it clearer that it is residue only that the sons are to have, and that the daughters’ legacies are at all events to be secure, he goes on to direct (in the codicil), “that no part of the produce of the sale of my lands shall be paid to any of my sons until the said sums of £1000 each shall have been first paid to each of my said five daughters, or £5000 amongst the survivors of them,” – and then there follows the first and only reference to the marriage settlement, which the will contains, being the clause which has given rise to the present question – “over and above and in addition to the equal distributive share of the £4000 mentioned in my marriage settlement which each of them are entitled to.”
It is plain that if we construe that clause strictly within itself, it is no more than a reference to the existing status quo under the settlement, and does not aim at being constituent of a new or altered state. That is self-evident, and comment could not make it plainer. Nor was it disputed. The argument in support of the decree was that we must not keep within the clause itself, but must carry down into it the word “paid” from the preceding branch of the sentence, and that, thus aided, the clause amounts to a positive direction by the testator that each daughter shall be paid that share of £4000, which she would only presumptively take by way of distribution under the settlement in the event of no appointment being made. I say “each daughter,” for I entertain no doubt that if the clause could operate as an appointment at all, it would be according to Mr O’Brien’s view, that is to say, £400 to each daughter, leaving the remaining £2000 unappointed. But can you, in sound construction, so modify the clause? It is clear that to do so is not a grammatical requirement. Grammatically, the word “paid” is applied specifically to the five sums of £1000, part of the proceeds of the sale of the estate, and there is no pretence for carrying it on to the other subject, unless to do so be a necessity of the conjoining of the two subjects. But is there any such necessity? Cannot these two subjects be conjoined, in the sense of being cumulative the one upon the other, without necessarily importing into the one all the attributes of the other. The one subject is the legacies given by the will, as to which it is directed that they shall be paid, and in certain priority; the other subject is, the “equal distributive shares.” which the legatees “are” already entitled to, dehors the will, and which may or may not ever issue in payment at all, according as the daughters shall or shall not attain the prescribed times of payment. Why are we to import into the description of this latter subject an element which that description does not contain or require? The description has a subject-matter, which in its own unaided language it precisely and accurately fits, namely, the presumptive distributive share of each child under the non-appointment clause in the settlement. Why not allow the clause to be satisfied by that subject-matter, instead of wresting it to a purpose for which its own language is inappropriate? For the argument of the plaintiff’s counsel requires that we shall not only import a foreign term into a clause which, without it, is perfect and satisfied, but that we shall reverse the language of the clause itself. For if it were held to enure as an exercise of the power, then the daughters’ shares, instead of being “distributive,” would be taken out of distribution, and instead of being interests which they “are” entitled to, would be interests which they would be, by the will, for the first time, made to be entitled to. The thing which is to be “over and above and in addition to” the legacies, instead of being, as the clause describes it, an existing right, in shares distributive, is turned into a new-made right, in shares no longer distributive; so that, to use the clause in the way that counsel seek to do, it must be subjected to a double violence – interpolation and rejection – both alike uncalled for and arbitrary.
If no motive could be assigned for the clause save that exercising the power, there would, of course be, so far, a reason for allowing it so to operate. But its presence can be accounted for in a way much more accordant with the general tenor of the will. To pass over the settlement altogether in silence would be sure to give rise to questions which would scarcely fail to issue in litigation. One of them was referred to by Mr McDermott – satisfaction, upon the equitable doctrine of presuming against double portions. The other would be, election. It will be seen at a glance that if the will had been without this clause, it would contain all the elements for raising, if not a case of actual satisfaction of the portions by the legacies, at all events, a case of election between them. For, until we come to this clause, we find that the testator has been, both in will and codicil, treating the family estate as at his absolute disposal, and making testamentary distribution of the whole proceeds of the intended sale. But we know that the settled fund consisted in a charge upon the same estate, and would therefore come into collision with the will; so that you have at once the inconsistency which would put the children to their election between the settlement and the will. It is true that in the early part of the will he refers to incumbrances: “the residue of the proceeds of the sale of the property, after paying off all incumbrances,” which would prima facie include the settled £4000. But these “incumbrances” are afterwards, in the codicil, referred to as “the mortgages,” and upon the tenor of both instruments the argument would be strong, if not invincible, that by “incumbrances” he meant outside incumbrances whilst as to so much of the proceeds of the sale as would be available for his own family, he intended that that should be distributed and governed exclusively by his will. Thus you would have distinctly raised, first, a question of actual satisfaction of the portions by the legacies; secondly, failing that, then one of election between them. But the addition of the clause under construction at once puts an end to both those questions, for it contains the testator’s explicit declaration that the legacies he is giving to his daughters shall not interfere with their settled portions, but shall leave those simply as they were.
Having, then, a clause couched in language simple and unambiguous, which has a subject to which that language, taken in its own ordinary and natural signification, is most germane and appropriate, and for which, confining it to that subject, a motive and a purpose substantial and sufficient are assignable; why are we, in construing this voluntary instrument, to depart from an interpretation which combines in it all those advantages, for the sake of adopting one which cannot be approached without doing violence to the language? Why are we to force construction in order to take away from the widow that check upon her infant daughters which the survivorship to her of the power under the settlement would afford, and from the sons the chance of being bettered in their condition which the same power would supply?
To test the argument further. Let us look a little more closely into the consequences to which it would lead. If the words “shall have been paid” can be carried down so as to be applied not only to the legacies of £1000 each, but to the “distributive share of the £4000” also, the whole sentence will then run so that no part of the produce of the sale of the lands can be paid to any of the sons until not only the £1000 legacies, but the distributive shares of the £4000 also, shall have been paid to the daughters. Now, when was that to be? The will is itself wholly silent as to the times of payment of the distributive shares; it merely refers to the settlement. Now, the effect of that was, according to the argument, to adopt for an appointment by will the non-appointment clause in the settlement. It is to the latter clause therefore that we must look for the times of payment of the shares. Well, when we do so, what we find is this: The shares are not to be paid until after the death of the survivor of the husband and wife. Now, the widow might survive her husband for so many years as that the sons might have passed middle age before the day of her death arrived. Thus, they might be kept absolutely penniless for the best part of their lives. By the settlement (adopted into the will) they could not claim a farthing of the £4000 during their mother’s lifetime, at least, without her consent, and by the coupling together the two subjects in the way the plaintiff’s counsel contend for, they would be prevented from claiming a farthing of their father’s legacies either, until after the same period.
I do not myself appreciate a difficulty which seems to have been felt below, namely, that confining this clause to its own natural signification of saving existing rights, not creating new ones, would enable the widow, by means of the power thus preserved to her, to convert equality of portions into inequality. To put it in that way is really to beg the question. The very object of such powers in settlements is to enable that very thing to be done. It was in the highest degree desirable that the surviving mother should retain over her five young daughters, made partially independent of her, as they were, by their father’s legacies, that amount of control which the survivorship of the power over the other fund would confer: and it should not be presumed that her husband intended to deprive her of it, unless, to borrow Lord Redesdale’s language, he has demonstrated that he meant to do so. Nor is the word “equal” in the least opposed to this. It is merely part of the description of the existing status quo – “equal distributive shares” which they are entitled to. Equality in all conditions is a characteristic of shares, so long as they remain merely distributive equal in amount, presumptively, but equal also in their common liability to be increased or diminished by an exercise of the power.
Upon the whole, I am of opinion that this testator has not evinced any intention, either by consciously exercising the power, or in any way, to alter the condition of the subject fund. On the contrary, I think he has most distinctly conveyed it to be his will that the gifts he was making out of his own estate should be without prejudice to the settlement.
The Vice-Chancellor’s declaration must therefore be discharged and a declaration in the contrary sense substituted. The costs of the special case at both sides, both below and here, will come out of the special fund.
Moffett v Lord Gough
(1878) 1 LR Ir 331 (Court of Appeal)
Sullivan MR: The plaintiff has filed his bill to obtain the aid of this Court, as against Lord Gough, to make good a lease of the 12th July 1851, executed by a tenant for life under a leasing power, alleging a mere formal defect in the execution of the power, and praying that Lord Gough, the remainderman, should be decreed specifically to perform the terms of the lease as a contract binding upon him. The case which the Rev Mr Moffett presents is as follows: He sets out the will of Benjamin Bunbury, dated the 10th September 1820, and proved on the 20th November 1823. Under it the fee of the three denominations of land included in the lease of 1851, viz, Clonken, Cordevin and Trillickatemple, became limited to Thomas Bunbury for life, with remainder to his first and other sons successively in tail male, remainder to Kane Bunbury for life, with remainder to his first and other sons successively in tail male, remainder to Sir Hugh Gough (under whom the defendant Lord Gough claims) in fee. The will conferred a leasing power on the tenant for life for the time being, in the following terms:
“I do hereby declare that it shall and may be lawful for each and every of the several persons to whose use the several estates, lands, hereditaments and premises is or are limited as aforesaid, when they shall respectively be in the seisin and possession thereof by virtue of the limitations in this my will contained, to make any lease or leases of all or any part thereof for the term of one, two, or three lives, provided such demise or demises be made by indenture to be duly signed and sealed and delivered in presence of and attested by two or more credible subscribing witnesses, in possession, and not in reversion, or by way of future interest, and so as by every such lease there be reserved and made payable during the term to be thereby granted a fair improved yearly rent for the premises to be therein comprised, without taking any fine or premium for or in respect of the making thereof; and that in every such lease there by contained the usual clauses of entry in default of payment of the rent to be thereby reserved, and that such leases shall not be made dispunishable of waste, and that the lessees therein to be respectively named shall execute counterparts thereof.”
In 1851 Kane Bunbury was tenant for life in possession under the will, and had that power vested in him. It appears that of the three denominations of land comprised in the lease of 1851, two, viz, Clonkeen and Cordevin, containing together 168A 3R 11P, had been leased by the testator Benjamin Bunbury to a Rev Robert Moffett, grandfather of the plaintiff, on the 10th November, 1787, for three lives, at the yearly rent of £138 14s (Irish), and in that lease there was contained a covenant that the lessee, his heirs, executors, administrators and assigns, would during the demise preserve, uphold, support, maintain and keep the demised premises, and all improvements made and to be made thereon, in good and sufficient order, repair and condition; and at the end or other sooner determination of the demise would so leave and yield up the same to Benjamin Bunbury, his heirs and assigns. The lands of Trillickatemple (the third denomination in the lease of 1851), containing 106A 1R 0P together with 39A 1R 21P of bog, had been leased on the 27th July 1795, by the same Benjamin Bunbury to the same Rev Robert Moffett, also for three lives, at a rent of £132 16s (Irish), with a covenant substantially the same as that I have already read from the lease of 1787. Jane Moffett, one of the lives named in each of these leases, having survived the other lives named therein respectively, was still living on the 12th July 1851. There is no evidence in the cause that she is even yet dead; but it was stated at the bar that she died in the year 1863. The lease of 1851 from Kane Bunbury (which the plaintiff obtained under very peculiar circumstances indeed) demises the three denominations of land comprised in the two old leases for three new lives, one of them being that of the Prince of Wales, and another that of a boy then about thirteen years old. It reserves a rent of £262 10s of the present currency, which, allowing for the difference of Irish currency, is precisely equivalent to the total of the two previous rents fixed in 1787 and 1795, with a sum equal to the tithe rentcharge which the tenant under the old leases was bound to pay. This lease of 1851 purports to be a lease in possession, and is made without any reference to the leasing power, and not in consideration of the surrender of the existing leases. On reading this lease, one is at once struck by the fact that the lands are demised for three lives, of which two were very young, at a rent which is no more than that reserved out of the same lands at the close of the last century. This seems to have struck the present plaintiff and his advisers, because, by way of accounting for that somewhat startling fact, they put forward the case that the lands had been allowed to become reduced to a wasted and desperate condition when the new lease was made. For this condition of the lands be it observed that, even on the plaintiff’s own evidence, he was himself, to say nothing of his tenants, to a considerable extent directly answerable. This is apparent on reading the 6th and 11th paragraphs of the plaintiff’s affidavit, filed the 14th February 1876. The plaintiff in his bill states his title to get the lease of 1851 in such a way as to avoid the obvious point which arises upon it as an exercise of the power, viz, that it was a lease in reversion, and not in possession, unless the old leases were in fact or in law surrendered. He says that on the 12th July 1851, he was the owner of the two old leases, and he alleges his title in these words (par 4 of bill):
“The said Rev Robert Moffett (that is, the lessee in the old leases) died about the year 1819, and his son Andrew Moffett thereupon became entitled to the lessee’s interest in the said two leases. The said Andrew Moffett, the plaintiff’s father, afterwards died in the year 1819, and thereupon the plaintiff became entitled to the lessee’s interest in the two said leases.”
It is quite plain upon that averment that he is claiming as heir-at-law of his father and grandfather; he mentions no will or other document of title; he asserts a title accruing and consequent upon death, and therefore the natural conclusion suggested – if it were true – is that the lease of 1851, though made without any formal surrender of the other two, was a good lease in possession, the plaintiff being at the time of its execution entitled to the interest then subsisting under the old leases. If that were true, the point as to the lease being one in possession, and not in reversion, would have a safe and sure foundation.
The lease of 1851 was attested by only one witness, and the plaintiff states on the face of his bill that that is the only defect, and it being purely formal he comes into equity to have the lease fastened on the remainderman. He suggests that everything else was right and proper, and that therefore he is entitled at the hands of this Court to have the prayer of his bill carried out.
Kane Bunbury having died in November 1874, and the title in possession of the defendant having then accrued, who refused to recognise the lease of 1851. Lord Gough answered the bill, and at once took issue with the plaintiff upon the case he set out in his bill, and the answer submits that “the plaintiff has not shown any title by descent, occupancy, devise, conveyance or otherwise, to the lands demised by the said leases, or either of them;” he denies that the rent reserved by the lease of 1851 was a “fair improved rent,” and he submits that the fact that the lands were then reduced in condition demonstrates that the rent could not having been “a fair improved rent.” He further asserts that the lease of 1851 was a fraud upon the leasing power. On that answer the plaintiff took a course which it is right to advert to. He filed a replication and proceeded to hear the cause upon replication, which had the effect that he was able to adduce his evidence without Lord Gough, the defendant, having had the slightest opportunity of meeting or answering any new allegation which the plaintiff might put forward or introduce therein.
I need scarcely say that when a cause under the old system was heard on replication, each party addressed himself to the issues knit by adducing evidence which his adversary could not see or be informed of till after the time allowed for giving such evidence had closed. Lord Gough’s advisers evidently taking the plaintiff’s averment of his title as I have stated it, and having plainly discovered by reason of the Will of the plaintiff’s father, made in the year 1819 (to which I shall again advert), having devised the lands comprised in the old leases to his son John, that the plaintiff’s statement in his bill was not correct, actually examined the plaintiff by taking his deposition on the 10th of February 1876, in which he had to admit that his brother John had only attained his age of twenty-one in the year 1841, and that he had no reason to believe that he was dead. Now a few days after making that deposition, the plaintiff filed his affidavit in support of the bill, and then for the first time, behind the back of his adversary, went into an entirely new and remarkable case, utterly at variance with the title he had stated in his bill. In this affidavit, he alleged that on the 31st August 1808, the Rev Robert Moffett, the original lessee, had made a settlement upon his son Andrew for life, of the lands of Clonkeen and Cordevin, with remainder to his first and other sons in tail male. The plaintiff then says that Andrew’s father died in January 1819, and that Andrew the plaintiff’s father became entitled to Clonkeen and Cordevin for life; that Andrew died in December 1819; and that then the plaintiff became entitled as remainderman to the lands of Clonkeen and Cordevin; that Robert the original lessee, being seised of the lands of Trillickatemple, devised them by his will of 1817 to his son Andrew; that Andrew made a will in 1819, and purported to dispose of the lands of Clonkeen, Cordevin “and other premises therein mentioned” (a designedly vague statement of the will, as will afterwards appear), but that the will was inoperative as to the settled lands, and was not acted on, but an arrangement was entered into by which the rights of himself and the several members of his family were amicably adjusted, and under which they obtained equal shares of his father’s personal property, he himself getting Clonkeen, Cordevin and Trillickatemple. He says that this arrangement was acted on, and that about 1836 he went into possession of those lands and paid the rent therefor, and has since continued in possession of the same.
Evidence was gone into on the part of the plaintiff and defendant as to the rent reserved in the lease of 1851, and a good deal of the defendant’s evidence went strongly to show that, even apart from the condition of the lands as brought about by the plaintiff and his undertenants, the rent reserved in the lease of 1851 was not a fair improved rent. In that state the cause came before the Lord Chancellor for hearing, and he pronounced the decree of the 7th of March 1878, from which this appeal has been brought. By that decree an issue is directed to be tried by a jury of the county of Longford, where the lands are situated, as to whether the rent reserved in the lease of 1851 was at that date the fair improved yearly rent. It is plain, on reading the judgment of the Lord Chancellor, that in directing this issue he decided all the other points in controversy against the defendant. We are all of opinion that the decree so made cannot stand, and that upon the evidence adduced in this cause the plaintiff’s bill ought to have been dismissed. I think that, entirely apart from the question of the amount of rent reserved in the lease of 1851, and even before that point is reached in the consideration of the case, there are ample grounds for holding that the lease of 1851 was, in truth, a positive fraud upon the leasing power. In the view I take of this case it will be unnecessary to discuss the question of the rent; but I must observe that it appears to me that there were materials, even on that point, for coming to a safe conclusion within the Court of Chancery itself, without having that question tried upon an issue before a jury. I will say no more as to the direction of that issue, save this, that the defendant, Lord Gough, would, in my opinion, go heavily weighted to the trial of that issue.
I now proceed to state the reasons which have induced me to think that, altogether outside the question of rent, the plaintiff’s bill must be dismissed from this Court. When one reads the statements of the plaintiff’s title set out in his bill, and the statements in reference to the same matter set out in his affidavit made by way of evidence, the first thing which strikes one is, that the very curious matters alleged in the affidavit are not merely suppressed from the bill, but are at variance with the title therein stated: but what is still more remarkable is the fact that the peculiar title sought to be made out on this affidavit was suppressed from Kane Bunbury and his solicitor when the lease of 1851 was obtained; for on that occasion, when on the part of Kane Bunbury it was insisted on that the lease about to be then made should be a lease in possession, and that the old leases should be surrendered, the plaintiff distinctly represented that there was no necessity for such surrender, as he was then entitled to the lessee’s interest therein, as the heir-at-law of his father and grandfather. That in my opinion, was a positive misrepresentation made in obtaining the lease of 1851, for it was on the faith of that most incorrect statement that Kane Bunbury and his advisers were induced to act, and to dispense with a valid surrender of the old leases by a person competent to make it. It was of essential moment in relation to the exercise of the leasing power that the tenant for life who was about to execute it in favour of the plaintiff, Mr Moffett, should see that, when no actual surrender of the old leases was to be executed, the estate therein was vested in the person to whom the new lease was to be made, so as to effect a surrender in law, so that Kane Bunbury, or at any rate those in remainder, should not be put to the inconvenience and embarrassment of having two leases existing on the estate, one in possession and the other in reversion, the latter being a positive violation of the terms of the power. The misrepresentation of the plaintiff on this material point does not rest upon oral evidence only. Letters are produced which show that the tenant for life insisted that the lease should be substantially one in possession, and the plaintiff is found getting over the necessity of executing a surrender by representing that he was heir-at-law of his father and grandfather, and therefore in a position to surrender the old leases by accepting the new one. Now – when the title that he avers for the first time in his affidavit which I have read, and which the defendant had not the smallest opportunity of meeting or answering, comes to be examined – it first appears that there is no evidence at all of a settlement having been executed. Upon the Lord Chancellor’s decree it appears that what purported to be a copy of that settlement was admitted in evidence, and, having regard to the fact that there was no proof whatever of an original settlement, or of proper search made for the same, or any proof of the copy, I think the Lord Chancellor’s attention cannot have been directed to the circumstance that he was admitting a copy of an alleged settlement, upon the following passage found in the plaintiff’s affidavit:
“I beg to refer to an ancient copy of the said indenture which I now produce and mark ‘A’ and which I believe to be a genuine copy thereof. I never had the original thereof in my possession. I do not know where it is, and I believe that the same is lost. I have diligently searched for the said settlement, but could not find it.”
We think that there is no evidence whatever of the contents of the alleged settlement adduced by such a statement, unless we are prepared to hold that any copy which an interested party throws down as a copy is to be treated as a true copy of an original settlement alleged by such party. There is no evidence as to where this copy came from, how it was made, or where it was got, or that it was ever acted on, there being all this time not the smallest proof of the original deed. But it was said that the memorial of the settlement was evidence of it; unfortunately even if the memorial was properly in evidence, there is no statement in it of any of the trusts or limitations affecting the lands. The memorial was not, however, receivable in evidence, and the proposition put forward at the bar that a memorial of an ancient deed, signed by the grantee, when produced from the Registry Office is evidence without more of the original deed – and for which proposition Biggs v Sadlier 10 Ir Eq R 522; 4 Cl & Fin 435 was cited – cannot be maintained for one moment. The proper limits within which such a memorial can be admitted in evidence will be seen in the judgments in that case. It will be found that the Chief Baron prefaced his judgment (p 532) there with these words:
“The principal question in this case arises upon the evidence tendered by the plaintiff as secondary proof of the articles of the 5th of January, 1746, for which ineffectual searches appeared to have been made in the quarters in which they would be reasonably expected to be found.”
Lord St Leonards in his judgment lays down the same rule; he says (p 460):
“I certainly am of opinion – and I think the authorities will not impeach that opinion – that the memorial is good secondary evidence of the contents of the deed of 1746, it being proved upon search that the deed has actually been lost.”
This settlement then being out of the case, see how the title stands. The grandfather of the present plaintiff, whose will is entirely suppressed from the bill, and from the tenant for life in 1851, devised the property in these terms:
“I devise and bequeath to my son Andrew Moffett, his heirs and assigns, my lease of the lands of Trillick … and all the rest, residue and remainder of all my property, real and personal, I give, devise, and bequeath to the said Morgan Crofton and John Robinson, their heirs, executors, administrators and assigns, upon trust to pay three parts of the interest, profits and produce thereof to my grandchildren Jemima, Catherine, Jane, Robert, and Samuel Richardson, equally to be divided between them on their attaining their several ages of twenty-one years (with gifts over between them in certain cases.) And my further will is that the remaining fourth part of the said remainder and residue of all my property shall be equally divided between all the children of my son Andrew Moffett (as therein mentioned).”
If there was no settlement, that residuary gift embraced the lands of Clonkeen and Cordevin, and passed then as to three-fourths to the testator’s grandchildren, the Richardsons, and as to one-fourth to the children then living of his son Andrew, the devisee of Trillick. Andrew came to make his own will soon after, and he devises to his son John the lands of Clonkeen, Cordevin, and Trillick, and to the present plaintiff other lands called “Park Place, Liskett, and Aughentemple.” That will ignores the alleged settlement, even if it existed, as alleged, a serious question suggests itself, whether a case of election did not arise. But, be that as it may settlement or no settlement – the lands of Trillick under those wills were the undoubted property of John – a positive and startling fact, directly opposed to the misrepresentation of title made by the plaintiff, as well when he got the lease of 1851 as in his bill in this cause. The extraordinary statement of the plaintiff as to some family settlement by which John’s rights to these lands were given over to the plaintiff, made for the first time in his affidavit, under peculiar and most suspicious circumstances, rests on the plaintiff’s loose and uncorroborated averment. At the time this arrangement is supposed to have been entered into, John, as is now proved, was a boy of fifteen years of age; there is not even an assertion that after he came of age he ever did anything to confirm or even sanction such an arrangement. It is not even alleged that he ever was made aware of his rights, nor is it shown what he got for abandoning his property; the plaintiff’s statement that this boy got a share of his father’s personalty, which may have been anything at all, cannot have the slightest weight. The plaintiff says that John would readily have assented to the lease of 1851: if so, he might as well have told the landlord all about this supposed family arrangement, in which case John’s readiness to surrender the old leases in favour of the plaintiff would have been put to the test. In truth, there was a positive suppression from the tenant for life of all the material facts connected with the title: and I cannot conceive a stronger case of misrepresentation than that which the plaintiff was guilty of in 1851, to induce the then tenant for life to exercise his power.
It has been contended that, as the plaintiff has been in undisturbed possession under the lease of 1851 since its execution, this Court must, therefore, assume that John’s rights were legitimately dealt with; that would be a very convenient doctrine for persons who enter on a minor’s estate with the view of making it their own. Is it to be forgotten that the plaintiff, when he took possession of John’s estate during his minority, was nothing but John’s bailiff, and that it is quite consistent with all that has been averred, that John was kept in entire ignorance of his rights, and that he, or those claiming under him, may have this moment, in this Court, ample grounds for making the plaintiff answerable for all his past possession? Indeed there appears to me no reason why John, if he had known his rights, might not have brought an ejectment, at all events for Trillick, within twenty years after he came of age.
I think that the plaintiff has failed to show any title to get the lease of 1851, and that that lease was obtained by misrepresentation, and I think that this Court ought never to aid such a transaction. The lease of 1851 was clearly a lease in reversion, and not one in possession, and was in plain violation of and a fraud upon the power.
It clearly follows from what I have said, that the Acts of Parliament (12 & 13 Vict c 26 and 13 & 14 Vict c 17) cannot be relied on as aiding the defective execution of the power; those Acts themselves at once present an answer to the argument put forward, for they are only intended to aid defects where the leases have been bona fide executed by tenants for life; and in my opinion it would be a total subversion of language to hold that this lease of 1851 was bona fide executed. It is not necessary to go into the question of the extent of authority which this Court, has under those statutes, to aid the defective execution of powers. Speaking for myself, I believe the construction of these Acts must be very much controlled by the words of the preamble of the first one.
We all agree, as I have said, that the decree must be reversed, and that the bill must he dismissed and we think that such dismissal must be with costs.
Christian LJ: The bill in this case is based exclusively on the statute 12 & 13 Vict c 26. It treats the indenture of the 12th of July 1851, as being, notwithstanding the defect in the attestation, a good contract in equity under that statute for a lease under the power; and its sole prayer is for the specific performance of that equitable contract. Now I agree with the Lord Chancellor that this case does not fall within that statute, but not for the reasons assigned by his Lordship. His construction of the words in the second section – in case the lessee named in the lease shall “have entered thereunder” – is, I think, too narrow. I cannot doubt that the lessee’s continuance in possession after the accepting of a new lease on the giving up of an old one, was tantamount to an entry under a new lease. My own reasons for excluding the statute are, first, that the lease was not made bona fide, and, secondly, that one at all events of the points of substance in which the invalid lease departed from the terms of the power is now incapable of being supplied.
The Lord Chancellor remarked very truly that in several respects it is difficult to say what is the meaning of this section. It certainly is, and in none is the difficulty greater than in the two particulars I have just indicated. Luckily for himself, the view the Lord Chancellor was able to take of the little point about the lessee entering relieved him from the necessity of forming an opinion on the graver difficulties of the case. I am less fortunate. What is bona fides in the making of a lease under this statute? If the donee of the power knowingly, and, if knowingly, wilfully, ignores the two most substantial of the safeguards provided by the donor for the protection of the remainderman – viz, that the lease shall not be in reversion and that the rent shall be fair and improved – can that lease be said to have been made bona fide? I venture to think not. Again, the statute says that the lessee shall be entitled to a valid lease under power, to the like effect as the invalid lease, “save so far as any variation may be necessary in order to comply with the terms of such power.” What is the force of these latter words? Can any lease be within the statute if there be a defect in substance which is incapable of being made good by the variation? Again I think not. Well, one of the defects in this case was of that character. We could not now by any variation to be introduced into the new lease purge the lease of 1851 from the fault of having been a lease in reversion. Its status in that particular was defined once for all at the time of its execution. The insufficiency of the rent you might cure by a variation; but the other defect is indelible. On that ground alone, if there were no more, I should be prepared to hold that this lease derives no aid from the statute. But more – I am also of opinion that this lease was so palpable a sacrificing of the interests of the remainderman to those of the tenant and of the lessor that it is idle to claim for it the character of bona fides which is the primary condition of the statute. For these reasons, I think with the Lord Chancellor, that the plaintiff can derive no aid from the statute 12 & 13 Vict c 26, and that his case must be sustained, if at all, on the old equitable doctrines of relieving purchasers against formal defects in the execution of powers.
Although, as I have said, the statute exclusively is made the groundwork of this bill, I am not going to hold the plaintiff so strictly to his pleadings as to exclude him from the other equities: but his position in invoking that jurisdiction is in one important particular the same as it would be prior to the statute. He is asking for the special extraordinary interposition of the Court in his favour, to set up and make valid for him a title which as against the remainderman is legally null and void. The defendant resists this relief on the grounds that, besides the formal defect of the attestation – which is what gives him his advantage at law, but is certainly relievable in equity – neither of the two substantial safeguards of the remainderman was complied with; for the lease was a lease in reversion instead of being one in possession, and the rent reserved was conspicuously the reverse of being either “fair” or “improved”. With respect to the first of these two objections to substance, it is undoubtedly true that unless the whole remaining interest under the two old leases of 1787 and 1795 was at the time of the making of the lease of 1851 vested in the plaintiff that objection is sustained; and it is equally true that the burden of proof here lay only on the plaintiff. Whether he has successfully sustained that burden was the question mainly argued at the bar. It has been now fully discussed by the Master of the Rolls; and I concur in his view of it – that it is alone sufficient to decide the case. Nevertheless I prefer myself to rest my whole decision on the other objection; and for this reason that I feel sure of the facts. As regards the title to the old leases, the success of the defendant is rather a negative than a positive one. It is plain that we have not all the facts before us; but looking even at what we have, there are forty-two years of unbroken possession of this farm by the plaintiff, and thirty-seven of these since his brother John came of age; and observe, the whole of these thirty-seven years must be counted, because if John had in him at the time of the lease of 1851 the legal estate in the old existing lease, the new lease of 1851 would have been a graft upon the old one for his benefit, and he would have been entitled to that as well as to the old lease. Therefore his title – if title he had – would stand good during those thirty-seven years. Well, of these thirty-seven years from the time of his coming of age, ten had elapsed before the making of the lease of 1851. It does appear difficult not to feel a certain misgiving that in some way or other, either before or at the time of making the lease of 1851, the whole interest under the old leases had, in truth and substance, if not in technical legality, passed into and become the property of the plaintiff. But still the proof is incomplete, and it is of course on the party on whom lay the burden of proof that the consequences of that incompleteness must fall. Therefore I concur in the Master of the Rolls’ view; still it is at the utmost but a case of “not proven.”
I turn willingly to the other objection, where I find myself upon firmer ground. Before discussing the facts, I will refer to a case containing a very instructive reading by a very great authority, as to the duty which a tenant for life exercising leasing powers owes to the remainderman – I mean the case of Harnett v Yielding 2 Sch & Lef 549. In that case the defendant, the tenant for life, made a lease to the plaintiff for a term of twenty-one years. There was contained in it a covenant by the lessor “for and during the term of his life to renew the said lease for the said D Harnett, his executors, administrators and assigns, by giving unto him or them a lease for twenty-one years of the said demised premises, when applied to by him or them so to do.” The lease contained a clause of surrender. The tenant, thinking the rent too high, availed himself of the clause of surrender and put an end to that lease. The parties immediately came to a new agreement which was worded in these terms: “I promise and agree” the tenant for life says, – “to perfect a fresh lease to Mr Daniel Harnett at any time he shall demand the same, at £5 a-year less than the within-mentioned rent.” This was indorsed on the old lease. The tenant went back into possession. He remained in possession under the original lease until within a very short period of its expiration, and then called for a renewal on the terms of that instrument which I have just read; and the landlord refusing to grant the renewal, the tenant filed his bill to enforce it – the defendant being, observe, not the remainderman, but the tenant for life himself, who had made the lease, and the plaintiff seeking first for a renewal in the terms of the power so as to be binding on the remainderman, and seeking further, if he could not get that, at all events what the tenant for life had power to give him, namely, a lease for twenty-one years if the tenant for life should so long live. Well, the Court refused to give him either the one relief or the other – not even the relief of a lease for twenty-one years if the tenant for life should so long live – because it held that the lease was, under the circumstances under which it was executed – and which I shall mention presently from the judgment – a fraud upon the power; and that being such, the Court would not make it the groundwork of any decree whatever, even as against the tenant for life himself. The first question in the case was whether the agreement was not too uncertain to be performed at all, on the ground that it was not clear whether it was an agreement for one lease for twenty-one years, or an agreement for a lease for twenty-one years with a renewal for a fresh term of twenty-one years afterwards. Lord Redesdale, after discussing that question, came to consider how the case would be upon the assumption that it was sufficiently certain that it was to be a lease for a double term, namely twenty-one years in possession and a right of renewal for a further term when called for; and here is what he says, at page 558 of the report:
“Then there is in this case another consideration which appears to me to be a ground for refusing performance of this agreement; and that is, that this is evidently, on the face of the instrument, a contract by a person having a limited interest, with a leasing power, to act in fraud of that power. It is a contract to execute a lease for twenty-one years, and a further lease for twenty-one years at any time during his life; consequently to execute a lease for twenty-one years, whatever may be the increased value of the property at the time of the lease granted.”
In other words, it was a contract which would deprive the person, whoever he might be, who should be in possession at the time when the renewal lease was called for – and he might be the remainderman, though it did not happen to be so in that case – of the advantage of a presumptive rise of rents in the interval. That is the ground on which Lord Redesdale holds it to be a fraud on the power, because of its tendency to deprive the remainderman, if he be the person, or the reversioner at the time, of the benefit of the presumptive rise of rents in the interval between the making of the original lease and the time when the renewal is called for. How infinitely stronger does that apply to a case where it is a renewal, at the old rent reserved some fifty or sixty years ago, of a very old existing lease, still existing for one life, that is sought for; so that the remainderman, when his time should come, would not only be deprived of the presumptive rise of rent from the date when the renewal is being executed down to the death of the old existing life, but also of an infinitely greater rise of rent, counting from the time of the original lease some half-century before down to the time of the expiration of the last life? Therefore this case is far stronger in its circumstances than that which was there considered as constituting a fraud on the power. Then Lord Redesdale goes on:
“I think Courts of Equity should never enforce such contracts, whether with a view to the party himself or to the person entitled in remainder. In the first place, it is unconscionable in the tenant for life to execute such a lease, because it brings an incumbrance on the estate of the remainderman, and puts him to litigation to get rid of it; and as to the tenant for life himself, it is compelling him to do what is to be the foundation of a future action for damages, if he dies before the twenty-one years. The Court will never do this, but will leave the party at once to bring his action for damages. And I also conceive that this sort of contract, obtained by a person who knew at the time the nature of the title, is unconscionable in him, as he makes himself a party knowingly to that which is a fraud on the remainderman; and under such circumstances he has no claim to the assistance of a Court of Equity.”
So we may say here to this gentleman: “Make the best of your case with a jury; bring an action against the personal representative of your lessor, Colonel Kane Bunbury; if you do so you will be certain to have a more sympathetic jury than Lord Gough would have if he were so ill-advised as even to bring such an issue to a trial.”
Bearing in mind these principles, and turning to the case before us, the requirement of the power in it as regards rent is, that there be reserved and payable during the term “a fair improved yearly rent,” without taking any fine or premium for or in respect of the making thereof. “Fairness” must be understood relatively to all the interests involved – those of the remainderman as well as those of the tenant for life and of his lessee. “Improvement,” in the case of lands which were let on lease at a rent at the time of the creation of the power, and where the new lease is being made to the old tenant, can hardly have any other meaning than “increase.” The same or even a lesser rent, if reserved from a new or more solvent tenant, might well be an “improved rent.” But to renew an old lease to the same tenant at the old rent, and to make the doing so serve the purpose of procuring the payment by the lessee of arrears otherwise of doubtful solvency, does seem from the point of view of the remainderman to respond to the requirements neither of “fairness” nor of “improvement”.
Turning to the facts of the case, the first thing that it startles one to find is, that the fair improved rent reserved by the lease of 1851 is identically the same rent, reduced to English currency, at which the same lands had been demised for terms then unexpired of sixty-four years as to one denomination, and of fifty-six as to the other, before the date of the new lease. Let me here correct a mistake into which the Lord Chancellor fell in his judgment. He speaks of the new lease of 1851 as having been made at an increase in the rent of £12 a-year. The gross total of the rents in the old leases was £271, of the then currency. But at that time, as we all know, the tenant paid the tithes. When the new lease was made in 1851 the £217, reduced to the currency of the day, would be only £250; but adding the tithe-rentcharge, which in the meantime had been thrown on the landlord, the amount is brought up to the exact rent reserved, namely, £262 odd. So that it is the common case of both parties that the rent reserved in the lease of 1851 is the exact equivalent – in figures I mean of the rent reserved in the two old leases of 1787 and 1795, plus the tithe. Well, this ancient and expiring rent – for it was then, that is in 1851, depending on one life, necessarily an extremely old one – the new lease professed to resuscitate and fasten on the inheritance for three new lives; one, that of the lessee himself; another, that of a boy of thirteen; and the third, that of the Prince of Wales, then a boy of ten; in other words, according to the ordinary duration of human life, some fifty or sixty years. If we had been furnished with information to enable us to make a comparison between the purchasing power of £271 10s Irish, plus the tithe, in 1787 and 1795, and its numerical equivalent of £262 3s 10d English in 1851, we should be in a better position for estimating the truth of the assertion which, startling as it seems, is an essential of the plaintiff’s case – that the latter was an improvement upon the former; that is to say, a better thing for the remainderman. I should be curious to know what sum would in 1851, or at the present day, most nearly correspond with what £271 was in 1795. But even without such precise information I think we may fairly infer, from what we know historically of the main current of progress in these matters, that it would be something vastly above £262 sterling of the money of the present day. The Solicitor-General said that we were to look not at the general value of money, but at its value in relation to the particular commodity – land. With great respect, that would be entirely misleading. It is in the light of its value as the general purchasing medium of the kingdom that we must regard it. The number of pounds sterling which at given periods can be got as rent will vary inversely with the purchasing power of the pounds sterling at those periods, that is, with the quantities of the necessaries and luxuries of life that would be given in exchange for them. If the number of pounds sterling in 1787 and 1795 would have produced double the quantity of those things that it would in 1851, then it follows that there ought to have been £2 reserved in 1851 for every £1 that was reserved at the older dates. We all know how the falling in of old leases has been looked forward to by proprietors as what would often raise the man of straitened means to a position of wealth, and the man of wealth to that of a millionaire – as is witnessed by what has happened in the cases of some of the great English families, the Grosvenors and the Russells. It is really self-evident that, except under some extraordinary and exceptional casualty, a renewal made in 1851 under a limited leasing power, at the same rent as was reserved in 1787, must stand condemned on the face of it as one of monstrous undervalue. And observe, this is not a case of the kind dealt with in the English authorities, or a case of reforming a lease, such as those to which Lord Eldon’s language, relied on by the Lord Chancellor, in the Queensberry Leases Case 1 Bligh 339, applies; it is not a case of that kind. It is the renewal to a middleman for a lengthened term of a most valuable interest outstanding to the prejudice of the inheritance – so valuable that, as the plaintiff himself tells us, it has been dealt with as the fit subject of marriage settlement and of elaborate family arrangements. The Lord Chancellor seems to have viewed this point of rent precisely as if in 1851 there had been no existing lease, and the question was simply what rent could the lands, if then in hand, be reasonably expected to bring, under the circumstances of that time. And assuming, as he must have done, that this, which would undoubtedly be a question purely of fact, was the turning-point of the case, he, as the decree expresses it, “being desirous of ascertaining the truth,” dismissed the task of ascertaining it from himself in Chamber to the more discriminating analysis of a county of Longford jury. With the utmost possible deference, I dissent both from the Lord Chancellor’s mode of disposing of the question, and from his choice of the tribunal for “ascertaining the truth.” There are elements in this case which the Court alone possesses competency to deal with, and which we should be merely escaping from if we allowed the case to go to a jury. If we had the finding of a jury tomorrow in the plaintiff’s favour upon the issue directed by this decree, the question would be still unanswered – Could the plaintiff have the relief he claims by this bill? Were the circumstances under which this power was professed to be exercised such as to make it equitable, just, and according to the spirit and policy of the power, to make valid this invalid lease against the remainderman who is a stranger to it? What were the circumstances? Five years before, a terrible calamity had fallen upon, I will not say the land, but the masses of pauper tenantry whose existence upon the land had been the insuperable barrier to all agricultural progress and improvement, and the immediate consequences of which not only entailed suffering to the afflicted masses, but the ruinous depression of all selling and letting values. It needed, however, but a very scanty measure of prescience to be able to foresee that the evil was but temporary, and that prices and rents must ere long regain their buoyancy, for that the visitation under which all were passing was in reality a sure, if sharp, remedy for some of the worst influences that had hung over the Irish soil. Before 1851 the tide had turned – a reaction was already imminent. This was the moment selected for the new letting of the 12th of July 1851. What were the interests of the several parties to be affected? The land was under an existing lease at a rent calculated on the value of money as it was nearly half a century before. That lease must continue at that rent for one surviving life unless it was surrendered by the lessee. Colonel Kane Bunbury, the then tenant for life of the reversion, could not himself have been a very young man; and he was named the devisee in a will made thirty-one years before. What his age then was we do not know. But running his life against that of the cestui que vie under the old existing lease, it may fairly enough be inferred that personally he was not likely to lose very much by granting a renewal at the existing rent, which, under any circumstances, in all probability would last during his own time, and he had no sons to succeed him. His presumptive successor was a collateral descendant, not even of his own name, and about whose interests he would probably be not too solicitous. One personal interest he undoubtedly had, namely, to procure payment of arrears of two years’ rents his tenant then owed him, and the payment of which the plaintiff himself tells us was made the express condition of the granting of this renewal. That was the lessor’s position. As to the lessee, his interest in getting a renewal at the ancient rent of some half century old is a thing that needs no dwelling on. These were the two parties to the dealing. The one had little or nothing to lose by it, but, on the contrary, a loss to be saved, while the other had an immense advantage to gain. But how about the absent remainderman for whose interest alone this leasing power had its existence? I answer – it was simply sacrificed: for what was done was, out of the fact that in a crisis like that of 1846 to 1851, under the terror of which no one could be found to offer more than the nominal sum that had been reserved half a century earlier, a pretext was made for stereotyping the panic – for that is what it comes to. What was that but to exercise this power in a way which, even if it would not induce a Court of Equity to set aside as a fraud a lease that had been duly consummated according to all the forms, ought certainly to be held sufficient, as Lord Redesdale says in Harnett v Yielding 2 Sch & Lef 549, to prevent the Court from lending its extraordinary aid to enforce against the remainderman what is no legal exercise of the power at all? This lease is void at law against the defendant. What the Court is now asked to do is, by an extraordinary effort of its extraordinary jurisdiction, to compel him to validate it, and by so doing to stamp upon the inheritance against himself and his successors, for a generation or two from its date, the panic-bred depression of an unparalleled, but still temporary, emergency, and to do this under colour of a power, the essential term in the exercise of which was, that a fair and improved rent should be reserved. The rents reserved in 1787 and 1795 were to be still in 1851 regarded as “fair” and “improved”, and thus projected onwards well into the twentieth century.
Now let me test one extreme case by another which is hardly more extreme. In place of a devastating famine, let me put a devastating war. Suppose the country had been in the occupation of a hostile army, and that districts had been devastated, houses burned down and lands ravaged to a condition in which nothing could be given, and no one would offer anything, for the ground – would it be a fair exercise of such a limited leasing power, suppose, for the tenant for life to take advantage of the existing state of circumstances – obviously but a temporary one, which sooner or later when peace must come to an end – and make a lease to some speculator at a rent of 5s or 10s an acre, – would that be a fair exercise of the power, and would the Court of Chancery afterwards interpose to compel the remainderman, when better times came and when the land had again become valuable, to execute a lease at a nominal rent? Well, I suppose nobody would contend for that; and in truth there is no difference between the cases. The very specialities to which the plaintiff appeals are in reality destructive in his case. In proof of his prima facie amazing assertion, that the same figures represented in 1851 a better rent that they did in 1787 and 1795, he refers first to the bad and exhausted condition of the land, that is to say, to his own breach of the covenant in the lease to keep it in good order; and secondly to the famine, that is to say, the very thing for which he made the abuse and perversion of his power. This tenant for life, with no prejudice to himself as regards the rent of the future, and with large benefit to himself as regards the arrears of the past, sacrifices to this reverend gentleman, his tenant, the interests of all his successors, for whose benefit as well as his own he had been entrusted with the power. The answer charges that this was a “fraudulent” exercise of the power. Well, as we are dealing with the case of a reverend plaintiff, we may as well drop that ugly word, but I cannot designate it more mildly than by calling it a mis-use of the power, so gross as to amount to a flagrant abuse of it. Common fairness, and the expressed intentions of the testator, demanded that until the storm had blown over and the country recovered itself, the status quo should be maintained and the power held in abeyance. If care had been taken to comply with the formalities of the power, the plaintiff would have had a legal estate prima facie, and the defendant must have taken the initiative either by bringing an ejectment or by filing a bill in Equity to set aside the lease as a fraud. But as matters are, it is the tenant who has had to take the initiative and to come before a Court of Equity asking it to pronounce that the contract embodied in this document of the 12th of July 1851, is in accordance with the spirit and policy of the power, and so well-timed, and just and equitable towards all in the line of succession, that the Court will interpose its extraordinary authority to enforce it, and legally validate it by a decree.
That is the question which confronts us at the threshold of this case, and I ask what light a jury could throw on it? The Judge at the trial would listen to no equities. He would say, and properly say – “The Lord Chancellor must have decided all that in the plaintiff’s favour before he directed this issue; you and I, gentlemen, have nothing to do but to inquire whether the rent is a fair and improved rent according to the standard of the time when it was made, that is to say, the famine years.” Is that a true standard by which to rule this case? Most certainly not; for the very circumstances which supplied that standard, and which alone would make such a verdict possible – exceptional, transitory and fugitive as they were because of the terrible depression of the moment which was but the harbinger of better times than ever came – were precisely the circumstances which gave to the lease of 1851, viewed as an exercise of the power under M Bunbury’s will, its true character of mere perversion and abuse. Therefore assuming, as I have done throughout, that at the date of this lease no better rent could have been got for the farm than that which is reserved in the lease, I hold to the opinion that this bill must be dismissed with costs.
Well, there is yet a view of this decree by which I must confess I am a good deal embarrassed, and which I do not feel ought to be passed over altogether in silence, because the feature which it presents is from a general point of view by much the most important which appears in the case. Supposing I could agree with the Lord Chancellor that the whole controversy was reducible to the one question on which he directed an inquiry, still I should be obliged to differ from him entirely in the selection he has made of the forum to which to refer that inquiry. The decree is somewhat curiously framed – “The Court being desirous of ascertaining the truth by the verdict of a jury, and being of opinion that the question in controversy may be more conveniently and properly tried in the county where the lands are situate” – and then follows the direction of the issue. Well, that is a somewhat peculiar preamble. I do not myself remember to have seen one like it before. It would almost seem as if his Lordship had some little misgiving lest, perchance, it might be imagined that the course he was taking tended rather in an opposite direction to that in which he hastens to say he was desirous of proceeding. I confess I should myself have thought that if further inquiry on this point were desirable, the Lord Chancellor himself in chamber, with the powers he now possesses of seeing and hearing witnesses examined, and examined viva voce, and, if he pleases, of himself conversing with them, would under the circumstances of this case be an infinitely more promising extractor of the truth than a jury, and most of all, a jury of “the county where the lands are situate.” No doubt the issue is in its terms of a very plain and naked one:
“Whether the rent of £262 3s 10d reserved by the lease of the 12th day of July 1851, was at the date thereof the fair improved yearly rent for the lands by the said lease demised, without fine or premium in respect of the making thereof?”
A very simple inquiry. Could any tribunal apparently be more suited to enter on such an inquiry than a jury of farmers – and let us say, of gentlemen-farmers, as it appears that the jury is to be one of the kind at present called “special jurors” – could any tribunal be more fitted for the investigation of a question of the kind? I answer certainly not, if one could only be sure that they would confine themselves to the terms of the issue and to the evidence properly and legitimately, bearing on the issue. But is there no danger that extraneous topics might be managed to be got into the jury-box? Just look at the repertory which would be at the disposal of some eloquent inflamer of the north-west Bar! Three generations of a respectable tenant family, in undisturbed possession of the farm for now close on a century, at an unaltered rent, and under these a body of occupiers, the old landlord family never thinking of disturbing them on the contrary, the last of these landlords granting a renewal at the old rent, which would have prolonged for another generation or two the ancient and kindly union of tenant and landlord; but suddenly there comes a change. The old landlord family dies out, and a stranger takes its place; and who is that stranger? An aristocrat, a great lord, whose first step is to serve a peremptory, almost offensive, notice on the old clergyman tenant of the last three generations, saying: “Sir, your lease is void as against me, and I require you forthwith to give up possession of the land.” Tenant-right in its most attractive form – landlord oppression at its worst! Well, all this would of course be entirely irrelevant to the issue. The strongest Judge that ever presided at a trial would be unable to keep it out of the jury-box; and there are some Judges who probably would not deem it at all their duty to try to do so. The jury themselves, or some of them, would be pretty sure to be ardent sympathisers.
Now, I ask, why should the Court go out of its way to expose the claims of property to be baffled by more rhetoric practised upon interested prejudices? It is to no purpose to quote cases in England on leases before the late reforms in the Chancery procedure. Those cases were sent to juries, not because of the superior merits of a jury trial, but because in no other way could at that time a viva voce examination and cross-examination of the witnesses be obtained. The jury was a necessary evil. But now that viva voce examination before the Judge himself is established as a normal part of the procedure of Courts of Equity, why should rights of property of a kind which class antagonisms are sure to gather round to he consigned to the rude lottery of the jury-box? Look at what has been happening in England ever since the Judicature Act passed Suitors obtained thereby the option of originating their cases in any Division of Law or Equity that they preferred; and what has been the consequence? Why, a steady current has set in from the Law side to the Chancery side of cases formerly triable only at Law; and it has so set in by reason of the anxiety of those suitors who thought that they had good cases to have a trial by a single cultivated practised intelligence. Those who distrust their cases still prefer the Common Law Divisions for the sake of the chances of jury trials.
Again let us look at home. Let us for a moment eschew conventionalities and speak what everyone knows to be the truth, though not what everyone would like to avow. To send certain questions to a jury in England may mean something very different indeed from sending them to a jury in Ireland. The average English juror is a prosaic sort of person, unimaginative, unexcitable, docile to the evidence, and amenable to the advice and guidance of the Judge. His Irish counterpart will be a man of another temper: and, not to push invidious distinctions too far, suffice it to say, that in certain classes of cases which need not be particularized, but of which those of an agrarian order are undoubtedly an example, he is – to put it mildly – prone to be a little unreliable. Nor does he now represent at all the same grade of society, or the same order of education and intelligence, as he did in the days when the late Master of the Rolls, Mr Smith, made an order in some case in which the Lord Chancellor tells us he was counsel, sending an inquiry of this kind to a jury of the county of Carlow. It is not the course of criminal justice only which has been paralysed by tampering with the jury-box: the course of civil justice has been also enfeebled, and the ordinary rights of property and powers to dispose of the ownership of it shaken and made insecure. Looking back over the last few years, surveying the action of the tribunals, and seeing what verdicts have been given, and still more, what have not been given in some remarkable cases, civil as well as criminal, I profess myself unable to understand how any Court which can choose, and which has at its own command all the best resources and methods of investigation, can imagine that the surest way of ascertaining the truth, or indeed of ascertaining anything, is to bundle off an inquiry to one of our popularised Irish Juries.
It may be said that this is not a matter for the Court of Appeal – that if it were right to direct an inquiry at all, the form of it must be left to the discretion of the primary Judge. I answer that it is in this particular case no matter of form at all, but a matter of the gravest substance; for I not only look upon this issue as one in which, as the Master of the Rolls has just expressed it, Lord Gough would have to go to trial “heavily weighted,” but I regard the directing of it as being simply an indirect mode of deciding this case against Lord Gough. It would be far better for Lord Gough to put him out of pain at once by ordering him to reform this lease, and to pay the costs of the suit. No one would ever advise him to take this case down to trial; and if he did, it needs no gift of prophecy to be able to predict the result. There would be either a verdict against him or the jury would disagree. And so they might disagree if it were tried again and again: and the inevitable result of all, after a more or less protracted litigation, would be either total defeat, or – worse far – the forced abandonment and compromise of an undoubted right in pure despair of being ever able to bring the case to any definite end at all. That is the course held out by the issue which has been directed in this case. But it is needless to dwell further on it, because, as I have already stated, I am of opinion that this issue ought never to have been directed at all. I hold it to be wholly beside the case – to be wholly indecisive of the case. If we had a finding upon it in the plaintiff’s favour tomorrow, it would place him in no better position than he is in without it: and so on the common principles of the Court, his bill must be dismissed with costs: and I fear that, according to the rule now established in all the Courts of Appeal both in this country and England, to the costs of the dismiss must be added the costs of this appeal.
Deasy LJ concurred.
Kenny v Kenny
[2019] IEHC 76 (12 February 2019)
[2019] IEHC 76
Kenny v Kenny
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JUDGMENT of Mr. Justice Tony O’Connor delivered on the 12th day of February, 2019
1. This is a claim by the plaintiff in respect of the proceeds of a mortgage protection policy (amounting to a sum of approximately €95,000) by way of an alleged resulting or constructive trust on account of the discharge of payments made by the plaintiff in respect of the annual premium.
The People Involved
2. Keith Kenny (” the deceased “) died on 14th January, 2013, and is survived by three daughters (” the daughters “), including the defendant who was granted letters of administration to the estate of the deceased on 3rd October, 2013. The deceased separated from his wife in 1998 and was ultimately divorced. The daughters are now aged over eighteen and the defendant has the responsibility of administering the estate of the deceased including the discharge of any debts and then the distribution of the remaining net assets of the intestate deceased.
3. The plaintiff is the father of the deceased and the grandfather of the defendant. The plaintiff’s wife did not take any part in these proceedings. Unfortunately, since this issue arose the grandparents now have no ongoing personal contact with the daughters. The Court had urged a rapprochement but without success.
Purchasing the apartment
4. In 2000, the plaintiff purchased a one-bedroom apartment known as Apartment 28, Smithfield Gate, Dublin (” the apartment “) for IR£160,000 (€203,158.00). The plaintiff and the deceased borrowed IR£130,000 and were jointly and severally liable for the mortgage repayment. The plaintiff paid the difference of IR£30,000 to purchase the apartment. The plaintiff explained that the deposit and all mortgage repayments came from his joint account with his wife (” the joint account “) at all times. He also outlined how their then lender, First Active plc, firstly, required that the apartment be bought in both his and the deceased’s names, as they wanted someone younger, in addition to the plaintiff, to be responsible for the mortgage repayments, and secondly, required mortgage protection policies to be assigned so that the outstanding mortgage repayments would be met in the event that either of the plaintiff or the deceased died.
5. The plaintiff admitted that neither he nor the deceased specifically discussed or agreed what would happen on the death of either of them in relation to the apartment or the mortgage protection policies taken out on the life of each of them for the duration of the mortgage. The plaintiff was insistent that he discharged the mortgage repayments and the mortgage protection policy annual premium from the joint account. In his direct examination, the plaintiff stressed that everyone in the family knew of the arrangements that the apartment was bought in joint names at the request of First Active. On cross-examination he accepted that this consensus of the alleged knowledge was actually his assumption that the deceased told the daughters about the plaintiff’s interpretation of all arrangements, although the daughters were young at that time of purchase in 2000. The plaintiff tended in evidence to portray matters as he would like them to be in his favour and from the view that he knew and knows best for all family members including for his grandchildren.
Re-mortgaging the apartment
6. In 2007, the plaintiff decided to re-mortgage the apartment with Permanent TSB in order to release the increased equity which had arisen. It took quite a few questions and time in cross-examination for the plaintiff to clarify what he did with the proceeds of the mortgage release arrangements with Permanent TSB. The outstanding mortgage due to First Active was discharged and the plaintiff somewhat hesitantly placed a figure of €100,000 on the sum which he applied to building a mezzanine floor in the factory premises of W&R Kenco Aluminium Windows Limited (” the company “).
7. Both the plaintiff and the deceased, when applying for the re-mortgage facility from Permanent TSB, acknowledged in forms signed by them that they did not wish “to take out mortgage protection assurance” and they also confirmed ” 1. The dwelling is not intended for use as my or my dependant’s principal residence as my principal and my dependant’s principal residence is situated” elsewhere. In those circumstances, the mortgage protection policies which had been assigned to First Active continued in place after 2007 but remained unassigned.
The Company
8. The company was incorporated in July 1981. The plaintiff gave evidence that he thought that the deceased was a director for only a year but later acknowledged that the entry in the register of the Companies Registration Office of a notice of change of director filed in August 2008, related to the deceased and that the deceased ceased to be a director in or around November 2011. The company has little, if any, relevance to the issues to be determined other than by way of background.
9. A liquidator was appointed to the company in May 2012. This, according to the plaintiff, followed the economic turmoil in 2008 and the inability of the company to compete with the black economy in fitting aluminium fixtures in houses. The deceased had been employed in the company. The plaintiff and his wife were, at all times, directors and shareholders of the company. The plaintiff repeated that the company did not pay any of the premia for the life assurance policies from 2000 onwards.
Death of the deceased
10. A letter from Aviva Life and Pensions Ireland Limited (” Aviva “) dated 22nd January, 2014, and produced to the Court, confirmed that a monthly premium of some €36 was paid from April 2000 to January 2013, in respect of the policy for the life of the deceased. A total of €5,594.54 had been paid from a specific account identified by the plaintiff as being the joint account which he had with his wife.
11. By letter dated 10th October, 2013, having been informed of the death of the deceased by brokers at the request of the plaintiff, Aviva informed O’Donohoe Solicitors, engaged to act in the administration of the estate, that Ulster Bank (the successor to First Active) had confirmed no further interest in the life policy.
12. By letter dated 24th October, 2013, O’Donohoe Solicitors relayed this information to the solicitors for the plaintiff and further confirmed that Aviva did not have any notice of the plaintiff’s interest in the policy covering the life of the deceased.
13. The plaintiff was understandably preoccupied with the death of the deceased. However, it emerged in cross-examination that neither the plaintiff nor the deceased contemplated death and least of all what would happen to the proceeds of the life policies after First Active (now Ulster Bank) ceased to have an interest.
The Apartment Now
14. The plaintiff explained that Permanent TSB took possession of the apartment in or around 2018, because of his default in repayments. The plaintiff estimates that the market value of the apartment at the time when Permanent TSB took possession was between €220,000 and €230,000 and that there was some €269,000 still owed to Permanent TSB.
Resulting trust
15. The plaintiff argued that in this case a resulting trust arose. Biehler describes resulting trusts as occurring:-
“where a person provides the purchase money for property, whether real or personal, which is conveyed or transferred to another person or to himself and the other person jointly, it is presumed that the latter holds the property on a resulting trust for the person who provided the purchase money.” (6th edition, p. 173).
16. As stated by the Denham J. in Stanley v. Kieran [2011] IESC 19, quoting Dr. Chambers in Resulting Trusts (1997), ” All resulting trusts come into being because the provider of property did not intend to benefit the recipient .” (para. 27). Gibson J. in Carreras Rothmans Ltd v. Freeman Matthews Treasure Ltd [1985] Ch 207 held that ” if the common intention is that property is transferred for a specific purpose and not so as to become the property of the transferee, the transferee cannot keep the property if for any reason that purpose cannot be fulfilled.” (p. 222).
17. A resulting trust may be rebutted by the presumption of advancement between a father and a child. The defendants rely on the case of Re Roberts [1946] Ch 1 where a father had made payments on a policy of assurance taken out on his son’s life. Evershed J. held that:-
“It is well-established that a father making payments on behalf of his son prima facie, and in the absence of contrary evidence, is to be taken to be making and intending an advance in favour of the son and for his benefit.” (p. 5).
18. The presumption of advancement can itself be displaced by evidence that the father did not intend to make a gift to his child. The plaintiff argues that there is no evidence here that there was any intention to give a gift to the deceased. At the time of the purchase the deceased was 37 years old and independent. Furthermore, the plaintiff relied on the English case of Stack v. Dowden [2007] 2 AC 432 where the property was in the joint names of both parties (who had been partners) but one party alleged a greater contribution to the purchase price and mortgage repayments. The House of Lords held that a party had to prove that the parties held a common intention that their beneficial interests be different to their legal interest. In considering the parties’ common intention, Lady Hale stated:-
” Many more factors than financial contributions may be relevant to divining the parties’ true intention. These include: any advice or discussions at the time of the transfer which cast light on their intentions then; the reasons why the home was acquired in their joint names; the reasons why (if it be the case) the survivor was authorised to give a receipt for capital moneys; the purpose for which the home was acquired; the nature of the parties’ relationship; whether they had children for whom they had responsibility to provide a home; how the purchase was financed, both initially and subsequently; how the parties arranged their finances, whether separately or together or a bit of both; how they discharged the outgoings on the property and their other household expenses.” (para. 69)
19. The plaintiff argued that the mortgage protection policies had a clear and specific purpose: the benefit of the policy was assigned to the lending institution so that in the event of the death of the mortgage holder the mortgage could nevertheless be discharged. The plaintiff tended to suggest that the existence of the joint tenancy was a convenience and that in reality the premises would have been held by the deceased for his mother in the event of the plaintiff’s death. Ultimately, the plaintiff submitted that the transaction was entered into solely in order to comply with the requirements of the lending institution. The deceased did not have and did not understand that he was acquiring any beneficial or other interest in the property during the lifetime of the plaintiff.
20. The defendant disputed this assertion and argued that the plaintiff’s evidence was strongly indicative that the property and any insurance policy was a gift to the deceased and that there was no intention to withhold ownership of the property. In support of this the defendant relied on the following facts:-
(i) At the time of the purchase, the plaintiff was putting in place financial supports for the deceased through his company;
(ii) The plaintiff gave evidence that he recognised that it was more likely that he would predecease his son and he understood that if this had happened, the deceased would have inherited the property as the surviving joint tenant. Furthermore, the mortgage protection policy would have been used to pay off the indebtedness on the apartment. In such circumstances, neither the property nor the proceeds of the policy would form part of the plaintiff’s estate.
21. Furthermore, the defendant claimed that no evidence was given by the plaintiff about the deceased’s understanding of the transaction and that the Court is being asked to infer the intentions of both the plaintiff and the deceased.
Constructive trust
22. Biehler describes a constructive trust as one:-
“which arises by operation of law and which ordinarily comes into being as a result of conduct and irrespective of the intention of the parties. In general terms it can be described as a trust which is imposed by equity in order to satisfy the demands of ‘justice and good conscience’ and to prevent deriving profit from fraudulent conduct or taking unfair advantage of a fiduciary position.” (6th edition, p. 228).
23. Keane states that a constructive trust is:-
” deemed by the law to exist, not where someone intends to create a trust or is presumed to have so intended, but in circumstances where it would be unconscionable for a person to deny another person’s beneficial interest in a specific property .” (3rd edition, para. 13.01)
24. The plaintiff effectively relied on a model of remedial constructive trust which may arise in circumstances where a person would be unjustly enriched if they were permitted to attain property, as was recognised by the Supreme Court in East Cork Foods Ltd v. O’Dwyer Steel Co. [1978] IR 103. Keane identifies three essentials to a claim of ‘unjust enrichment’:-
(i) The defendant has been enriched;
(ii) This enrichment was at the expense of the plaintiff; and
(iii) The enrichment was unjust. (para. 13.67).
25. There was also reference to Gilligan J.’s judgment in In Re Varko Limited [2012] IEHC 278 (unreported, High Court, 3rd February, 2012). He noted that the ‘new model constructive trust’ had been met with limited approval in this jurisdiction. He quoted Barron J. in N.A.D v. T.D . [1985] ILRM 153 who stated:-
” The constructive trust is imposed by operation of law independently of intention in order to satisfy the demands of justice and good conscience. Its imposition is dependent upon the conduct of the person upon whom the trust is imposed and prevents him from acting in breach of good faith. There is no fixed set of circumstances in which such a trust is imposed.” (para. 39).
26. Gilligan J. noted that Barron J. held that ” a prerequisite in constructive trusts of this type was that there must be an element in the conduct of the person upon whom it is imposed which would make it inequitable for them to be allowed to assert his legal rights .” (para. 40).
27. The thrust of the plaintiff’s case is that it would be ” inappropriate ” and ” grossly inequitable ” to allow the defendant take advantage of the plaintiff’s error in not reassigning the mortgage protection policy.
28. The defendant, referring to Gilligan J.’s judgment, noted that no conduct on the part of the deceased was impugned and that no action on the part of the defendant or the other daughters led to the insurance company stating that the proceeds of this policy were to be paid to the estate and not to any third party. Furthermore, the plaintiff in evidence confirmed that the deceased, by signing up to the mortgage, was taking on a risk and that the lender would have had recourse against him. Thus, there can be no element of unjust enrichment as if the deceased, or his estate, derived a benefit, it reflected the risk taken and the deceased’s involvement.
Unexplained
29. To succeed in his claim for a resulting trust, the plaintiff must rebut the presumption of advancement that arises with regard to a father and child by demonstrating that his intention was not to make a gift to the deceased. The plaintiff was unable to explain in a meaningful way what would have happened if he had died before the deceased. On the one hand, he expected that his wife would be entitled to the apartment and the proceeds of the policy on his life in order to redeem the mortgage to give her ownership. On the other hand, he was prepared to accept that the deceased would have been entitled to some equity in the apartment because he was a joint owner. If he was so entitled he would have been burdened also with the negative equity in the apartment. There is a further incongruity in the plaintiff’s stance when one considers that the mortgage protection policy was referenced to the original loan advanced in 2000 by First Active for IR£130,000. The loan from Permanent TSB was for €270,000 in 2007. The deceased’s primary exposure to Permanent TSB had been increased over and above his limited exposure in 2000. The plaintiff failed or refused to acknowledge the exposure of the deceased in his portrayal. He conveniently glossed over the difference which can occur when market values drop significantly.
30. Did the plaintiff gift to the deceased an actual or potential interest in the apartment and the policy on the plaintiff’s life? The plaintiff singularly failed to answer the question about gifting. In fact, the plaintiff confused matters by referring to his belief that there was some s. 23 relief in respect of the apartment and the mortgage for his tax liabilities together with a VAT recovery aspect. The Court concludes that the plaintiff never agreed or settled with the deceased what would happen with the proceeds of the mortgage protection policy that remained unassigned. The extent of the evidence in favour of the plaintiff’s claim is that he paid from the joint account the premium due in respect of the mortgage protection policy for the life of the deceased.
31. Can the plaintiff rely on the discharge of premia for the policy assuring the life of the deceased to establish ownership of the policy? There is an inconsistency in the plaintiff’s stance. Does he intend to deny the estate of the deceased an interest in the apartment jointly held with the proceeds of the life policy applied to discharge the mortgage on the apartment? In this claim, he certainly seeks to deny the right of the estate of the deceased to the proceeds of the life policy. The premia for the policy covering the life of the deceased were discharged from his joint account held with his wife without any notice in writing or orally to the deceased about the deceased’s alleged non-existent interest in the apartment and in the policy on the life of the deceased. Unfortunately for the plaintiff, his lack of attention to detail and his undisciplined thought process in 2013 and 2018, has led to the plaintiff’s obstinate prosecution of these proceedings to trial.
32. The deceased had a considerable primary liability for the loan from Permanent TSB and there is no unjust enrichment of his estate by the discharge of limited premia by the plaintiff. I cannot find a breach of good faith by the deceased. It is not grossly inequitable to allow the law operate as Aviva has indicated.
Conclusion
33. It is far-fetched to imply an arrangement enforceable against the estate of the deceased arising from the discharge of the premia for a policy covering the life of the deceased discharged from an account jointly held by the plaintiff with his wife. The height of the plaintiff’s case relates to the total premia paid in respect of which he may or may not make a claim. In this regard, I will hear counsel in relation to an application for the estate to repay to the plaintiff and his wife (grandmother of the defendant), the sum of €5,594.54, being the sum total of the premia payments.
Carey v Ryan Ltd
[1982] IR 179; ILRM 121
Henchy J: The plaintiff was 19 years of age when he sustained a serious injury while working in June 1977, for his employers, a company named WH Ryan Ltd. Suing by his father and next friend, the plaintiff instituted proceedings in the High Court against Ryans and claimed damages. Ryans Ltd had arranged employer s liability insurance at Lloyds, under which they would be indemnified against liability for an accident of this kind. The indemnifiers were two syndicates of underwriters. They are represented in the present proceedings by the second and third defendants, whom I shall call the underwriters.
Upon receipt of the plaintiff s statement of claim, and having investigated the circumstances of the accident, the underwriters instructed their Dublin solicitors to lodge in court with the defence the sum of 39,053 without admission of liability. This their solicitors did on the 25th April 1978. This sum was apparently adequate to meet the plaintiffs claim. At least, there has been no suggestion that it was inadequate, and ever since the plaintiff became of full age in March 1979, he has been anxious to be allowed to take the lodgment in full satisfaction of his claim.
However, certain difficulties intervened to prevent the plaintiff getting or being credited with the amount lodged in court. Under Order 22, r 4, of the Rules of the Superior Courts 1962, a plaintiff may serve, within 14 days of receipt of the notice of payment into court, a prescribed notice of acceptance; whereupon, in the words of the rule, he shall be entitled to receive payment of the accepted sum. Such a notice of acceptance was not served in this case. This was, presumably, because the plaintiff was an infant and because r 10 of Order 22 provides that no compromise or payment or acceptance of money paid into court in the case of an infant plaintiff shall be valid without the approval of the court. Consequently, it was inescapable that, before the money lodged in court with the defence could operate to settle the plaintiffs claim, the matter would have to come before the court on a motion by the plaintiff s next friend seeking approval of acceptance of the amount lodged.
Meanwhile, a matter of considerable moment came to the notice of the underwriters. They discovered that the policy of insurance (under which they were expected to indemnify Ryan Ltd against an action such as this) had been entered into by them as a result of fraudulent mis-statements made by Ryan Ltd as to the amounts of wages and salaries paid or payable by them to their employees, thus distorting the correct amount of the premium and, indeed, vitiating the whole policy. Understandably, when they became aware of this breach of the good faith which a would-be insured is bound in law to show, the underwriters repudiated the policy. They gave notice to Ryan Ltd that the policy was a nullity and that they were not prepared to make any indemnity in respect of the liability of Ryan Ltd for the accident to the plaintiff.
Ryan Ltd refused to admit that they had nullified the relevant contract of insurance by their conduct. In those circumstances the underwriters were driven to bringing proceedings in the High Court seeking, inter alia, a declaration that the policy of insurance upon which Ryan Ltd relied was void because of the fraudulent representations made by that company. In those proceedings the plaintiff in the present proceedings was joined as a defendant. The suit came before Mr Justice McWilliam who, after a full oral hearing, made the declaration of nullity of contract sought by the underwriters. His order of the 20th December 1978, has not been appealed.
It is therefore res judicata, and binding on both the plaintiff and Ryan Ltd, that at the time of the plaintiff s accident there was no liability on the underwriters to indemnify Ryan Ltd, either wholly or in part, for any liability incurred by that company to the plaintiff as a result of the plaintiffs accident. It follows that the sum of 39,053.00 which was paid into court by the underwriters was paid by them under a mistaken assumption of liability, which assumption was induced by the fraudulent misrepresentations of Ryan Ltd. This is unquestionably so and it does not lie in the mouth of the plaintiff to say otherwise. To be fair, his counsel has not attempted to contend otherwise in the present hearing. He merely says, quite correctly, that the plaintiff was not a party to the fraud, and he submits that, in the events that have happened, the plaintiff should be allowed, in satisfaction of his claim, to take the money lodged with the defence.
The present action between the plaintiff and Ryan Ltd lay dormant until the action between the underwriters (as plaintiffs) and the plaintiff Ryan Ltd (as defendants) was determined by Mr Justice McWilliam on the 20th December 1978.
On the 2nd January 1979, a notice of motion was issued in the present action on behalf of the plaintiff (who was still an infant) seeking an order extending the time for accepting the money lodged in court with the defence. It has to be said that this notice of motion was misconceived and a nullity because the time fixed for accepting money which has been lodged in court with a defence (Order 22, r 4) does not apply to cases where the plaintiff is an infant: see Order 22, r 10. When a plaintiff is an infant, there can be no question of accepting a sum lodged by the defendant in satisfaction of a claim for damages – unless the court makes an order approving the acceptance and disposition of the sum. It is a misapplication of the time-extension rule to enlarge time for doing an act under a rule when that act could not have been legitimately done within the time limited by the rule. The rule in question here (Order 22, r 4) is a general rule which is qualified by the particular restraints of rr 10 and 13 of Order 22.
Following on that notice of motion, the underwriters caused a notice of motion to be served on the 11th January 1979, seeking an order that the money lodged in court be paid out to them.
The two motions (which were brought in the present action) were heard together by Mr Justice Hamilton on the 31st January 1980. The plaintiff reached full age on the 3rd March 1979. Having regard to the views expressed by Mr Justice McWilliam in his judgment in the underwriters action against the plaintiff and Ryan Ltd, Mr Justice Hamilton made an order joining the underwriters as defendants in the present action. Having heard the two motions together, he delivered a reserved judgment on the 8th February 1980. In that judgment he gave liberty to the plaintiff to proceed in his own name, extended the time fixed by the Rules for acceptance of the money lodged in court with the defence, and dismissed the underwriters claim to have the money in court paid out to them. It is against that judgment that the underwriters have taken the appeal now before this Court.
The general rule is that where a person purports to pay money directly to another, or to pay it to his credit, and that other has notice that the payment has been induced by fraud, the payee or would-be payee does not get any title to the money: see Nelson v Larholt [1948] 1 KB 339. If the money has reached the payee then, while it is in his hands, he is a constructive trustee of it for the rightful owner who has been defrauded into paying it and the payee can be compelled to repay it. If it has not been paid to the payee, but remains in the hands of an intermediary who becomes aware of the fraud, then the intermediary becomes a constructive trustee of the money for the defrauded payer and can be ordered to return it to him.
In the present case the money paid into court by the underwriters never reached the plaintiff and he never acquired title to it. It remained in court and stands (as the certificate of funds shows) not to the credit of the plaintiff or of Ryan Ltd or of the underwriters but to the credit of the account specified by the title and serial number of the action. Its ultimate beneficial destination awaited an order of the court. As the plaintiff was an infant, he could not get any title to it without an order of the court: see Order 22, r 10(1). If Ryan Ltd (or the underwriters after they became a party) wished to withdraw the money lodged or to vary it, they might be allowed to do so by the court if there were special circumstances justifying such a course of conduct: see Goodman v Whyte & Co (1949) 83 ILTR 159. As Goddard LJ said in Cumper v Pothecary [1941] 2 KB 58 at p 70 of the report:
Indeed, we think it is desirable to say that it must not be thought that a defendant who has paid a sum into court is entitled, as of right, to resile from that step. He must, in our opinion, show that there are good reasons for his application – for instance, the discovery of further evidence, which puts a wholly different complexion on the case, as in the two cases cited (Frazer & Haws Ltd v Burns (1934) 49 Ll.L. Rep 216; Williams v Boag [1941] 1 KB 1), or a change in the legal outlook brought about by a new judicial decision, as in the present case, and there may be others.
The present litigation is a classical example of a case where subsequent events rendered the lodgment nugatory. When it was made, it was made by the underwriters under a mistake of law. But, as Lord Denning said in Kiriri Cotton Co. Ltd v Dewani [1960] AC 192 at p 204 of the report: The true proposition is that money paid under a mistake of law, by itself and without more, cannot be recovered back. (Emphasis supplied). When the money was paid into court, both the underwriters and the plaintiff were ignorant of the fraud that had induced the underwriters to deposit the money in court. In the absence of a contract of insurance unvitiated by fraud, the underwriters were under no obligation to the plaintiff for the consequences of his accident and, therefore, they were under no obligation to lodge any money in court in satisfaction of his claim. When they did so, the plaintiff did not become entitled (because of the rules of court) to the money lodged: the finding to the contrary is a central flaw in the judgment under appeal. While he was an infant the plaintiff could not become so entitled without getting a court order to that effect. No such order was made.
By the time an effort was made to establish the plaintiff s entitlement to the money lodged, the situation had radically changed. The underwriters had established by judicial order that it was the fraud of Ryan Ltd that had hoodwinked them into making the lodgment in the first place. The same judicial finding of Mr Justice McWilliam had brought that fact home beyond yea or nay to the plaintiff, who had been made a party to that action. From being an infant who was ignorant of the fraudulent misrepresentation that had led the underwriters to make the lodgment, the plaintiff had become a man of full age who was thoroughly aware of the fraud of Ryan Ltd and of its implications to the underwriters and who, nevertheless, was trying to take advantage of that known fraud and of the equally known erroneous lodgment which that fraud had generated. If, while he was ignorant of the fraud, the plaintiff had been allowed to take the money and had spent it or used it irretrievably the position might have been different. But the money remained with the accountant of the Courts of Justice in what was virtually a suspense account; it had to remain there until the court exercised its discretion as to who should be held entitled to it.
In coming to court and asking to have the money paid out to him, the plaintiff is asking the court to overlook the fraud, to ignore the fact that the underwriters would never have parted with a penny of this money if they had known of the fraud, to treat as irrelevant the fact that the plaintiff now fully knows that the money he is seeking is the fruit of a tree poisoned by fraud and, in short, to exercise its discretion by making an order which would have the effect of robbing Peter to pay Paul.
In such circumstances the Court s discretion can be exercised in only one way which is by ordering that the money in court be paid back to the underwriters, who were plainly gulled into paying it into court by the fraud of Ryan Ltd. If the order sought by the plaintiff were to be made and the money paid out to him, the Court would thereby be wrongly exercising its discretion for, by such an orders it would give efficacy to a course of fraudulent conduct on the part of Ryan Ltd. It is, of course, unfortunate that the plaintiff should be left to pursue his claim against uninsured defendants, but the alternative of allowing him to take in settlement the sum of 39,053 which the underwriters were induced to lodge in Court by the fraud of Ryan Ltd, and which has lain there for almost four years awaiting the exercise of the High Court s discretion as to its disposition, would make the Court virtually an accessory to the consummation of a fraudulent scheme whereby the underwriters, because of a blameless error into which they were led by fraud, would be dishonestly deprived of 39,053.
I would allow the appeal to the extent of directing that the money in court be paid out to the underwriters and dismissing the plaintiff s claim to it.
Griffin J: I agree with the judgment which has been delivered by Mr Justice Henchy.
Henchy J: Mr Justice Kenny, who is unable to be present to-day, wishes me to say that he is in agreement with my judgment.
Dublin Corporation v Building and Allied Trade Union
[1996] 2 ILRM 547
Keane J: In 1982 the plaintiffs/respondents (whom I shall refer to as the corporation ) acting in its capacity as road authority decided to widen Cuffe Street. To that end, they made a compulsory purchase order which was duly confirmed by the Minister for the Environment on 2 September 1983. One of the properties affected by the order was a building known as the Bricklayers Hall which was owned by the defendants/appellants (whom I shall refer to as the union ) who were then described as the Ancient Guild of Incorporated Brick and Stonelayers . The front facade of the building was, appropriately enough, a fine example of the stonemasons and bricklayers craft.
At an arbitration conducted by Mr Sean M McDermot, the duly nominated property arbitrator, to determine the amount of compensation to be paid to the union, its secretary, Mr Kevin Duffy, gave evidence on oath that:
(a)the Bricklayers Hall was an integral part of the union s activity,
(b)the union was unlikely to be in a position to rent similar premises with the same facilities, and
(c)it was the intention of the union to rebuild the Bricklayers Hall and to reinstate the facade.
Two alternative bases for the assessment of the compensation to be paid to the union were presented to the arbitrator. The first was on the basis that the corporation acquired the entire building, and not merely the front portion required for road widening, and sold or similarly disposed of the remainder to recoup their expenditure. The second was on the basis that the corporation only acquired so much of the property as was needed for road widening, thereby enabling the union to reinstate the building, complete with facade, on the reduced site.
Prior to the arbitration the corporation and the union, acting through their professional advisers, sensibly agreed the sums that would be payable, depending on which basis the compensation was to be assessed. Under the first method, it was 87,857. Under the second, it was 224,414. The arbitrator, having heard the evidence, issued his award on 27 May 1985 and awarded the union the latter sum, together with the costs and expenses of preparing and submitting its claim and the costs and expenses of and incidental to the reference to arbitration.
By a conveyance of 30 December 1985, the portion of the site the subject of the compulsory purchase order was conveyed to the corporation by the union in consideration of the sum of 224,414 paid to the union.
Following the award and prior to that conveyance, most of the Bricklayers Hall was demolished by the union and since then no attempt has been made to rebuild the buildings, including the facade, on the site which it retained.
The corporation thereupon instituted the present proceedings, in which it claims:
(a)a declaration that the union holds the sum of 224,414 in trust for the construction of the Bricklayers Hall and the reinstatement of the front facade;
(b)a mandatory injunction requiring the union to apply the money in the reconstruction of the Bricklayers Hall and the reinstatement of the facade;
(c)payment by the union to the corporation of the sum of 136,557 (the difference between the two agreed sums) together with appropriate interest, as being an amount by which the union has been allegedly unjustly enriched.
The relief sought in paragraph (c) was obviously sought as an alternative to the reliefs claimed in the preceding paragraphs to provide for the contingency that the union might have put it out of its power to reinstate the building by disposing of the cleared site. A defence was delivered on behalf of the union in which it was pleaded that the statement of claim disclosed no cause of action and that the corporation were in any event estopped by the doctrine of res judicata from making the claim. It also denied that the union was under any duty to the corporation to reconstruct the Bricklayers Hall or reinstate the facade, that the sum of 224,414 was held by it on any trust for the corporation or otherwise and that it had been unjustly enriched.
The case was at hearing in the High Court for eight days. Most of the hearing, was, however, taken up by legal submissions; the facts, as already summarised in this judgment, were not in dispute. Evidence was given on behalf of the corporation by Mr John Faley, a valuer, Mr Eugene Farrelly, a quantity surveyor, Mr Charles Clancy, an architect and Mr Michael Reynolds, an architect and town planner. No evidence was given on behalf of the union.
In a lengthy judgment, Budd J concluded that the claim of the corporation was well founded and that it was entitled to be paid the sum of 158,957 by the union. From that judgment, the union have now appealed to this Court. On behalf of the union, Mr Patrick Keane SC submitted that the proceedings were an undisguised attack on the finality of the award in the arbitration proceedings. He said that the High Court had been invited, in effect, to consider the award of the property arbitrator in the light of changed circumstances and reassess the compensation which he had awarded. He further submitted that the union was under no legal obligation to reinstate the building and there was no evidence to support the case made, implicitly if not expressly, on behalf of the corporation that it had in some sense acted in bad faith.
There was no allegation that the award of the arbitrator had been procured by fraud and, in those circumstances, the union was entitled as a matter of law to the sums paid to it on foot of the award.
Mr Keane further submitted that there was no evidence of any representation by the union to the corporation or any commitment on its behalf that the building would be reinstated. The agreement entered into between the professional advisers to the corporation and to the union as to the cost of reinstatement was no more than that; it was in no sense an undertaking on behalf of the union that, in the event of being awarded compensation on that basis, it would carry out the work in question. There was also no evidence, he said, to support the corporation s contention that the corporation paid over the amount of the award as a result of a mistake of fact . He said there was no evidence to support the contention that, as of December 1985 when the existing building was allegedly demolished, the union had changed its mind. Those facts, even if proved, which, he said, they were not, only supported an inference that the union did not propose to proceed with the reinstatement in the precise terms of the plans which formed the basis of agreement as to the amount of the compensation.
In a further elaboration of his submission that the corporation were precluded by the doctrine of res judicata from pursuing its claim, Mr Keane submitted that, insofar as the decision in Moses v Macferlan (1760) 2 Burr 1005 was authority for the proposition that a final judgment of a court or tribunal of competent jurisdiction could be reopened where it appeared to another court unjust and inequitable, it had been strongly criticised and should not be followed by this Court. He relied in this context on the decision of Eyre CJ in Phillips v Hunter (1795) 2 H Bl 402 and the statement of the law in Goff & Jones on the Law of Restitution, 4th ed, at pp 763-4.
Mr Keane further submitted that, if the legislature had intended that monies paid on foot of an award made in accordance with the relevant statutory provisions could be recovered by the acquiring authority in circumstances such as the present, they could have so provided but had chosen not to do so.
On behalf of the corporation, Mr Eoghan Fitzsimons SC submitted that the proceedings instituted by the corporation were not in any sense an attempt to reopen the arbitrator s award. He said that the corporation accepted that it was bound by the arbitrator s finding that, at the date of the hearing before him, the union bona fide intended to reinstate the building. Nor was it suggested on their behalf that the union was precluded from subsequently changing its mind, as it obviously had, in declining to proceed with the reinstatement. He submitted, however, that it was unconscionable for the union to change its mind and retain the compensation which it had been awarded on the basis of reinstatement. He submitted that the doctrine of unjust enrichment had been firmly established in Irish law, at least since the decision in East Cork Foods Ltd v O Dwyer Steel Co Ltd [1978] IR 103, and that all the requirements for its invocation in the present case were met. The corporation had not simply asserted that the unarguable enrichment of the union was unjust in any loose or imprecise sense; it relied on the specific circumstances of the present case as rendering the enrichment unjust.
Mr Fitzsimons submitted that the circumstances in the present case which rendered the enrichment unjust were the unqualified representation at the arbitration that the building would be reinstated, the effective demolition, within a few months of the publication of the award, of the building, putting it out of the power of the union to reinstate the building in accordance with the plans furnished to the corporation and the failure of the union to give any evidence at the hearing in the High Court as to why it had changed its mind. He submitted that, since the trial judge had given it every opportunity of adducing evidence, it was reasonable to infer that the reasons for its change of mind were such as to render its retention of the money inequitable.
Mr Fitzsimons submitted that in these circumstances the corporation were clearly entitled to the repayment by the union of such an amount as would undo the unjust enrichment which had occurred. Alternatively, Mr Fitzsimons submitted that the monies paid on foot of the award were impressed with a constructive trust, citing in support the much quoted words of Cardozo J in Beatty v Guggenheim Exploration Co (1919) 225 NY 380 at p 386 that: A constructive trust is the formula through which the conscience of equity finds expression.
In considering these submissions, I should at the outset refer to the statutory provisions applicable to the payment of the sum of 224,414 to the union.
Section 2 of the Acquisition of Land (Assessment of Compensation) Act 1919 (hereinafter the 1919 Act ) which, it was accepted, applies to this as it does to many other forms of compulsory purchase, provides (as amended) that:
In assessing compensation, a property arbitrator shall act in accordance with the following rules …
(2)The value of land shall, subject as hereinafter provided be taken to be the amount which the land if sold in the open market by a willing seller might be expected to realise: Provided always that the arbitrator shall be entitled to consider all returns and assessments of capital value for taxation made or acquiesced in by the claimant.
(5)Where land is, and but for the compulsory acquisition would continue to be, devoted to a purpose of such a nature that there is no general demand or market for land for that purpose, the compensation may, if the property arbitrator is satisfied that reinstatement in some other place is bona fide intended, be assessed on the basis of the reasonable cost of equivalent reinstatement.
Section 6, as amended, provides that:
(1) The decision of a property arbitrator upon any question of fact, shall be final and binding on the parties, and the persons claiming under them respectively, but the property arbitrator may, and shall, if the High Court so directs, state at any stage of the proceedings, in the form of a special case for the opinion of the High Court, any question of law arising in the course of the proceedings, and may state his award as to the whole or part thereof in the form of a special case for the opinion of the High Court.
Section 41 of the Arbitration Act 1954 provides that:
An award on an arbitration agreement may, by leave of the court, be enforced in the same manner as a judgment or order to the same effect and, where leave is so given, judgment may be entered in terms of the award.
Section 27 of the same Act provides that:
Unless a contrary intention is expressed therein, every arbitration agreement shall, where such a provision is applicable to the reference, be deemed to contain a provision that the award to be made by the arbitrator or umpire shall be final and binding on the parties and the persons claiming under them respectively.
Both of these provisions are applicable to arbitrations under the 1919 Act except to the extent that Part II of the 1954 Act is inconsistent therewith.
The compulsory purchase procedure under which the corporation acquired the land in question from the union is different in almost every respect from a purchase by agreement. Although rule (2) provides for the assessment of compensation on the basis of the value of the land on the open market, some of the other rules, and the manner in which they have been judicially construed, make it clear that the assessment of compensation is more in the nature of an award of damages for the expropriation of his property against the wishes of the owner. Although the acquisition is effected in the public interest, both parliament and the courts have been at pains to ensure that the award of compensation reflects, not merely a price that might have been agreed by a willing vendor and purchaser, but also all the elements of loss suffered by someone dispossessed of land against his will.
Hence, the provision in rule (5) for the assessment of compensation on the reasonable cost of equivalent reinstatement where that is appropriate. Where the arbitrator is satisfied that the owner bona fide intends to reinstate the building, be it a church, a museum or whatever, on some other site, the extent of his loss will not necessarily be reflected in the open market value of the land, since he will be unlikely to find a purchaser who will be prepared to pay him that sum if it happens to exceed the market value.
The equivalent reinstatement basis of compensation thus provides the machinery, in cases where it is appropriate, of compensating the owner of the property in full in circumstances where he would not be fully compensated by being awarded the open market value. I emphasise this aspect of rule (5), because the learned High Court judge at a number of points in his judgment appears to treat the corporation as having acquired, in consideration of the payment of the compensation, a benefit in the form of the preservation of the facade of the building. That approach, however, overlooks the fact that the acquisition was not being effected by the corporation in its capacity as a planning authority and the question as to whether or not, in that capacity, it would have stipulated the preservation of the facade was irrelevant to the amount of compensation which it was required to pay arising out of its acquisition of the land in question as a road authority.
It is accepted by the corporation that the award in this case was final and binding on both itself and the union. The doctrine of res judicata applicable to this, as to every final judgment or award of any competent court or tribunal, has the consequence that the parties are estopped between themselves from litigating the issues determined by the award again. The justification of the doctrine is normally found in the maxim interest rei publicae ut sit finis litium and it is important to bear in mind that the public interest referred to reflects, in part at least, the interest of all citizens who resort to litigation in obtaining a final and conclusive determination of their disputes. However severe the stresses of litigation may be for the parties involved – the anxiety, the delays, the costs, the public and painful nature of the process – there is at least the comfort that at some stage finality is reached. Save in those exceptional cases where his opponent can prove that the judgment was procured by fraud, the successful litigant can sleep easily in the knowledge that he need never return to court again.
That finality is, of course, secured at a cost. The defendant who discovers as soon as the case is over that the award of damages against him is grossly excessive because of facts of which he was wholly unaware and was unable to bring before the court cannot, in the absence of fraud, resist the enforcement of the judgment against him. The plaintiff who similarly finds out that his damages are far less than those which would have been awarded had the court been in possession of evidence not available at the hearing is equally precluded from disputing the finality of the judgment. The interest of the public in that finality is given precedence by the law over the injustices which inevitably sometimes result.
These principles apply with even greater force to an award under the 1919 Act. Not merely is a disappointed claimant precluded from reopening the award should he find that there was evidence which he could have brought before the arbitrator which would have resulted in a far higher level of compensation: he has not even the opportunity, available to those claiming damages arising out of civil wrongs as opposed to a statutory expropriation, of having the findings at first instance tested on appeal.
It is claimed, however, on behalf of the corporation that, in the case of assessments carried out under rule (5), that finality is significantly abridged. It is conceded, and inevitably so, that had the union elected to give evidence which demonstrated, that, owing to circumstances unforeseen by it at the time of the arbitration, it was no longer possible for it to reinstate the building and that the costs of acquiring suitable premises elsewhere would in any event exhaust the award, no question of unjust enrichment would arise. It is quite right in submitting that, given the remarkable alacrity with which the union proceeded to demolish the building, it is singularly unlikely that the union would have been in the position to give any such evidence. But the general principle for which it contends cannot be solely tested by reference to the facts of the present case. A claimant who, without any element of fraud, is awarded compensation on the basis of equivalent reinstatement is either entitled to treat the litigation as at an end or he is not. If he can be called to account for his conduct in not reinstating the building at some indeterminate stage in the future, then, however else the award in his favour may be described, it is certainly not final in any meaningful sense. Thus, if the case made on behalf of the corporation is well founded, a body which has given evidence in good faith to the arbitrator that it intends to reinstate the building on another site and which subsequently discovers that, because of difficulties arising from planning constraints, problems of title, the effect on neighbouring properties or a myriad of other considerations, reinstatement is impossible and which also finds that the money awarded will do no more than cover the acquisition of another building, may legitimately be subjected to all the hazards of a further court action at some stage in the future. It will be in vain for it to plead res judicata: on proof by the acquiring authority that it has not in fact reinstated the building, it will be compelled to adduce evidence as to the reasons why it has not done so.
It is necessary to emphasise again that there is nothing to suggest that such were the circumstances in the present case, but the question as to whether the award is in every sense final or is merely final in a qualified sense cannot be determined solely by reference to the facts of one case. That would be a classic instance of hard cases making bad law. It must be determined as a matter of legal principle.
It also follows inevitably from the submissions on behalf of the corporation that s 6(1) of the 1919 Act must be read as though it were subject to a proviso that, in the event of the compensation having been assessed by reference to rule (5), and the equivalent reinstatement not having been thereafter effected, the owner must refund to the acquiring authority such proportion of the compensation as a court of competent jurisdiction deems to be just and equitable. It is of interest to note that in the Local Government (Planning and Development) Act 1963 (which itself, in the Fourth Schedule, introduced additional rules to those contained in the 1919 Act) a provision of such a nature was expressly enacted to deal with certain cases where an owner of property suffers loss as a result of a decision involving a refusal of planning permission or a grant of such permission subject to conditions. Section 73(1) provides that no person is to carry out any development to which that section applies on land in respect of which an award of compensation has been registered at any time during the succeeding fourteen years without making an appropriate repayment to the planning authority.
These consequences – the qualified application of the res judicata principle and the amendment by implication of the 1919 Act – are, it is submitted, necessitated by what is said to be the application of the concept of unjust enrichment to the facts of the present case.
It is clear that, under our law, a person can in certain circumstances be obliged to effect restitution of money or other property to another where it would be unjust for him to retain the property. Moreover, as Henchy J noted in East Cork Foods Ltd v O Dwyer Steel Co Ltd, this principle no longer rests on the fiction of an implied promise to return the property which, in the days when the forms of action still ruled English law, led to its tortuous rationalisation as being quasi-contractual in nature.
The modern authorities in this and other common law jurisdictions, of which Murphy v Attorney General [1982] IR 241 is a leading Irish example have demonstrated that unjust enrichment exists as a distinctive legal concept, separate from both contract and tort, which in the words of Deane J in the High Court of Australia in Pavey & Matthews Pty Ltd v Paul (1987) 162 CLR 221 at pp 256-257:
… explains why the law recognises, in a variety of distinct categories of cases, an obligation on the part of a defendant to make fair and just restitution for a benefit derived at the expense of a plaintiff and which assists in the determination, by the ordinary process of legal reasoning, of the question of whether the law should, in justice, recognise the obligation in a new or developing category of case.
The authorities also demonstrate that, while there is seldom any problem in ascertaining whether two essential preconditions for the application of the doctrine have been met – ie an enrichment of the defendant at the expense of the plaintiff – considerably more difficulty has been experienced in determining when the enrichment should be regarded as unjust and whether there are any reasons why, even where it can be regarded as unjust , restitution should nevertheless be denied to the plaintiff.
As to the first of these difficulties, the law, as it has developed, has avoided the dangers of palm tree justice by identifying whether the case belongs in a specific category which justifies so describing the enrichment: possible instances are money paid under duress or as a result of a mistake of fact or law or accompanied by a total failure of consideration. Whether the retention by the union of the entire compensation in the present case falls within such a category or not, however, it would in any event be necessary to consider whether restitution is precluded because of other factors. In the latter context, the following passage from the judgment of Henchy J in Murphy v Attorney General, at p 314 is of particular significance:
Over the centuries the law has come to recognise, in one degree or another, that factors such as prescription (negative or positive), waiver, estoppel, laches, a statute of limitation, res judicata, or other matters (most of which may be grouped under the heading of public policy) may debar a person from obtaining redress in the courts for injury, pecuniary, or otherwise, which would be justiciable and redressable if such considerations had not intervened.
In the present case, confronted with this difficulty the corporation seek to rely on Moses v Macferlan, as authority for the proposition that, in the circumstances of this case, it would be unjust for the union not to refund the money at least in part.
The facts in that case, which is usually regarded as the starting point of the lengthy and fitful journey of English law towards a doctrine of unjust enrichment, can be briefly summarised. The plaintiff, Moses, endorsed to the defendant, Macferlan, four promissory notes in order to enable Macferlan to recover the money in his own name. However, before endorsing the notes, Macferlan agreed that Moses should not be liable for the payment of any part of the money. Contrary to this agreement, Macferlan sued Moses in the Court of Conscience for the sums in question and that court, holding that they could not admit any evidence of the agreement between the two, gave judgment against Moses. Moses having paid the money into court and Macferlan having taken it out, Moses brought an action on the case in the King s Bench Division before Lord Mansfield. A verdict was found by him in favour of Moses, but subject to the opinion of the court upon the question:
whether the money could be recovered in the present form of action, or whether it must be recovered by an action brought upon the special agreement only.
The hearing of the motion to set aside the verdict in favour of the plaintiff entered by Lord Mansfield at nisi prius having come before the full court, the question was resolved in favour of Moses. Lord Mansfield, who again delivered the judgment with which all the other members concurred, said that:
this kind of equitable action, to recover back money which ought not in justice to be kept, is very beneficial and therefore much encouraged … in one word, the gist of this kind of action is that the defendant, upon the circumstances of the case, is obliged by the ties of natural justice and equity to refund the money.
However, while that statement of the law was the genesis of the law of unjust enrichment as it ultimately became, there has been little or no support for the view of the court in that case that the ties of natural justice and equity justified the setting aside of the decree of a court of competent jurisdiction. In Phillips v Hunter, Eyre CJ said that: The case of Moses v Macferlan is, I believe, the only decided case that countenances such an action, but I cannot subscribe to the authority of that case … . Having gone on to consider the case in some detail, he summarised his view as follows: I believe that the judgment did not satisfy Westminster Hall at the time; I never could subscribe to it; it seemed to me to unsettle foundations. In Goff and Jones on the Law of Restitution (4th ed), the learned editor, having observed (at pp 763-764) that: this maxim (interest rei publicae ut sit finis litium) is as important in the law of restitution as in any other branch of English private law adds:
Lord Mansfield s decision, although just, was a blatant attack upon, and a de facto reversal of, the judgment of a competent court, and his observations have not been accepted as authority for any exception to the principle of res judicata.
I am satisfied that Moses v Macferlan is not a satisfactory authority for the proposition that the doctrine of res judicata can be significantly abridged by the invocation of the concept of unjust enrichment. Res judicata, on the contrary, as Henchy J pointed out in Murphy v Attorney General, is one of the factors the application of which may render a seemingly unjust enrichment irreversible. I am also satisfied that in the present case, for the reasons I have elaborated, its successful invocation would involve the addition by judicial decision of a significant qualification to the operation of rule (5) in s 2 of the 1919 Act, which the legislature, as was their privilege, decided not to enact.
I think it is unnecessary to determine whether the retention by the union of the entire compensation constituted an unjust enrichment of it, because I am satisfied that those two considerations – public policy as reflected in the doctrine of res judicata and the exclusive role of the Oireachtas in legislation- are such as to render any such unjust enrichment, in the circumstances of the present case, irreversible.
I would allow the appeal, discharge the order of the learned High Court judge and substitute therefor an order dismissing the claim of the corporation.
UK Cases
Attorney-General for Hong Kong v Reid
[1994] 1 AC 324
LORD TEMPLEMAN: Bribery is an evil practice which threatens the foundations of any civilised society. In particular, bribery of policemen and prosecutors brings the administration of justice into disrepute. Where bribes are accepted by a trustee, servant, agent or other fiduciary,loss and damage are caused to the beneficiaries, master or principal whose interests have been betrayed. The amount of loss or damage resulting from the acceptance of a bribe may or may not be quantifiable. In the present case the amount of harm caused to the administrationof justice in Hong Kong by Mr Reid in return for bribes cannot be quantified.
When a bribe is offered and accepted in money or in kind, the money or property constituting the bribe belongs in law to the recipient. Money paid to the false fiduciary belongs to him. The legal estate in freehold property conveyed to the false fiduciary by way of bribe vests inhim.Equity however which acts in personam insists that it is unconscionable for a fiduciary to obtain and retain a benefit in breach of duty. The provider of a bribe cannot recover it because he committed a criminal offence when he paid the bribe. The false fiduciary who received the bribe in breach of duty must pay and account for the bribe to the person to whom that duty was owed.In the present case, as soon as Mr Reid received a bribe in breach of the duties he owed to the Government of Hong Kong, he became a debtor in equity to the Crown for the amount of that bribe. So much is admitted. But if the bribe consists of property which increases in value or if a cash bribe is invested advantageously, the false fiduciary will receive a benefit from his breach of duty unless he is accountable not only for the original amount or value of the bribe but also for the increased value of the property representing the bribe. As soon as the bribe was received it should have been paid or transferred instanter to the person who suffered from the breach of duty. Equity considers as done that which ought to have been done. As soon as the bribe was received, whether incash or in kind, the false fiduciary held the bribe on a constructive trust for the per son injured. Two objections have been raised to this analysis. First it is said that if the fiduciary is in equity a debtor to the person injured, he cannot also be a trustee of the bribe. But there is no reason why equity should not provide two remedies, so long as they do not result in double recovery. If the property representing the bribe exceeds the original bribe in value, the fiduciary cannot retain the bene fit of the increase in value which he obtained solely as a result of his breach of duty. Secondly, it is said that if the false fiduciary holds property representing the bribe in trust for the person injured, and if the false fiduciary is or becomes insolvent, the unsecured creditors of the false fiduciary will be deprived of their right to share in the proceeds of that property. But the unsecured creditors cannot be in a better position than their debtor. The authorities show that property acquired by a trustee innocently but in breach of trust and the property from time to time representing the same belong in equity to the ces tui que trust and not to the trustee personally whether he is solvent or insolvent. Property acquired by a trustee as a result of a criminal breach of trust and the property from time to time representing the same must also belong in equity to his cestui que trust and not to the trustee whether he is solvent or insolvent.
When a bribe is accepted by a fiduciary in breach of his duty then he holds that bribe in trust for the
person to whom the duty was owed.If the property representing the bribe decreases in value the fidu ciary must pay the difference between that value and the initial amount of the bribe because he should not have accepted the bribe or incurred the risk of loss. If the property increases in value, the fiduciary is not entitled to any surplus in excess of the initial value of the bribe because he is not allowed by any means to make a profit out of a breach of duty …
It has always been assumed and asserted that the law on the subject of bribes was definitively set
tled by the decision of the Court of Appeal in Lister & Co. v Stubbs (1890) 45 ChD 1.
In that case the plaintiffs, Lister & Co., employed the defendant, Stubbs, as their servant to purchase goods for the firm. Stubbs, on behalf of the firm, bought goods from Varley & Co. and received from Varley & Co. bribes amounting to £5,541. The bribes were invested by Stubbs in freehold properties and investments. His masters, the firm Lister & Co., sought and failed to obtain an interlocutory injunc tion restraining Stubbs from disposing of these assets pending the trial of the action in which they sought inter alia £5,541 and damages. In the Court of Appeal the first judgment was given by Cotton U who had been party to the decision in Metropolitan Bank v Heiron (1880) 15 ChD 139. He was power fully supported by the judgment of Lindley U and by the equally powerful concurrence of Bowen U. Cotton U said that the bribe could not be said to be the money of the plaintiffs (see 45 ChD 1 at 12). He seemed to be reluctant to grant an interlocutory judgment which would provide security for a debt before that debt had been established.Lindley U said that the relationship between the plaintiffs, Lister & Co., as masters and the defendant, Stubbs, as servant who had betrayed his trust and received a bribe:
.. is that of debtor and creditor; it is not that of trustee and cestui que trust. We are asked to hold that it is which would involve consequences which, I confess, startle me. One conse quence, of course, would be that, if Stubbs were to become bankrupt, this property acquired by him with the money paid to him by Messrs Varley would be withdrawn from the mass of his cred itors and be handed over bodily to Lister & Co. Can that be right? Another consequence would be that, if the appellants are right, Lister & Co. could compel Stubbs to account to them, not only for the money with interest, but for all the profit which he might have made by embarking in trade with it. Can that be right? (See 45 ChD 1 at 15.)
For the reasons which have already been advanced their Lordships would respectfully answer both these questions in the affirmative. If a trustee mistakenly invests moneys which he ought to pay over to his cestui que trust and then becomes bankrupt, the moneys together with any profit which has accrued from the investment are withdrawn from the unsecured creditors as soon as the mistake is dis covered. A fortiori, if a trustee commits a crime by accepting a bribe which he ought to pay over to his cestui que trust, the bribe and any profit made therefrom should be withdrawn from the unsecured creditors as soon as the crime is discovered.
The decision in Lister & Co. v Stubbs is not consistent with the principles that a fiduciary must not be allowed to benefit from his own breach of duty, that the fiduciary should account for the bribe as soon as he receives it and that equity regards as done that which ought to be done. From these principles it would appear to follow that the bribe and the property from time to time representing the bribe are held on a constructive trust for the person injured. A fiduciary remains personally liable for the amount of the bribe if,in the event, the value of the property then recovered by the injured person proved to be less than that amount.
The decisions of the Court of Appeal in Metropolitan Bank v Heiron (1880) 5 ChD 319 and Lister & Co. v Stubbs are inconsistent with earlier authorities which were not cited. Although over 100 years has passed since Listerv Stubbs, no one can be allowed to say that he has ordered his affairs in reliance on the two decisions of the Court of Appeal now in question.Thus no harm can result if those decisions are not followed.
Pettitt V Pettitt
[1970] AC 777
LORD REID: Many of the cases have been brought by virtue of the provisions of section 17 of the Married Women’s Property Act, 1882. That is a long and complicated section: the relevant part is as follows:
In any question between husband and wife as to the title to or possession of property, either party … may apply by summons or otherwise in a summary way to any judge of the High Court of Justice … and the judge … may make such order with respect to the property in dispute … as he thinks fit.
The main dispute has been as to the meaning of the latter words authorising the judge (including a county court judge and now a registrar) to make such order with respect to the property in dispute as he thinks fit. These are words normally used to confer a discretion on the court: where the discretion is limited, the limitations are generally expressed: but here no limitation is expressed. So it has been said that here these words confer on the court an unfettered discretion to override existing rights in the property and to dispose of it in whatever manner the judge may think to be just and equitable in the whole circumstances of the case. On the other hand it has been said that these words do not entitle the court to disregard any existing property right, but merely confer a power to regulate possession or the exercise of property rights, or, more narrowly, merely confer a power to exercise in proceedings under section 17 any discretion with regard to the property in dispute which has already been conferred by some other enactment. And other intermediate views have also been expressed.
I would approach the question in this way. The meaning of the section cannot have altered since it was passed in 1882. At that time the certainty and security of rights of property were still generally regarded as of paramount importance and I find it incredible that any Parliament of that era could have intended to put a husband’s property at the hazard of the unfettered discretion of a judge (including a county court judge) if the wife raised a dispute about it. Moreover, this discretion, if it exists, can only be exercised in proceedings under section 17: the same dispute could arise in other forms of action; and I find it even more incredible that it could have been intended that sucha discretion should be given to a judge in summary proceedings but denied to the judge if the proceedings were of the ordinary character. So are the words so unequivocal that we are forced to give them a meaning which cannot have been intended? I do not think so. It is perfectly possible to construe the words as having a much more restricted meaning and in my judgment they should be so construed. I do not think that a judge has any more right to disregard property rights in section 17 proceedings than he has in any other form of proceedings.
It was argued that the present case could be decided by applying the presumption regarding advancement. It was said that if a husband spends money on improving his wife’s property, then, in the absence of evidence to the contrary, this must be regarded as a gift to the wife. I do not know how this presumption first arose, but it would seem that the judges who first gave effect to it must have thought either that husbands so commonly intended to make gifts in the circumstances in which the presump tion arises that it was proper to assume this where there was no evidence, or that wives’ economic dependence on their husbands made it necessary as a matter of public policy to give them this advan tage. I can see no other reasonable basis for the presumption. These considerations have largely lost their force under present conditions, and, unless the law has lost all flexibility so that the courts can no longer adapt it to changing conditions, the strength of the presumption must have been much dimin ished. I do not think that it would be proper to apply it to the circumstances of the present case.
And there is another matter I must deal with before coming to the crucial questions. There are at least suggestions in some cases that property rights may be different before and after the break-up of a marriage. I can see no ground for this.There are other occasions for disputes as to rights of property besides break-up of the marriage, and it appears to me that the property rights of the spouses must be capable of determination immediately after the property has been paid for or the improvements carried out and must in the absence of subsequent agreements or transactions remain the same. There are also suggestions that agreements or arrangements made by the spouses may be rendered inoperative by, or may have a different effect after, the breakdown of the marriage. I suppose that an agreement could take an unusual form, but as a general rule I would think that most improbable. The question does not arise in the present case.
It can now come to the main question of how the law does or should deal with cases where the title to property is in one of the spouses and contributions towards its purchase-price have been made or subsequent improvements have been provided by the other. As regards contributions, the traditional view is that, in the absence of evidence to the contrary effect, a contributor to the purchase-price will acquire a beneficial interest in the property: but as regards improvementsmade by a person who is not the legal owner, after the property has been acquired, that person will not, in the absence of agree ment, acquire any interest in the property or have any claim against the owner.
Let me suppose that a house which requires extensive renovation or improvement is acquired by one spouse putting down the deposit and taking the title.Instalments of the purchase-price and the cost of the improvements will then have to be paid. The other spouse may be willing and able to help, and as a pure matter of convenience, without any thought of legal consequences and without making any agreement, one spouse may pay the instalments of the purchase price and the other may pay for the improvements. On thisview the legal position will be different according as the contributing spouse pays the instalments or the cost of the improvements.Payment of the instalments will obtain for him or her a proprietary inter est in the house, but payment of the cost of the improvements will not give him or her either an interest in the house or a claim against the other spouse.That seems to me to be entirely unsatisfactory.It is true that the court will do its best to spell out an agreement to prevent this, but I shall return to that matter.
Then go a step farther.There is no question of making any improvements, but the wife who wants to contribute pays all the household bills thus enabling the husband who holds the title to the house to pay the instalments.That wife will have no claim of any kind. And go a step farther still. The wife may not be able to make any financial contribution but by good management and co-operation she may make it possible for the husband to pay the instalments regularly. Again on this view she will have no claim. Opinions may differ as to whether in one or both of these cases she should have any claim.
Views have been expressed that the law does give a claim to the contributing spouse in the first, or the first and second, or in all the three cases which I have outlined. But there has been no unanimity as to the legal basis or the legal nature of such claims.I think that broadly there are two views.One is that you ask what reasonable people in the shoes of the spouses would have agreed if they had directed their minds to the question of what claim the contributing spouse ought to have. The other is that all property used for family purposes must, in the absence of agreement, be regarded as the joint prop erty of the spouses or as belonging to them in equal shares, no matter which spouse bought or inher ited it or contributed to its acquisition.
We must first have in mind or decide how far it is proper for the courts to go in adapting or adding to existing law. Whatever views may have prevailed in the last century, I think that it is now widely recog nised that it is proper for the courts in appropriate cases to develop or adapt existing rules of the com mon law to meet new conditions. I say in appropriate cases because I think we ought to recognise a difference between cases where we are dealing with ‘lawyer’s law’ and cases where we are dealing with matters which directly affect the lives and interests of large sections of the community and which raise issues which are thesubject of public controversy and on which laymen are as well able to decide as are lawyers. On such matters it is not for the courts to proceed on their view of public policy for that would be to encroach on the province of Parliament.
I would therefore refuse to consider whether property belonging to either spouse ought to be regarded as family property for that would be introducing a new conception into English law and not merely developing existing principles. There are systems of law which recognise joint family property or communio bonorum.I am not sure that those principles are very highly regarded incountries where they are in force, but in any case it would be going far beyond the functions of the court to attempt to give effect to them here.
But it is, I think, proper to consider whether, without departing from the principles of the common law, we can give effect to the view that, even where there was in fact no agreement, we can ask what the spouses, or reasonable people in their shoes, would have agreed if they had directed their minds to the question of what rights should accrue to the spouse who has contributed to the acquisition or improvement of property owned by the other spouse. There is already a presumption which operates in the absence of evidence as regards money contributed by one spouse towards the acquisition of property by the other spouse.So why should there not be a similar presumption where one spouse has contributed to the improvement of the property of the other? I do not think that it is a very convincing argument to say that, if a stranger makes improvements on the property of another without any agree ment or any request by that other that he should do so, he acquires no right. The improvement is made for the common enjoyment of both spouses during the marriage. It would no doubt be different if the one spouse makes the improvement while the other spouse who owns the property is absent and with out his or her knowledge or consent. But if the spouse who owns the property acquiesces in the other making the improvement in circumstances where it is reasonable to suppose that they would have agreed to some right being acquired if they had thought about the legal position, I can see nothing con trary to ordinary legal principles in holding that the spouse who makes the improvement has acquired such a right.
Some reference was made to the doctrine of unjust enrichment. I do not think that that helps. The term has been applied to cases where a person who has paid money sues for its return. But there does not appear to be any English case of the doctrine being applied where one person has improved the property of another. And in any case it would only result in a money claim whereas what a spouse who makes an improvement is seeking is generally a beneficial interest in the property which has been improved.
In whatever way the general question as to improvements is decided I think that the claim in the pre sent case must fail for two reasons. These improvements are nearly all of an ephemeral character. Redecoration will only last for a few years and it would be unreasonable that a spouse should obtain a permanent interest in the house in return for making improvements of this character …
LORD UPJOHN: My Lords, the facts of this case depend not upon the acquisition of property but upon the expenditure of money and labour by the husband in the way of improvement upon the property of the wife which admittedly is her own beneficial property. Upon this it is quite clearly established that by the law of England the expenditure of money by A upon the property of Bstands in quite a different cat egory from the acquisition of property by A and B.
It has been well settled in your Lordships’ House (Ramsden v Dyson (1865) LR 1 HL 129) that if A expends money on the property of B, prima facie he has no claim on such property. And this, as Sir William Grant MR, held as long ago as 1810 in Campion v Cotton (1810) 17 Ves 263 is equally applicable as between husband and wife.If by reason of estoppel or because the expenditure would be rewarded, the person expending the money may have some claim for monetary reimbursement in a purely mon etary sense from the owner or even, if explicitly promised to him by the owner, an interest in the land (see Plimmer v Wellington Corpn. (1884) 9 App Cas 699). But the respondent’s claim here is to a share of the property and his money claim in his plaint is only a qualification of that. Plainly, in the absence of agreement with his wife (and none is suggested) he could have no monetary claim against her and no estoppel or mistake is suggested so,in my opinion, he can have no charge upon or interest in the wife’s property.
It may be that as counsel for the Queen’s Proctor quiterightly pointed out this case could be decided
somewhat on the Balfour v Balfour [1919] 2 KB 571 principle, that the nature of the work done was of the type done by husband and wifeupon the matrimonial home without giving the worker a legal inter est in it. See Button v Button [1968] 1 WLR 457.But I prefer to decide this appeal upon the wider ground that in the absence of agreement, and there being no question of any estoppel, one spouse who does work or expends money upon the property of the other has no claim whatever upon the property of the other.Jansen v Jansen [1965] P 478 was a very good example of that type of case. The husband, put ting it briefly, spent hisshort married life making very substantial improvements upon the propertiesof the wife which greatly increased their value as reflected in their sale price. The wife recognised that as between husband and wife he should receive some benefit and instructed her solicitor to draw up an agreement whereby he was to receive monetary recompense from the proceeds of sale of one of the properties he had improved when such sale was effected. The husband refused to accept this so the parties in fact and in law never did agree. In those circumstancesit seems to me clear that the husband had no claim against the wife even personally and certainly no claim against the property itself either by way of charge or by way of a share in the property.
Gissing v Gissing
[1971] AC 886, House of Lords
LORD DIPLOCK: Any claim to a beneficial interest in land by a person, whether spouse or stranger, in whom the legal estate in the land is not vested must be based upon the proposition that the person in whom the legal estate is vested holds it as trustee upon trust to give effect to the beneficial interest of the claimant as cestui que trust. The legal principles applicable to the claim are those of the English law of trusts and in particular, in the kind of dispute between spouses that comes before the courts, the law relating to the creation and operation of ‘resulting, implied or constructive trusts.’ Where the trust is expressly declared in the instrument by which the legal estate is transferred to the trustee or by a writ ten declaration of trust by the trustee, the court must give effect to it. But to constitute a valid declar ation of trust by way of gift of a beneficial interest in land to a cestui que trust the declaration is required by section 53(1) of the Law of Property Act, 1925, to be in writing. If it is not in writing it can only take effect as a resulting, implied or constructive trust to which that section has no application.
A resulting, implied or constructive trust-and it is unnecessary for present purposes to distinguish between these three classes of trust-is created by a transaction between the trustee and the cestui que trust in connection with the acquisition by the trustee of a legal estate in land, whenever the trustee has so conducted himself that it would be inequitable to allow him to deny to the cestui que trust a beneficial interest in the land acquired. And he willbe held so to have conducted himself if by his words or conduct he has induced the cestui que trust to act to his own detriment in the reasonable belief that by so acting he was acquiring a beneficial interest in the land.
This is why it has been repeatedly said in the context of disputes between spouses as to their respect ive beneficial interests in the matrimonial home, that if at the time of its acquisition and transfer of them legal estate into the name of one or other of them an express agreement has been made between them as to the way in which the beneficial interest shall be held, the court will give effect to it-notwithstanding the absence of any written declaration of trust. Strictly speaking this states the principle too widely, for if the agreement did not provide for anything to be done by the spouse in whom the legal estate was not to be vested, it would be a merely voluntary declaration of trust and unenforceable for want of writing.But in the express oral agreements contemplated by these dicta it has been assumed sub silen tio that they provide for the spouse in whom the legal estate in the matrimonial home is not vested to do something to facilitate its acquisition, by contributing to the purchase price or to the deposit or the mortgage instalments when it is purchased upon mortgage or to make some other material sacrifice by way of contribution to or economy in the general family expenditure. What the court gives effect to is the trust resulting or implied from the common intention expressed in the oral agreement between the spouses that if each acts in the manner provided for in the agreement the beneficial interests in the matrimonial home shall be held as they have agreed.
An express agreement between spouses as to their respective beneficial interests in land conveyed into the name of one of them obviates the need for showing that the conduct of the spouse into whose name the land was conveyed was intended to induce the other spouse to act to his or her detriment upon the faith of the promise of a specified beneficial interest in the land and that the other spouse so acted with the intention of acquiring that beneficial interest. The agreement itself discloses the com mon intention required to create a resulting, implied or constructive trust.
But parties to a transaction in connection with the acquisition of land may well have formed a com mon intention that the beneficial interest in the land shall be vested in them jointly without having used express words to communicate this intention to one another; or their recollections of the words used may be imperfect or conflicting by the time any dispute arises. In such a case-a common one where the parties are spouses whose marriage has broken down-it may be possible to infer their common intention from their conduct.
As in so many branches of English law in which legal rights and obligations depend upon the inten tions of the parties to a transaction, the relevant intention of each party is the intention which was rea sonably understood by the other party to be manifested by that party’s words or conduct notwithstanding that he did not consciously formulate that intention in his own mind or even acted with some different intention which he did not communicate to the other party. On the other hand, he is not bound by any inference which the other party draws as to his intention unless that inference is one which can reasonably be drawn from his words or conduct. It is in thissense that in the branch of English law relating to constructive,implied or resulting trusts effect is given to the inferences as to the intention of parties to a transaction which a reasonable man would draw from their words or conduct and not to any subjective intention or absence of intention which was not made manifest at the time of the transaction itself.It is for the court to determine what those inferences are.
In drawing such an inference, what spouses said and did which led up to the acquisition of a matri monial home and what they said and did while the acquisition was being carried through is on a differ ent footing from what they said and did after the acquisition was completed. Unless it is alleged that there was some subsequent fresh agreement, acted upon by the parties, to vary the original beneficial interests created when the matrimonial home was acquired, what they said and did after the acquisi tion was completed is relevant if it is explicable only upon the basis of their having manifested to one another at the time of the acquisitionsome particular common intention as to how the beneficial inter ests should be held. But it would in my view be unreasonably legalistic to treat the relevant transaction involved in the acquisition of a matrimonial home as restricted to the actual conveyance of the fee sim ple into the name of one or other spouse. Their common intention is more likely to have been con cerned with the economic realities of the transaction than with the unfamiliar technicalities of the English law of legal and equitable interests in land. The economic reality which lies behind the con veyance of the fee simple to a purchaser in return for a purchase price the greater part of which is advanced to the purchaser upon a mortgage repayable by instalments over a number of years, is that the new freeholder is purchasing the matrimonial home upon credit and that the purchase price is rep resented by the instalments by which the mortgage is repaid in addition to the initial payment in cash. The conduct of the spouses in relation to the payment of the mortgage instalments may be no less relevant to their common intention as to the beneficial interests in a matrimonial home acquired in this way than their conduct in relation to the payment of the cash deposit.
It is this feature of the transaction by means of which most matrimonial homes have been acquired
in recent years that makes difficult the task of the court in inferring from the conduct of the spouses a common intention as to how the beneficial interest in it should be held. Each case must depend upon its own facts but there are a number of factual situations which often recur in the cases.
Where a matrimonial home has been purchased outright without the aid of an advance on mortgage it is not difficult to ascertain what part, if any, of the purchase price has been provided by each spouse. If the land is conveyed into the name of a spouse who has not provided the whole of the purchase price, the sum contributed by the other spouse may be explicable as having been intended by both of them either as a gift or as a loan of money to the spouse to whom the land is conveyed or as consideration for a share in the beneficial interest in the land. In a dispute between living spouses the evidence will probably point to one of these explanations as being more probable than the others, but if the rest of the evidence is neutral the prima facie inference is that their common intention was that the contribut ing spouse should acquire a share in the beneficial interest in the land in the same proportion as the sum contributed bore to the total purchase price. This prima facie inference is more easily rebutted in favour of a gift where the land is conveyed into the name of the wife: but as I understand the speeches
in Pettitt v Pettitt four of the members of your Lordships’ House who were parties to that decision took the view that even if the ‘presumption of advancement’ as between husband and wife still survived today, it could seldom have any decisive part to play in disputes between living spouses in which some evidence would be available in addition to the mere fact that the husband had provided part of the pur chase price of property conveyed into the name of the wife.
Similarly when a matrimonial home is not purchased outright but partly out of moneys advanced on mortgage repayable by instalments, and the land is conveyed into the name of the husband alone, the fact that the wife made a cash contribution to the deposit and legal charges not borrowed on mortgage gives rise, in the absence of evidence which makes some other explanation more probable, to the infer ence that their common intention was that she should share in the beneficial interest in the land con veyed. But it would not be reasonable to infer a common intention as to what her share should be without taking account also of the sources from which the mortgage instalments were provided. If the wife also makes a substantial direct contribution to the mortgage instalments out of her own earnings or unearned income this would be prima facie inconsistent with a common intention that her share in the beneficial interest should be determined by the proportion which her original cash contribution bore either to the total amount of the deposit and legal charges or to the full purchase price. The more likely inference is that her contributions to the mortgage instalments were intended by the spouses to have some effect upon her share.
Where there has been an initial contribution by the wife to the cash deposit and legal charges which points to a common intention at the time of the conveyance that she should have a beneficial interest in the land conveyed to her husband, it would be unrealistic to regard the wife’s subsequent contribu tions to the mortgage instalments as without significance unless she pays them directly herself. It may be no more than a matter of convenience which spouse pays particular household accounts, particu larly when both are earning, and if the wife goes out to work and devotes part of her earnings or uses her private income to meet joint expenses of the household which would otherwise be met by the hus band, so as to enable him to pay the mortgage instalments out of his moneys this would be consistent with and might be corroborative of an original common intention that she should share in the beneficial interest in the matrimonial home and that her payments of other household expenses were intended by both spouses to be treated as including a contribution by the wife to the purchase price of the matri monial home.
Even where there has been no initial contribution by the wife to the cash deposit and legal charges but she makes a regular and substantial direct contribution to the mortgage instalments it may be rea sonable to infer a common intention of the spouses from the outset that she should share in the bene ficial interest or to infer a fresh agreement reached after the original conveyance that she should acquire a share. But it is unlikely that the mere fact that the wife made direct contributions to the mort gage instalments would be the only evidence available to assist the court in ascertaining the common intention of the spouses.
Where in any of the circumstances described above contributions, direct or indirect, have been made to the mortgage instalments by the spouse into whose name the matrimonial home has not been conveyed, and the court can infer from their conduct a common intention that the contributing
spouse should be entitled to some beneficial interest in the matrimonial home, what effect is to be
given to that intention if there is no evidence that they in fact reached any express agreement as to what the respective share of each spouse should be?
I take it to be clear that if the court is satisfied that it was the common intention of both spouses that the contributing wife should have a share in the beneficial interest and that her contributions were made upon this understanding, the court in the exercise of its equitable jurisdiction would not permit the husband in whom the legal estate was vested and who had accepted the benefit of the contribu tions to take the whole beneficial interest merely because at the time the wife made her contributions there had been no express agreement as to how her share in it was to be quantified.
In such a case the court must first do its best to discover from the conduct of the spouses whether any inference can reasonably be drawn as to the probable common understanding about the amount of the share of the contributing spouse upon which each must have acted in doing what each did, even though that understanding was never expressly stated by one spouse to the other or even consciously formulated in words by either of them independently. It is only if no such inference can be drawn that the court is driven to apply as a rule of law, and not as an inference of fact, the maxim ‘equality is equity,’ and to hold that the beneficial interest belongs to the spouses in equal shares.
The same result however may often be reached as an inference of fact. The instalments of a mort gage to a building society are generally repayable over a period of many years. During that period, as both must be aware, the ability of each spouse to contribute to the instalments out of their separate earnings is likely to alter, particularly in the case of the wife if any children are born of the marriage. If the contribution of the wife in the early part of the period of repayment is substantial but is not an iden tifiable and uniform proportion of each instalment, because her contributions are indirect or, if direct, are made irregularly, it may well be a reasonable inference that their common intention at the time of acquisition of the matrimonial home was that the beneficial interest should be held by them in equal shares and that each should contribute to the cost of its acquisition whatever amounts each could afford in the varying exigencies of family life to be expected during the period of repayment. In the social conditions of today this would be a natural enough common intention of a young couple who were both earning when the house was acquired but who contemplated having children whose birth and rearing in their infancy would necessarily affect the future earning capacity of the wife.
The relative size of their respective contributions to the instalments in the early part of the period of repayment, or later if a subsequent reduction in the wife’s contribution is not to be accounted for by a reduction in her earnings due to motherhood or some other cause from which the husband benefits as well, may make it a more probable inference that the wife’s share in the beneficial interest was intended to be in some proportion other than one-half. And there is nothing inherently improbable in their act ing on the understanding that the wife should be entitled to a share which was not to be quantified immediately upon the acquisition of the home but should be left to be determined when the mortgage was repaid or the property disposed of, on the basis of what would be fair having regard to the total contributions, direct or indirect, which each spouse had made by that date. Where this was the most likely inference from their conduct it would be for the court to give effect to that common intention of the parties by determining what in all the circumstances was a fair share.
Difficult as they are to solve, however, these problems as to the amount of the share of a spouse in the beneficial interest in a matrimonial home where the legal estate is vestedsolely in the other spouse, only arise in cases where the court is satisfied by the words or conduct of the parties that it was their common intention that the beneficial interest was not to belong solely to the spouse in whom the legal estate was vested but was to be shared between them in some proportion or other.
Where the wife has made no initial contribution to the cash deposit and legal charges and no direct contribution to the mortgage instalments nor any adjustment to her contribution to other expenses of the household which it can be inferred was referable to the acquisition of the house, there is in the absence of evidence of an express agreement between the parties no material to justify the court in inferring that it was the common intention of the parties that she should have any beneficial interest in a matrimonial home conveyed into the sole name of the husband, merely because she continued to
contribute out of her own earnings or private income to other expenses of the household. For such conduct is no less consistent with a common intention to share the day-to-day expenses of the house hold, while each spouse retains a separate interest in capital assets acquired with their own moneys or obtained by inheritance or gift. There is nothing here to rebut the prima facie inference that a purchaser of land who pays the purchase price and takes a conveyance and grants a mortgage in his own name intends to acquire the sole beneficial interest as well as the legal estate: and the difficult question of the quantum of the wife’s share does not arise.
In the instant appeal the matrimonial home was purchased in 1951 for £2,695 and conveyed into the sole name of the husband. The parties had by then been married for some 16 years and both were in employment with the same firm, the husband earning £1,000 and the wife £500 per annum. The pur chase price was raised as to £2,150 on mortgage repayable by instalments, as to £500 by a loan to the husband from his employers, and as to the balance of £45 and the legal charges was paid by the hus band out of his own moneys.The wife made no direct contribution to the initial deposit or legal charges, nor to the repayment of the loan of £500 nor to the mortgage instalments. She continued earning at the rate of £500 per annum until the marriage broke down in 1961. During this period the husband’s salary increased to £3,000 per annum. The husband repaid the loan of £500, and paid the mortgage instal ments.He also paid the outgoings on the house, gave to his wife a housekeeping allowance of £8 to £10 a week out of which she paid the running expenses of the household and he paid for holidays. The only contribution which the wife made out of her earnings to the household expenses was that she paid for her own clothes and those of the son of the marriage and for some extras. No change in this arrange ment was made when the house was acquired.Each spouse had a separate banking account, the wife’s in the Post Office Savings Bank, and each made savings out of their respective earnings. There was no joint bank account and there were no joint savings. There was no express agreement at the time of the purchase or thereafter as to how the beneficial interest in the house should be held. The learned judge was prepared to accept that after the marriage had broken down the husband said to the wife: ‘Don’t worry about the house-it’s yours’, but this has not been relied upon, at any rate in your Lordships’ House, as an acknowledgment of a pre-existing agreement on which the wife had acted to her detri ment so as to give rise to a resulting, implied or constructive trust, nor can it be relied upon as an express declaration of trust as it was oral only.
On what then is the wife’s claim based? In 1951 when the house was purchased she spent about £190 on buying furniture and a cooker and refrigerator for it. She also paid about £30 for improving the lawn. As furniture and household durables are depreciating assets whereas houses have turned out to be appreciating assets it may be that she would have been wise to have devoted her savings to acquir ing an interest in the freehold; but this may not have been so apparent in 1951 as it has now become. The court is not entitled to Infer a common intention to this effect from the mere fact that she provided chattels for joint use in the new matrimonial home; and there is nothing else in the conduct of the par ties at the time of the purchase or thereafter which supports such an inference.There is no suggestion that the wife’s efforts or her earnings made it possible for the husband to raise the initial loan or the mortgage or that her relieving her husband from the expense of buying clothing for herself and for their son was undertaken in order to enable him the better to meet the mortgage instalments or to repay the loan. The picture presented by the evidence is one of husband and wife retaining their separate pro prietary interests in property whether real or personal purchased with their separate savings and is inconsistent with any common intention at the time of the purchase of the matrimonial home that the wife, who neither then nor thereafter contributed anything to its purchase price or assumed any liabil ity for it, should nevertheless be entitled to a beneficial interest in it.
Both Buckley J and Edmund Davies LJ in his dissenting judgment in the Court of Appeal felt unable on this evidence to draw an inference that there was any common intention that the wife should have any beneficial interest in the house. I think that they were right. Like them I, too, come to this conclusion with regret, because it may well be that had husband and wife discussed the matter in 1951 when the house was bought he would have been willing for her to have a share in it if she wanted to. But this is speculation, and if such an arrangement had been made between them there might well have also been a different allocation of the house-hold expenses between them in the ensuing years ..
Burns v Burns
[1984] Ch 317
FOX LJ For present purposes I think that such a trust could only arise (a) by express declaration or agreement or (b) by way of a resulting trust where the claimant has directly provided part of the purchase price or (c) from the common intention of the parties.
In the present case (a) and (b) can be ruled out. There was no express trust of an interest in the prop erty for the benefit of the plaintiff; and there was no express agreement to create such an interest. And the plaintiff made no direct contribution to the purchase price. Her case, therefore, must depend on showing a common intention that she should have a beneficial interest in the property. Whether the trust which would arise in such circumstances is described as implied, constructive or resulting does not greatly matter. If the intention is inferred from the fact that some indirect contribution is made to the purchase price, the term ‘resulting trust’ is probably not inappropriate. Be that as it may, the basis of such a claim, in any case, is that it would be inequitable for the holder of the legal estate to deny the claimant’s right to a beneficial interest.
In determining whether such a common intention exists it is, normally, the intention of the parties when the property was purchased that is important. As to that I agree with the observations of Griffiths U in Bernard v Josephs [1982] Ch 391 at 404. As I understand it, that does not mean that for the purpose of determining the ultimate shares in the property one looks simply at the factual position as it was at the date of acquisition. It is necessary for the court to consider all the evidence, including the contributions of the parties, down to the date of separation (which in the case of man and mistress will generally, though not always, be the relevant date). Thus the law proceeds on the basis that there is nothing inherently improbable in the parties acting on the understanding that the woman-
should be entitled to a share which was not to be quantified immediately on the acquisition of the home but should be left to be determined when the mortagage was repaid or the property disposed of, on the basis of what would be fair having regard to the total contributions, direct or indirect, which each spouse had made by that date. (See Gissing v Gissing [1971] AC 886 at 900 per Lord Diplock.)
That approach does not, however, in my view preclude the possibility that while initially, there was no intention that the claimant should have any interest in the property, circumstances may subsequently arise from which the intention to confer an equitable interest on the claimant may arise (e.g., the dis charge of a mortgage or the effecting of capital, improvements to the house at his or her own expense). Further, subsequent events may throw light on the initial intention.
MAY LJ: At the hearing of this appeal our attention was drawn to a number of authorities, to some of which I shall briefly refer, and thereafter state what I think is the general approach adopted by the courts to these disputes which can be deduced from the two leading cases in 1970 and 1971 and those which have followed them.
In Falconerv Falconer [1970] 3 All ER 449, [1970] 1 WLR 1333 the couple were married in 1960. About a year later a building plot was bought in the wife’s name as a site for a house. Part of the purchase price was provided by the wife’s mother and the balance was borrowed on mortgage in which the husband joined as surety. A house was then built on the plot with money raised by another mortgage of the plot with the partially erected house on it. As the plot was in the wife’s name she was the mortgagor. However her husband again stood surety. The husband’s father also guaranteed the repayments under the mortgage. After they moved into the house, the husband paid his wife a regular sum by way of housekeeping money. The wife herself went out to work and paid the mortgage instalments out of the total of her own earnings and her housekeeping money. About 18 months later the marriage began to go wrong and the husband moved out of the house. From that time and for two years thereafter he paid one half of the mortgage instalments and the rates on the property. Subsequently the wife formed an association with another man and the husband stopped his payments. The marriage was ultimately dissolved. On the husband’s summons under s. 17 of the Married Women’s Property Act 1882, the county court judge held that the land itself belonged to the wife but that the husband had a half inter est in the house. The wife’s appeal to the Court of Appeal was dismissed and in the course of his judg ment Lord Denning MR referred to the decision inGissing v Gissing and said ([1970] 3 All ER 449 at 452, [1970] 1 WLR 1333 at 1336):
It stated the principles on which a matrimonial home, which stands in the name of husband or wife alone, is nevertheless held to belong to them both jointly (in equal or unequal shares). It is done, not so much by virtue of an agreement, express or implied, but rather by virtue of a trust which is imposed by law. The law imputes to husband and wife an intention to create a trust, the one for the other. It does so by way of an inference from their conduct and the surrounding cir cumstances, even though the parties themselves made no agreement on it. This inference of a trust, the one for the other, is readily drawn when each has made a financial contribution to the purchase price or to the mortgage instalments. The financial contribution may be direct, as where it is actually stated to be a contribution towards the price or the instalments. It may be indirect, as where both go out to work, the one pays the housekeeping and the other the mort gage instalments. It does not matter which way round it is. It does not matter who pays what. So long as there is a substantial financial contribution towards the family expenses, it raises the inference of a trust. But where it is insubstantial, no such inference can be drawn, see the cases collected in the dissenting judgment of Edmund Davies U ([1969] 1 All ER 1043 at 1049, [1969] 2 Ch 85 at 97), which was upheld by the House. The House did, however, sound a note of warn ing about proportions. It is not in every case that the parties hold in equal shares. Regard must be had to their respective contributions. This confirms the practice of this court. In quite a few cases we have not given half-and-half but something different. (Lord Denning MR’s emphasis).
Megaw u ([1970] 3 All ER 449 at 454, [1970] 1 WLR 1333 at 1338) in his judgment quoted a passage from Lord Pearson’s speech inGissing v Gissing [1970) 2 All ER 780 at 788, [1971I AC 886 at 903 which was to this effect:
I think also that the decision of cases of this kind has been made more difficult by excessive application of the maxim. ‘Equality is equity’. No doubt it is reasonable to apply the maxim in a case where there have been very substantial contributions (otherwise than by way of advance ment) by one spouse to the purchase of property in the name of the other spouse but the pro portion borne by the contributions to the total price or cost is difficult to fix. But if it is plain that the contributing spouse has contributed about one-quarter, I do not think it is helpful or right for the Court to feel obliged to award either one-half or nothing.
In the next case, Hazell v Hazel/ [1972] 1 All ER 923, [1972] 1 WLR 301, the couple were again husband and wife. They bought a house for the matrimonial home which was conveyed into the husband’s name. The purchase price was obtained in part by a loan from the husband’s parents and the remain der by a mortgage from a building society. In order to meet the increased expenditure involved it was agreed between the parties that the wife should go out to work and she used her earnings to supple ment the limited housekeeping moneys which her husband gave her, including clothing for herself and the children. The top floor of the house was let and the rent was received by the husband. After 15 years the wife left the husband who stayed on in the house and continued to pay the outgoings. Four years later the parties were divorced. The wife applied under the 1882 Act claiming that she was enti tled to a share in the matrimonial home. The deputy county court judge found that she had indeed made substantial contributions to the family expenses but decided that she was not entitled to any share of the house because there was no express or implied agreement to give her one. He went on, however, to hold that if he was wrong in so deciding on that basis, then the wife should have a share amounting to one-fifth. On the wife’s appeal, this court held that she was entitled to a share in the ultim ate value of the matrimonial home by virtue of the contributions which she made to supplement the housekeeping expenses. On the facts, her earnings had helped her husband to pay the mortgage instalments. In his judgment Lord Denning MR referred to what he had said in Falconer v Falconer and his reference there to indirect contributions by one member of a couple to the purchase price of the matrimonial home, and a little later said ([1972] 1 All ER 923 at 927, [1972] 1 WLR 301 at 305):
Stephenson U suggested that it might be inferred that [the wife’s] contributions were referable to the acquisition of the house. That seems to be sufficient ground from which the court could and should impute a trust. It would be inequitable for the husband to take the whole when she has helped him so much to acquire it. So I would reverse the decision of the judge and hold that the wife is entitled to a share in the house.
Lord Denning MR then upheld the deputy county court judge’s assessment of one-fifth. Megaw U agreed and in the course of his judgment, dealing with the question of contributions, said ([1972] 1 All ER 923 at 928, [1972] 1 WLR 301 at 306):
In my judgment it is sufficient if as a matter of common sense the wife’s contribution ought to be treated as being a contribution towards the expenses of the acquisition of the matrimonial home.
In Cooke v Head [1972] 2 All ER 38, [1972] 1 WLR 518 the couple were not married. They planned to build a bungalow in which they could live after the man’s wife had divorced him and they were able to get married. A plot of land was purchased in the man’s name and he paid the deposit and arranged the mortgage. Both the man and the woman helped to build the bungalow, the woman’s part of the work including demolishing a building, removing hard core and rubble, working a cement-mixer and paint ing. They both saved each week as much as they could from their earnings. They pooled their savings and used these for mortgage repayments and buying furniture. However, theirs was a relatively short lived association, for when the bungalow was near completion but not entirely finished they separated and the man alone continued to live in it repaying the mortgage. It seems that the parties lived together for between two and three years. On an application by the woman for a declaration that the bungalow was owned jointly by herself and the man, Plowman J held that she had a one-twelfth interest in the property. She was dissatisfied and appealed. I quote brief passages from the judgment of Lord Denning MR, again with which Karminski and Orr LJJ agreed:
The particular case of man and mistress came before the Court of Appeal in Diwe/1 v Farnes (1959] 2 All ER 379, (1959] 1 WLR 624. The court was divided in opinion. The majority thought that a mistress was not in the same position as a wife. She could recover her actual contribu tions to the purchase price, but could not claim any part of the windfall on resale. Willmer LJ approached the case much as we approach cases between husband and wife. He would have given the mistress one-half. His approach is more in accord with recent development … In the light of recent developments, I do not think it is right to approach this case by looking at the money contributions of each and dividing up the beneficial interest according to those contri butions. The matter should be looked at more broadly, just as we do in husband and wife cases. We look to see what the equity is worth at the time when the parties separate. We assess the shares as at that times. If the property has been sold, we look at the amount which it has realised, and say how it is to be divided between them. Lord Diplock in Gissing v Gissing (1970] 2 All ER 780 at 793,(1971] AC 886 at909 intimated that it is quite legitimate to infer that ‘the wife should be entitled to a share which was not to be quantified immediately on the acquisition of the home but should be left to be determined when the mortgage was repaid or the property
disposed of’. Likewise with a mistress.
Lord Denning MR then considered the various matters which should be taken into account in assessing the parties’ share in the family home in these circumstances and ultimately held that the woman plain tiff was entitled to one-third of the net proceeds of sale, instead of the one-twelfth found by the judge at first instance.
Richards v Dove [1974] 1 All ER 888 also concerned an unmarried couple. They first lived as man and mistress in rented accommodation and then in a house which was bought and taken in the man’s name. He paid £350 by way of deposit, of which £150 had been lent to him by his mistress. The balance of £3,150 was obtained by a mortgage to the man from the local authority. After the couple moved in, as had been the situation in their earlier rented accommodation, the mistress continued to pay for the household food and gas; the man paid all other bills including the mortgage repayments. Walton J dis missed the woman’s application for a declaration that the house was vested in the man on trust for both of them. In his view it did not follow that the application of the relevant principles produced the same result whether the parties were married or not, because it was impossible to leave out of the picture the fact that as between husband and wife the former has certain legal duties relating to the mainten ance of his wife, whereas between man and mistress the whole relationship is consensual, with no legal obligations imposed. In his view all that the mistress had done in the case before him was to provide the loan of £150 towards the deposit and then to carry on as they had for a number of years in rented accommodation, with the man paying off the mortgage. In truth, as the judge held, his mistress made no ‘real’ or ‘substantial’ contribution to the acquisition of the matrimonial home and accordingly was not entitled to any share of it.
Eves v Eves [1975] 3 All ER 768, [1975] 1 WLR 1338 also concerned an unmarried couple living
together. They bought a house in the man’s name partly by the sale of his previous house and partly by a mortgage which he obtained. At the time of the purchase the man told his mistress that if she had been 21 years of age he would have had the house put into their joint names as it was to be their joint home. At the subsequent trial he said that he had used the plaintiff’s age as an excuse for not having had the house put into joint names. At the outset the house was in a very dirty and dilapidated condi tion and the couple each worked hard to improve it. Ultimately, some three years later, the man left the house and married another woman. Pennycuick V-C held that the plaintiff woman had not established a claim to be entitled to any share of the property and dismissed her application. She successfully appealed. On my reading of the judgments in this court the basis for Lord Denning MR’s view that the woman was entitled to a declaration was that the untrue statement by the man that but for her age he would have put the house into their joint names amounted to a recognition by him that, in all fairness, she was entitled to a share in the house, equivalent in some way to a declaration of trust. He went on to say that the declaration was not for a particular share but for such share as was fair in view of all that she had done and was doing for the man and their children and would thereafter do. In this judgment, how ever, Brightman J, with whom Browne U agreed, referred to Gissing v Gissing and expressed his view that the actual decisionin that case was that the wife had made no contribution to the acquisition of the title to the matrimonial home from which it could be inferred that the parties intended her to have any beneficial interest in it. He went on to hold that the case then before his court was different: the man clearly led the plaintiff to believe that she was to have some undefined interest in the property. That, of course, he said, was not enough by itself to create a beneficial interest in his favour but if it was part of the bargain between the parties, expressed or to be implied, that the plaintiff should contribute her labour towards the reparation of a house in which she was to have some beneficial interest, then in his view the arrangement became one to which the law could give effect. Although Pennycuick V-C had been unable to find any link in the evidence, Brightman J disagreed and found it in these circumstances ([1975] 3 All ER 768 at 774, [1975] 1 WLR 1338 at 1345):
The house was found by them jointly. It was in poor condition. What needed to be done was plain for all to see, and must have been discussed.The plaintiff was to have some interest in the house, or so she was led to believe, although her name would not be on the deeds. They moved in. They both set to and put the house to rights. I find it difficult to suppose that she would have been wielding the 14-pound sledgehammer, breaking up the large area of concrete, filling the skip and doing other things which were carried out when they moved in, except in pursuance of some expressed or implied arrangement and on the understanding that she was helping to improve a house in which she was to all practical intents and purposes promised that she had an interest.
In the result the court held that the woman was entitled to a one-quarter share in the family home.
Of all the authorities to which our attention was drawn, I think that the facts of Hall v Ha// (1981) 3 FLR 379 are the closest to those of the instant case. In Hall’s case the couple were unmarried. The woman left her husband and went to live with the man, who was divorced. They bought a flat in the man’s name, the woman contributing to the furnishings and the general household expenses.Subsequently a house was bought in the man’s name, the purchase money coming partly from the proceeds of the sale of the flat, partly from the man’s savings and partly by way of mortgage. Within a year the couple separated. On the woman’s application to the county court for a share in the family home, she was awarded one-fifth and her appeal to the Court of Appeal against this award was dismissed. At first sight the decision in Ha// v Ha// might not seem to be in accord with the principles applied in the earlier authorities. However, having read the judgments in the case it is clear that the decision proceeded on a concession by counsel for the man, both before the county court and in the Court of Appeal, that in the events which had occurred there had been a resulting trust of the family house in favour of the woman. In these circumstances, save to the extent that the members of the Court of Appeal in Hall’s case did not expressly say that they thought that this concession had been wrongly made, I think that one should be careful about reaching the conclusion that Hall’s case extended the basis of the woman’s entitlement in man/mistress cases of the type with which we are concerned. With the greatest respect and particularly having regard to the reference to Falconer v Falconer in the judgments, I think that the concession in Ha// v Ha// was wrongly made.
Lloyds Bank v Rasset
[1991] 1 AC 107
LORD BRIDGE OF HARWICH: ..d:
The decision to transfer the property into the name of [Mr Rasset] alone was a disappointment to (Mrs Rasset], but I am satisfied that she genuinely believed that [Mr Rasset] would hold the property in his name as something which was a joint venture, tobe shared between them as the family home and that the reason for it being held by [him] alone was to ensure that [his] uncle would sanction the export of trust funds from Switzerland to England for the purchase. As so often happens [Mr and Mrs Rasset] did not pursue their discussion to the extent of defining pre cisely what their respective interests in the property should be. It was settled that the property should be transferred into the name of [Mr Rasset] alone to achieve the provision of funds from Switzerland, but in the period from August 1982 to the 23 November 1982 when the contracts were exchanged, [the parties] did not decide whether [Mrs Rasset] should have any interest in the property. On one occasion [Mr Rasset] heard [her husband] say to her parents that he had put the house in their joint names, but she knew that he could not do that and treated what he said as an expression of what he would like to do. In these circumstances I am satisfied that the outcome of the discussions between the parties as to the name into which the property should be transferred did not exclude the possibility that [Mrs Rasset] should have a beneficial interest in the property.
Even if there had been the clearest oral agreement between Mr and Mrs Rasset that Mr Rasset was to hold the property in trust for them both as tenants in common, this would, of course, have been ineffective since a valid declaration of trust by way of gift of a beneficial interest in land is required by s. 53(1) of the Law of Property Act 1925 to be in writing. But if Mrs Rasset had, as pleaded, altered her position inreliance on the agreement this could have given rise to an enforce able interest in her favour by way either of a constructive trust or of a proprietary estoppel.
Up to 17 December 1982 [Mrs Rosset’s] contribution to the venture was: (1) to urge on the builders and to attempt to co-ordinate their work, until her husband insisted that he alone should give instructions; (2) to go to builders’ merchants and obtain material required by the builders … and to deliver the materials to the site. This was of some importance because Mr Griffin and his employees did not know the Thanet area; (3) to assist her husband in planning the renovation and decoration of the house. In this, she had some skill over and above that acquired by most housewives. She was a skilled painter and decorator who enjoyed wall-papering and deco rating, and, as her husband acknowledged, she had good ideas about this work. In connection with this, she advised on the position of electric plugs and radiators and planned the design of the large breakfast room and the small kitchen of the house; (4) to carry out the wallpapering of Natasha’s bedroom and her own bedroom, after preparing the surfaces of the walls and clearing up the rooms concerned before the papering began; (5) to begin the preparation of the surfaces of the walls of her son’s bedroom, the den, the upstairs lavatory and the downstairs washroom for papering. All this wallpapering was completed after 17 December 1982 but by 31 December 1982; (6) to assist in arranging the insurance of the house by the Minister Insurance Co. Ltd home cover policy, in force from 3 November 1982; (7) to assist in arranging a crime pre vention survey on 23 November 1982; (8) to assist in arranging the installation of burglar alarms described in a specification dated 3 December 1982.
The first and fundamental question which must always be resolved is whether, independently of any inference to be drawn from the conduct of the parties in the course of sharing the house as their home and managing their joint affairs, there has at any time prior to acquisition, or exceptionally at some later date, been any agreement, arrangement or understanding reached between them that the property is to be shared beneficially. The finding of an agreement or arrangement to share in this sense can only, I think, be based on evidence of express discussions between the partners, however imperfectly remem bered and however imprecise their terms may have been.Once a finding to this effect is made it will only be necessary for the partner asserting a claim to a beneficial interest against the partner entitled to the legal estate to show that he or she has acted to his or her detriment or significantly altered his or her pos ition in reliance on the agreement in order to give rise to a constructive trust or proprietary estoppel.
In sharp contrast with this situation is the very different one where there is no evidence to support a finding of an agreement or arrangement to share, however reasonable it might have been for the par ties to each such an arrangement if they had applied their minds to the question, and where the court must rely entirely on the conduct of the parties both as the basis from which to infer a common inten tion to share the property beneficially and as the conduct relied on to give rise to a constructive trust. In this situation direct contributions to the purchase price by the partner who is not the legal owner, whether initially or by payment of mortgage instalments, will readily justify the inference necessary to the creation of a constructive trust. But, as I read the authorities, it is at least extremely doubtful whether anything less will do.
The leading cases in your Lordships’ House are Pettittv Pettitt [1969] 2 All ER 385, [1970] AC 777 and Gissing v Gissing [1970] 2 All ER 780, [1971] AC 886. Both demonstrate situations in the second cat egory to which I have referred and their Lordships discuss at great length the difficulties to which these situations give rise. The effect of these two decisions is very helpfully analysed in the judgment of Lord MacDermott LCJ in McFarlane v McFar/ane [1972] NI 59.
Outstanding examples on the other hand of cases giving rise to situations in the first category are Eves v Eves [1975] 3 All ER 768, (1975] 1 WLR 1338 and Grant v Edwards [1986] 2 All ER 426, [1986] Ch 638. In both these cases, where the parties who had cohabited were unmarried, the female partner had been clearly led by the male partner to believe, when they set up home together, that the property would belong to them jointly. In Eves v Eves the male partner had told the female partner that the only reason why the property was to be acquired in his name alone was because she was under 21 and that, but for her age, he would have had the house put into their joint names. He admitted in evidence that this was simply an ‘excuse’. Similarly, in Grant v Edwards the female partner was told by the male part ner that the only reason for not acquiring the property in joint names was because she was involved in divorce proceedings and that, if the property were acquired jointly, this might operate to her prejudice in those proceedings. As Nourse U put it ([1986] 2 All ER 426 at 433, [1986] Ch 638 at 649):
Just as in Eves v Eves, these facts appear to me to raise a clear inference that there was an under standing between the plaintiff and the defendant, or a common intention, that the plaintiff wasto have some sort of proprietary interest in the house; otherwise no excuse for not putting her name onto the title would have been needed.
The subsequent conduct of the female partner in each of these cases, which the court rightly held suf ficient to give rise to a constructive trust or proprietary estopped supporting her claim to an interest in the property, fell far short of such conduct as would by itself have supported the claim in the absence of an express representation by the male partner that she was to have such an interest. It is significant to note that the share to which the female partners in Eves v Eves and Grant v Edwards were held enti tled were one-quarter and one-half respectively. In no sense could these shares have been regarded as proportionate to what the judge in the instant case described as a ‘qualifying contribution’ in terms of the indirect contributions to the acquisition or enhancement of the value of the houses made by the female partners.
Grant v Edwards
(1986) Ch 638,
NOURSE LJ: In most of these cases the fundamental, and invariably the most difficult, question is to decide whether there was the necessary common intention, being something which can only be inferred from the conduct of the parties, almost always from the expenditure incurred by them respect ively. In this regard the court has to look for expenditure which is referable to the acquisition of the house: see Burns v Burns [1984) 1 All ER 244 at 252-253, [1984] Ch 317 at 328-329 per Fox LJ. If it is found to have been incurred, such expenditure will perform the twofold function of establishing the common intention and showing that the claimant has acted on it.
There is another and rarer class of case, of which the present may be one, where, although there has been no writing, the parties have orally declared themselves in such a way as to make their common intention plain. Here the court does not have to look for conduct from which the intention can be inferred, but only for conduct which amounts to an acting on it by the claimant. And, although that con duct can undoubtedly be the incurring of expenditure which is referable to the acquisition of the house, it need not necessarily be so.
It seems therefore, on the authorities as they stand, that a distinction is to be made between conduct from which the common intention can be inferred on the one hand and conduct which amounts to an acting on it on the other. There remains this difficult question: what is the quality of conduct required for the latter purpose? The difficulty is caused, I think, because, although the common intention has been made plain, everything else remains a matter of inference. Let me illustrate it in this way. It would be possible to take the view that the mere moving into the house by the woman amounted to an acting on the common intention. But that was evidently not the view of the majority inEves v Eves. And the rea son for that may be that, in the absence of evidence, the law is not so cynical as to infer that a woman will only go to live with a man to whom she is not married if she understands that she is to have an inter est in their home. So what sort of conduct is required? In my judgment it must be conduct on which the woman could not reasonably have been expected to embark unless she was to have an interest in the house. If she was not to have such an interest, she could reasonably be expected to go and live with her lover, but not, for example, to wield a 14-lb sledge hammer in the front garden. In adopting the latter kind of conduct she is seen to act to her detriment on the faith of the common intention.
MUSTILL LJ:I believe that the following propositions, material to this appeal, can be extracted from the authorities. (For convenience it is assumed that the ‘proprietor’, viz. the person who has the legal title is male and the ‘claimant’ who asserts a beneficial interest is female.)
(1) The law does not recognise a concept of family property, whereby people who live together in a settled relationship ipso facto share the rights of ownership in the assets acquired and used for the purposes of their life together. Nor does the law acknowledge that by the mere fact of doing work on the asset of one party to the relationship the other party will acquire a beneficial interest in that asset.
(2) The question whether one party to the relationship acquires rights to property the legal title to which is vested in the other party must be answered in terms of the existing law of trusts. There are no special doctrines of equity applicable in this field alone.
(3) In a case such as the present the inquiry must proceed in two stages. First, by considering whether something happened between the parties, in the nature of bargain, promise or tacit common intention, at the time of the acquisition. Second, if the answer is yes, by asking whether the claimant subsequently conducted herself in a manner which was (a) detrimental to herself and (b) referable to whatever happened on acquisition. (I use the expression ‘on acquisition’ for simplicity. In fact, the event happening between the parties which, if followed by the relevant type of conduct on the part of the claimant, can lead to the creation of an interest in the claimant may itself occur after acquisition. The beneficial interests may change in the course of the relationship.)
(4) For present purposes, the event happening on acquisition may take one of the following shapes:
(a) an express bargain whereby the proprietor promises the claimant an interest in the property, in return for an explicit undertaking by the claimant to act in a certain way; (b) an express but incomplete bargain whereby the proprietor promises the claimant an interest in the property, on the basis that the claimant will do something in return. The parties do not themselves make explicit what the claimant is to do. The court therefore has to complete the bargain for them by means of implication; when it comes to decide whether the proprietor’s promise has been matched by conduct falling within whatever undertaking the claimant must be taken to have given sub silencio; (c) an explicit promise by the pro prietor that the claimant will have an interest in the property, unaccompanied by any express or tacit agreement as to a quid pro quo; (d) a common intention, not made explicit, to the effect that the claimant will have an interest in the property if she subsequently acts in a particular way.
(5) In order to decide whether the subsequent conduct of the claimant serves to complete the bene ficial interest which has been explicitly or tacitly promised to her the court must decide whether the conduct is referable to the bargain, promise or intention. Whether the conduct satisfied this test will depend on the nature of the conduct and the bargain, promise or intention.
(6) Thus, if the situation falls into category (a) above, the only question is whether the claimant’s con duct is of the type explicitly promised. It is immaterial whether it takes the shape of acontribution to the cost of acquiring the property or is of a quite different character.
(7) The position is the same in relation to situations (b) and (d). No doubt it will often be easier in prac
tice to infer that the quid pro quo was intended to take the shape of a financial or other contribution to the cost of acquisition or of improvement, but this need not always be so. Whatever the court decides the quid pro quo to have been, it will suffice if the claimant has furnished it.
(8) In considering whether there was a bargain or common intention, so as to bring the case within categories (b) and (d), and, if there was one, what were its terms, the court must look at the true state of affairs on acquisition. It must not imute to the parties a bargain which they never made or a common intention which they never possessed.
(9) The conduct of the parties, and in particular of the claimant, after the acquisition may provide
material from which the court can infer the existence of an explicit bargain or a common intention, and also the terms of such a bargain or intention. Examining the subsequent conduct of the parties to see whether an inference can be made as to a bargain or intention is quite different from examining the conduct of the claimant to see whether it amounts to compliance with a bargain or intention which has been proved in some other way. (If this distinction is not observed, there is a risk of circularity. If the claimant’s conduct is too readily assumed to be explicable only by the existence of a bargain, she will always be able to say that her side of the bargain has been performed.)
The propositions do not touch two questions of general importance. The first, is whether in the absence of a proved or inferred bargain or intention the making of subsequent indirect contributions, for instance in the shape of a contribution to general household expenses, is sufficient to found an interest. I believe the answer to be that it does not. The routes by which the members of the House reached their common conclusion inGissing v Gissing [1971] AC 886 were not, however, the same and the point is still open. Since it does not arise here, I prefer to express no conclusion on it.
The second question is closer to the present case: namely whether a promise by the proprietor to confer an interest, but with no element of mutuality (i.e., situation (c) above), can effectively confer an interest if the claimant relies on it by acting to her detriment. This question was not directly addressed inGissing vGissing, although the speech of Lord Diplock supports an affirmative answer (see [1971] AC 886 at 905). The plaintiff’s case was not argued on this footing in the present appeal, and, since the appeal can be decided on other grounds, I prefer not to express an opinion on this important point.
Ungurian v Lesnoff
[1990] Ch 206, [1989] 3 WLR840
VINELOTT J….The words spoken are …set out [in Mrs Lesnoff’s defence] in the following terms:
In Beirut, over Christmas 1968 and subsequently in London by the plaintiff to the first defendant on a number of different occasions, inter alia, the plaintiff used the following words of which the following are a translation from Polish to that effect, ‘We will have to look for and buy a house for us in London so that you will feel secure and happy, having lost your house in Poland’, and ‘You’ll have to decide and find the house which you like. I want you to feel that you have something to rely on if anything happens to me’.
The words said to have been spoken and which are reported in those particulars do not support a claim that there was a clear statement by Mr Ungurian that it was to be her absolute property sufficient to found the claim that he constituted himself a bare trustee.They are consistent with the property being bought simply as a home for them both and for Mrs Lesnoff if anything should happen to Mr Ungurian.
Springette v Defoe
24 HLR 552
DILLON LJ i…n Stokes vAnderson [1991] 1 FLR 391, but so far as I am aware not yet reported, Nourse U, in giving the leading judgment with which Lloyd and Ralph Gibson UJ agreed, said at p. 168 of the transcript that ‘the court must supply the common intention by reference to that which all the material circumstances have shown to be fair.’ Nicholls U used a similar expression in Passee v Passee [1988] 1 FLR 263 at p. 271A where he said:-
They intended, or are to be taken to have intended, that each would be entitled to a share to be determined … on the basis of what would be fair, having regard to the contributions which in total each had …made.
The common intention must be founded on evidence such as would support a finding that there is an implied or constructive trust for the parties in proportions to the purchase price. The court does not as yet sit, as under a palm tree, to exercise a general discretion to do what the man in the street, on a general overview of the case, might regard as fair. But the common intention of the parties must, in my judgment, mean a shared intention communicated between them. It cannot mean an intention which each happened to have in his or her own mind but had never communicated to the other. I find some assistance in this respect in the observation of Lord Bridge of Harwich in Lloyds Bank v Rossett where he said at p. 132F in relation to the question whether there had been any agreement, arrangement or understanding reached between the parties to the effect that a property was to be shared benefi cially:-
The finding of an agreement or arrangement to share in this sense can only, I think, be based on evidence of express discussions between the partners, however imperfectly remembered and however imprecise their terms may have been.
It is not enough to establish a common intention which is sufficient to found an implied or constructive trust of land that each of them happened at the same time to have been thinking on the same lines in his or her uncommunicated thoughts, while neither had any knowledge of the thinking of the other.
Since therefore it is clear in the present case that there never was any discussion between the par ties about what their respective beneficial interests were to be, they cannot, in my judgment, have had in any relevant sense any common intention as to the beneficial ownership of 49, St Andrews Road. I cannot therefore support the conclusion of the Recorder that the beneficial interest was held by Miss Springette and Mr Defoe in equal shares. The presumption of a resulting trust is not displaced. Accordingly I would allow this appeal and would declare instead that they are beneficially entitled in the proportions of 75 per cent to Miss Springette and 25 per cent to Mr Defoe.
Brian Turner v Kim Jacob
[2006] EWHC1317 (Ch)
MR JUSTICE PATTEN:Recent authorities have emphasised that the boundaries between the creation of a constructive trust by agreement and the operation of the doctrine of proprietary estoppel which may lead to the creation of interest in the property are closely linked and have many characteristics in com mon. Lord Bridge, I think, recognised this in Lloyd’s Bonk v Rossett …but it was spelt out clearly by the Court of Appeal in Yaxley v Gotts [2000] Ch 162 at p.176 where Robert Walker U said this:
“At a high level of generality, there is much common ground between the doctrines of propri etary estoppel and the constructive trust, just as there is between proprietary estoppel and part performance. All are concerned with equity’s intervention to provide relief against uncon scionable conduct, whether as between neighbouring landowners, or vendor and purchaser, or relatives who make informal arrangements for sharing a home, or a fiduciary and the beneficiary or client to whom he owes a fiduciary obligation ”
Jennings v Rice
(2002) EWCA Civ 159; (2003) 1 FCR 501, Court of Appeal
ROBERT WALKER LJ:
Sometimes the assurances, and the claimant’s reliance on them, have a consensual character falling not far short of an enforceable contract In a case of that
sort both the claimant’s expectations and the element of detriment to the claimant will have been defined with reasonable clarity In a case like that the consensual element of what has happened
suggests that the claimant and the benefactor probably regarded the expected benefit and the accepted detriment as being (in a general, imprecise way) equivalent, or at any rate not obviously dis proportionate [para 50] In such a case the court’s natural response is to fulfil the claimant’s expect
ations. But if the claimant’s expectations are uncertain, or extravagant, or out of all proportion to the detriment which the claimant has suffered, the court can and should recognize that the claimant’s equity should be satisfied in another (and generally more limited) way. [51) But that does not mean that the court should in such a case abandon expectations completely, and look to the detriment suffered by the claimant as defining the appropriate measure of relief. Indeed in many cases the detriment may be even more difficult to quantify, in financial terms, than the claimant’s expectations In such cases
the court has to exercise a wide judgmental discretion. [52] It would be unwise to attempt any com prehensive enumeration of the factors relevant to the exercise of the court’s discretion, or to suggest any hierarchy off actors.In my view they include misconduct of the claimant as inWillis vWillis [1979] h. 261 Cor particularly oppressive conduct on the part of the defendant, as in Crabb v Arun District Council (11976) Ch. 179] or Pascoe v Turner [[1979] 1 WLR 431]. To these can safely be added the court’s recognition that it cannot compel people who have fallen out to live peaceably together, so that there may be a need for a clean break; alterations in the benefactor’s assets and circumstances, especially where the benefactor’s assurances have been given, and the claimant’s detriment has been suffered, over a long period of years; the likely effect of taxation; and (to a limited degree) the other claims (legal and moral) on the benefactor or his or her estate. No doubt there are many other factors which it may be right for the court to take into account in particular factual situations. [56] Irespectfully agree with
the view expressed by Hobhouse L.J. inSledmore v Dalby, [(1996) 72 P. & C.R. 196.] that the principle of proportionality (between remedy and detriment) .. is relevant. .
Sheehy v Talbot
, High Court, Edwards J., July 3, 2008JUDGMENT of Mr. Justice John Edwards delivered on the 3rd day of July, 2008
Introduction
1. This is an appeal against the judgment and order of the Circuit Court given in this matter on 9th July, 2007. The appeal was by way of a full rehearing.
2. The proceedings are in the nature of a partition suit and for ease of reference it is proposed to hereinafter refer to the respondent (plaintiff) simply as the plaintiff and the appellant (defendant) simply as the defendant. The case involves a dwelling house property co-owned by the plaintiff and the defendant. At the time of its purchase the parties were not married but were in a domestic relationship and were living together as a couple. The property in question is registered land consisting of a leasehold estate under a long lease. The ownership of that interest is registered in the joint names of the plaintiff and the defendant. Accordingly, they are legally speaking joint tenants. However, as the parties contributed to the acquisition and subsequent improvement of the property in unequal shares the maxim that “equity leans against joint tenancies” comes into play so that in equity the parties are presumed to have acquired the property as tenants in common with beneficial interests proportionate to their respective contributions. Of course, this is only a presumption, and this presumption is open to rebuttal, but as neither of the parties in this case has sought at any time to argue in favour of its rebuttal the court intends to proceed on that basis.
3. Unfortunately, unhappy differences have arisen between the parties and the plaintiff now seeks an order from the court directing the sale of the property and a division of the proceeds as between the parties in proportion to their respective beneficial interests. The plaintiff relies primarily on s. 4 of the Partition Act, 1868, but in the alternative seeks the same relief at the discretion of the court under s. 3 of the Partition Act 1868.
The Law Relating to Partition or Sale in Lieu of Partition
4. The law in this regard is succinctly stated in Wylie’s Irish Land Law, 3rd Ed. at paras. 7.35 and 7.36 thereof (pages 442 – 445 inclusive). Professor Wylie states:-
“[7.35] First, all the co-owners may voluntarily agree to put an end to their co-ownership and to partition the property in the manner they agree. By statute, such a voluntary partition by joint tenants or tenants in common must be by deed. If, however, the joint tenants or tenants in common could not agree on such a partition, there was no right at common law in any one of them to force a partition on the others. Such a right was first introduced by a statute passed by the Irish Parliament in 1542, which enabled a joint tenant or tenant in common to force the partition of the property on the other co-owners, whether or not it was sensible or convenient to have such a partition. This position was improved considerably by the passing of the Partition Acts, 1868 and 1876, both of which applied to Ireland.
“[7.36] These acts gave the court power to order a sale of the property instead of physical partition and to divide the proceeds amongst the co-owners in accordance with their shares. The obvious situation where this power would be invoked would be where the co-owners had held a single item of property, such as a house or other building which could not be easily partitioned so as to give each co-owner a viable part. Several points should be noted about the jurisdiction conferred by the Partition Acts. First, a distinction is drawn between cases where the interest of the applicant for partition or sale, or of the applicants collectively, comprises at least half the value of the property co-owned and cases where it does not. In the case of the former the applicant is entitled to a direction for a sale unless the court ‘sees good reason to the contrary’. In the other cases the applicant must establish circumstances justifying a sale in lieu of partition such as the nature of the property or the number of interested parties, and convince the court that the sale ‘would be more beneficial for the parties interested’ for it to exercise its discretion to order a sale”…“Secondly, it is not entirely clear what the parameters of the jurisdiction under the two provisions is, a matter which has come under consideration by the Irish Courts recently in cases where one co-owner’s interest has been mortgaged or charged and the mortgagee or chargee has invoked the jurisdiction to enforce its security against the other co-owner. For example, the suggestion that a court must order either partition or, if that is inappropriate or impracticable, a sale has been rejected on the basis that the jurisdiction confers a wider discretion, including the power to refuse both applications. Furthermore, the view has been taken that the court has a discretion, in cases where it is minded to order a sale, to postpone making an order pending enquiries about the feasibility of a sale or to make the order but to postpone the date of its becoming effective. Thirdly the jurisdiction can be invoked only by a party or parties “interested” in the co-owned property. This clearly includes a mortgagee of a co-owner’s interest, including a judgment mortgagee.” …“Lastly, in making an order for partition or a sale the court is to give ‘all necessary or proper consequential directions’. It has long been settled that the courts will employ principles of ‘equitable accounting’ and make appropriate adjustments to ensure each co-owner is treated fairly. Costs of the sale are usually borne out of the proceeds, but special costs incurred in respect of a particular co-owner may be ordered to be borne by his share.”
Various authorities are footnoted in Professor Wylie’s text in support of the propositions advanced. However, it is not necessary to refer to them as the court accepts without reservation that the passages just quoted accurately summarize the law.
5. However, for completeness I think it would be appropriate to quote in full ss. 3 and 4 respectively of the Partition Act, 1868 and I now do so. Section 3 is in the following terms:-
“In a suit for partition, where, if this act had not been passed, a decree for partition might have been made, then if it appears to the court that, by reason of the nature of the property to which the suit relates, or of the number of the parties interested or presumptively interested therein, or of the absence or disability of some of those parties, or of any other circumstance, a sale of the property and a distribution of the proceeds would be more beneficial for the parties interested than a division of the property between or among them, the court may, if it thinks fit, on the request of any of the parties interested, and notwithstanding the dissent or disability of any others of them, direct a sale of the property accordingly, and may give all necessary or proper consequential directions”.
Section 4 is in the following terms:-
“In a suit for partition, where, if this Act had not been passed, a decree for partition might have been made, then if the party or parties interested, individually or collectively, to the extent of one moiety or upwards in the property to which the suit relates, request the court to direct a sale of the property and a distribution of the proceeds instead of a division of the property between or among the parties interested, the court shall, unless it sees good reason to the contrary, direct the sale of the property accordingly and give all necessary or proper consequential directions.”
6. Though the lawyers in the case will understand this, it is necessary to state for the benefit of the parties, and in particular for the benefit of the defendant who is not legally represented, that the word moiety means a half, especially in legal or quasi legal use. Where the word is used with the intention of referring to an interest in property, it means a half-part, unless more than two persons are interested in the property in which case it refers to an equal part or share.
The issues
7. In the present case the plaintiff claims to be entitled to a legal and beneficial interest in the premises in question and, though she does not plead it in express terms in her Equity Civil Bill, counsel on her behalf opened the case on the basis that the plaintiff owns “a moiety or more of the premises”. The defendant’s defence is a handwritten document and was, I think, correctly characterized by counsel for the plaintiff as representing a plea de coeur. It does not expressly address the question of whether the plaintiff’s interest amounts to “a moiety or more”. Neither does it address the question as to whether the defendant has “a moiety or more”. However, as the defendant is lay litigant and no point is taken by either party in respect of pleadings, I have approached the case on the basis that the defendant joins issue with the plaintiff in respect of all claims made by her. Furthermore, as it emerged in the course of the evidence that the defendant was himself contending for a 70% interest in the property as against a 30% interest in favour of the plaintiff, it is appropriate to treat him as effectively counterclaiming for a declaration that he is entitled himself to a least a moiety “or more” in the property. Moreover, the defendant’s case is that the court ought, in the exercise of its discretion, to refuse to order either a partition or a sale. The defendant explained in evidence, and I understand it to a central plank of his case, that neither of these steps requires to be taken because for some time the parties have been successfully co-existing and living separate lives under the one roof without unduly interfering with each other, such that de facto the property is already partitioned in the “virtual” sense, although obviously not in the physical sense. Quite simply he contends that the status quo should be maintained.
The Evidence
8. The plaintiff produced the copy of her folio which shows that the property in question, namely the dwelling house situate at No. 8 Inbhir Íde, Malahide, in the County of Dublin is registered in Folio No. 58590L of the Register of Ownership of Leasehold Interests for the County of Dublin. The folio shows that on the 12th May, 1994, the plaintiff and the defendant respectively were registered as full owners. She also produced her Certificate of Rateable Valuation which confirmed that the property has a rateable valuation of €15.87, which is well within the €254 upper jurisdictional limit of the Circuit Court. She explained that she and the defendant first got to know each other back in the 1960’s. They went their separate ways for a while and were reintroduced in 1990 by a mutual friend. At that time the plaintiff was living at 25 Strand Road in Sutton, a premises otherwise known as the “Tuck Shop”. It was in fact a newsagents and grocery shop with living accommodation overhead. The defendant came to reside with the plaintiff upon their reintroduction in 1990 and they co-habited there until 1992 when they purchased the premises the subject matter of the present proceedings. Her evidence was that the purchase price of No. 8 Inbhir Íde was in the order of IR£48,000 or IR£49,000. In addition there was a stamp duty liability and fees were due to solicitors and surveyors and there were certain other expenses associated with the transaction. The total cost of acquiring the property came to in or about IR£56,000. The plaintiff and the defendant each contributed IR£28,000 towards this. The plaintiff paid her IR£28,000 from savings. The defendant borrowed from his then employers, General Accident Insurance Co, to fund his contribution. However, the issue is complicated slightly by the fact that in order to be able to borrow IR£28,000 from General Accident, the defendant needed to clear a pre-existing debt. To do that he borrowed IR£3,300 from the plaintiff in a side deal. Once the purchase was completed the parties took steps to renovate the property. The total costs of the whole deal including both acquisition and renovation came to IR£73,382. The cost of the renovations, being IR£73,382 – IR£56,000 was therefore IR£17,382 and it was agreed that they would split this cost 50/50. Accordingly the defendant’s liability for the renovations came to IR£8,691. He did not pay this to the plaintiff immediately. The plaintiff paid for the entirety of the renovations on the understanding that the defendant would pay him later. The total sum owed by the defendant to the plaintiff was in fact IR£11,991 being the IR£8,691 due in respect of the renovations and the IR£3,300 loaned by the plaintiff to the defendant and previously mentioned. This outstanding sum of IR£11,991 was only paid by the defendant to plaintiff in 2001.
9. When the renovations were completed the parties moved into the premises in 1995. According to the plaintiff, difficulties arose in their relationship after they moved into No. 8 Inbhir Íde. To adopt that somewhat clichéd phrase used in family law litigation, unhappy differences arose between the parties. Moreover, relations between the plaintiff and defendant continued to deteoriate over several subsequent years until they reached the point of being, in the plaintiff’s view, non-existent. According to the plaintiff she and the defendant lived separate lives within No 8 Inbhir Íde in as much as was physically possible having regard to the fact that it is an end of terrace house. The plaintiff’s evidence was that in 2002 an extension was added to the house. She stated that when the house was purchased, the kitchen was in very poor condition. However, they left it as it was and let the house for a brief period. When they moved into the house themselves the plaintiff considered that the kitchen needed an upgrade. However, the defendant would not agree to up-grade of the kitchen. The plaintiff states that relations between them became worse and worse because they were living in a very confined space and eventually she commissioned the extension that was built in 2002 so as to add a new kitchen and a living room at the back of the house. She explained that she had these built with a view to alleviating the unhappy situation in the house by providing both parties with more space. The total cost of the extension was €53,841.19. The defendant contributed a sum of €2,890 towards these works and the plaintiff paid for the rest of it. The basic building works were carried out by Mr. Ryan, a building contactor (who gave evidence later on). The plaintiff’s recollection was that Mr. Ryan was paid a total sum of approximately €38,000. The plaintiff said that it was not €38,000 even and that Mr. Ryan would be in a position to confirm the exact figure. The balance of the total cost of €53,841.19 went on painting, decorating, tiling, a fitted kitchen and so on. The plaintiff confirmed that she had receipts in respect of all of the additional expenditure with her in court. (However, she was not in fact called upon to produce them.)
10. The plaintiff went on to describe her occupation as a financial controller with a firm in Balbriggan. Her present nett weekly income is €358, that is €25,000 per annum less tax and RSI. She is physically challenged and unable to work full-time. Nevertheless she works as much as possibly can. She will be 65 years old on the 7th September of this year and she does not how much longer she will be able to work for. She confirms that the Tuck Shop was sold in 1995. She does not have any pension arrangements, although she does have some savings. She was asked about her knowledge of the defendant’s financial circumstances. She confirmed that she was in court on a previous occasion when the defendant stated that his current income consists of the State Old Age Pension in the sum of €208 per week. The plaintiff does not believe this to be correct. She pointed out that the defendant was an employee at an insurance company (General Accident, now Hibernian) for forty odd years. Upon retirement he was entitled to a defined benefit pension consisting of two-thirds of his final salary. Arising out previous matrimonial proceedings between the defendant and his estranged wife, he is required to pay his wife one third of his pension entitlement and he is entitled to keep two-thirds of it. The plaintiff was unable to say for certain whether or not the defendant has ever collected his pension entitlements from his former employers. She stated that while she was still communicating at some level with him she did become aware that he was in dispute with his former employers in respect of a particular matter. While she was not completely sure of the current position, to the best of her knowledge he has not collected his pension entitlements. She confirmed that the defendant retired at age 65 or 66 and that he is now aged 71. She believes he went on sick benefit before his actual retirement and she does not know the actual date of his retirement. She was asked if she knew what the amount of his pension was. She stated that when he retired he was entitled to something in excess of €16,000 per year. Of that he is entitled to two thirds himself and he is liable to his ex-wife for the other third. She believes that the defendant has being allowing his pension entitlements to accumulate pending the outcome of his dispute with his former employers. She believes that that dispute is before the courts. The plaintiff also testified that to the best of her knowledge, the defendant was the recipient of money due on foot of insurance policies that he had contributed to during his working life. She believes that he has that money invested with Friends Provident. She thinks it was a sum amounting to approximately €200,000 at the time that he invested it. It is not due to mature until 2018, at which time his youngest child will be fifty. He has four children from his marriage. At that stage the defendant himself will be eighty-two years of age. The plaintiff was asked whether the defendant received a gratuity from his former employers upon his retirement. The plaintiff stated that she does not know. However, he had another policy of some sort that he did encash. He used that money to return the money that he owed to the plaintiff. In addition it also enabled him to buy a Mercedes Motor home for the sum of €58,000 or €60,000. He subsequently sold this.
11. The plaintiff was asked what living arrangements she envisaged making if the property was sold in lieu of partition as she was requesting the court to do. It was suggested to her by the court that the proceeds of sale might not yield enough for both parties to buy a new home. In response to that the plaintiff stated that other options exist. She suggested that they could each use their respective equity from the home and, subsidising that from their other resources, buy a smaller property. She stated that she would prefer to take her chances on going forward in a situation where she would no longer be stressed from morning to night. She further stated that her health is very badly affected by endeavouring to live in a situation that is untenable. She later characterised the present living arrangements as intolerable. She accepted that it would not be possible to rent property on €400 a week and live out of that sum as well. She further accepted that neither herself nor the defendant would get a mortgage at their respective ages. She stated that she would cut her cloth according to her measure and go and live wherever she could purchase and she believed that the defendant should do the same. The plaintiff expressed the view that various suggestions that had been put forward by the defendant were totally impractical, such as tossing for who stays. However, for better or worse she wants to achieve a severance of her ties with the defendant. The plaintiff confirmed that she also has the benefit of a widows pension amounting to €190 per week. In relation to her future plans she has not given any consideration to perhaps buying premises and renting a portion of it. She confirmed that in addition to the defendant’s State pension of €208 per week, and the pension that she believes he is entitled to if he were to draw it down, he also earns €120 a month from doing a small job for the same company that she herself works for.
12. Under cross examination by Mr. Talbot the plaintiff agreed that their friendship went back to 1962, a period of forty six years or thereabouts. She would not accept that they were friends still at this stage. She explained that they had become friends in 1962 and knew each other for a year or so. However, life moved on and they were not in contact for many years. They re-met in 1990. The defendant was in trouble and she was anxious to help. She allowed him to come to live with her, free gratis and for nothing. He had no car, he played his golf in Hermitage. He played his golf every Saturday and Sunday. He used her car for fishing. He did exactly what he wanted. She acknowledged that he had been very helpful with regard to getting up in the morning and bringing in the newspapers and all of that sort of stuff. She felt at the time that living with the defendant was the ideal solution to their respective needs, what with her living alone and him needing refuge. However, it has transpired that it has not been possible for the plaintiff and the defendant to remain friends. She characterises the defendant’s every word and motion towards her as demeaning. The defendant put to the plaintiff that he had paid his way from the time that they had commenced living together. The plaintiff denied this. She asserted that he was in a lot of debt and that he paid absolutely no contribution to living expenses for a number of years. The defendant put to the plaintiff that they had been lovers and she agreed that they had. He asked if she could identify a particular point in time at which the relationship between them had begun to deteriorate. She replied that “the total nail in the coffin was the purchase of the motor home”. She stated that she cried, pleaded and begged him not to purchase it. She alleged that he widened the gate of the property in total disregard for her needs and parked the motor home in the driveway. She then stated that even before that they had been going through very unhappy times and that she had arranged for them to go and see a counsellor in ACCORD. This was in 2001 or 2002 and they went to see this counsellor three times. The defendant put it to the plaintiff that the change in the nature of their relationship, that is the deterioration of it, coincided with the plaintiff finding once again her son whom she had put up for adoption at birth. The plaintiff disagreed with that. It was put to the plaintiff by the defendant that she could get vacant possession if she was prepared to rent a two bedroom furnished apartment for him. The defendant put it to her that he had suggested this previously. The plaintiff stated that she had asked the defendant to put his proposal in writing, but he had refused to do so. She stated that there was in fact an add-on to the proposal. The add-on was that he would still keep ownership of half of No 8 Inbhir Íde and this was not acceptable to her. When asked by the judge to explain why the defendant’s proposal would be unacceptable she stated that first of all she would not have enough money to pay the defendant’s rent. Secondly, she could not anticipate for how long that might go on for and what penury that might put her in as time went on. The defendant suggested that the arrangement would only be a temporary one until the appeal to the Supreme Court in his matrimonial litigation was disposed of, at which time he hoped to have sufficient funds to buy out the plaintiff. The plaintiff would not agree that this was a viable proposition. The plaintiff was asked by the defendant if she was being vindictive. She stated absolutely not, that she wished the defendant every joy and happiness in his life. She stated that her only wish and desire was that the matter could be resolved in a way that would enable both parties to move on with their lives. The defendant then asked the plaintiff where the figure of £28,000 which he had contributed towards the purchase of the property had come from. The plaintiff stated that she could not remember. It was then put to the plaintiff by the defendant that the reason he contributed £28,000 was that he was asked for £28,000. He stated that he had had a free hand and could have borrowed £28,000 or £58,000 – it did not matter. He claimed he had said to the plaintiff “Tell me how much I need to borrow. It is a once off situation. I will be retired soon and I may not get another chance to borrow.” The plaintiff disagreed with this. She stated that the defendant had told her that he only had the capability of borrowing IR£28,000 and that he would not be able to pay for the refurbishment until after he had got some money that was coming to him from policies and in connection with his retirement. The plaintiff was then asked how much she realised on the sale of the Tuck Shop. She stated that she had received £159,000 in 1995. The defendant then put to the plaintiff that when he was living with her at the Tuck Shop he “worked his butt off” while she stayed upstairs resting. He put it that he worked in the shop every minute and hour, alternatively he was up on the roof fixing slates or doing the garden or making shelves in the back or painting outside or inside. He suggested to her that she has a very leisurely lifestyle and has always had. He suggested that she only works when it suits her, that she would ring up practically every morning to say she is not well and he would then bring her breakfast in bed, although he had stopped doing that recently. Mr. Talbot contended that what had started in the Tuck Shop continued when they were living in No. 8 Inbhir Íde. The plaintiff agreed that the defendant had performed many tasks in the nature of what might be described as “general maintenance”, and that he had thereby made an indirect contribution.
13. The plaintiff was then re-examined by her counsel and confirmed to him that the £159,000 realised on the sale of the Tuck Shop was saved. None of it was invested in pension funds.
13. The next witness was a valuer called by the plaintiff, a Mr Sean Nolan. He confirmed that he is principal in the firm known as Nolan & Fahey, Auctioneers, Valuers and Estate Agents in Donabate, Co. Dublin. He confirmed that he had been engaged by the plaintiff’s solicitors to conduct an examination of No. 8 Inbhir Íde, Malahide, Co. Dublin and that he did so on 15th May, 2008. He prepared a report for the court and a copy of the report was handed in. He was asked about his qualifications and experience and the court was satisfied with respect to his credentials. He then stated that he had been asked to inspect and value the premises on two different bases. Firstly, as the premises stood and secondly without the extension that had been added in 2002. He confirmed that the title to the property is leasehold but that that would not have great bearing on the value having regard to the length of the lease. He ventured the opinion that the freehold could be purchased for relatively small money, perhaps €500. His opinion as to the current market value of the property, in the condition in which it now is, was €515,000. The valuation of the property without the extension added in 2002, would be in region of €475,000. He then described the premises and it is not necessary for the purposes of this judgment to rehearse in full the relevant description. He confirmed that while it might be technically possible to effect a physical partition of the premises it would not be economically viable to do so. He suggested that it could cost anywhere between €200,000 and €250,000 to physically partition the property. Moreover, such alterations would have a negative impact on the value of the premises. In addition to that, he was highly sceptical that it would be possible to secure planning permission from Fingal County Council for such alterations. He anticipated that if a planning application was lodged for that purpose it would provoke objections from neighbours whose dwellings would be affected.
14. Mr. Nolan was cross examined by the defendant. It was put to him that one bedroom was three times the size of the other. Mr. Nolan replied that bedroom 1 measured 2.3m x 4m; bedroom 2 measured 2.23m x 2.69m and bedroom 3 measured 2.34m x 2.86m. He agreed that it was clear that one of the rooms was significantly larger than the other two. The defendant then indicated agreement with Mr. Nolan that it would be totally impractical to partition the house but suggested to him that two people could live amicably, without too much trouble, with the way that the house is constructed at the moment, namely with two separate bedrooms, two separate dining room cum sitting rooms, and with entrances at the back, to the front and to the side. Mr. Nolan agreed that that was possible, if the parties wished to live in that way. He was then asked about the garden and agreed that the gardens were very nicely maintained. He was asked what value the gardens would add to the house and he said that he would not be able to put a precise figure on that. He agreed that by virtue of the defendant having knocked down the pillars that existed at the front entrance, two cars can now conveniently get through the entrance. He commented that a lot of houses today have to widen their drives because most houses would have two cars.
15. Mr. Nolan was asked by the judge whether, on a 50/50 division of the valuation figure of €515,000 that he had mentioned, it would be possible for the parties to each buy a one bedroom apartment in his area of North Dublin for their respective €257,000 shares. He stated that it was possible, that indeed they could comfortably buy one at this moment in time. He suggested they might even have a small surplus. Pressed on this matter he indicated that one bedroom apartments in his area of North Dublin were running from €225,000 upwards, and that the figure of €257,000 would provide sufficient to ensure that associated costs such as stamp duty, legal fees, surveyor’s fees etc. were also covered. The defendant was afforded the opportunity to ask the witness some further questions in cross examination arising out of the issues raised by the judge. The witness confirmed that the type of property that he was talking about would not come with a car space. However, there are properties available on the market that are not a five minute walk from the train station. The witness was then asked to put a figure on what it would cost to acquire a two bedroom house, alternatively a two bedroom apartment, furnished, within two miles of the Four Courts. The witness responded that the defendant was speaking about a very diverse area. He was then asked to answer the question with reference to Chapelizod. He stated you might be able to get something for a sum in the region of €250,000 there. When asked to clarify if he was speaking of two bedroom properties he said maybe not two bedroom properties. He was unable to put a specific price on a two bedroom apartment within Chapelizod because he did not have details to hand relating to prices in that district. However, he confirmed that it was unlikely that the defendant would be able to buy either a two bedroom house, or a two bedroom apartment, together with garden and parking, for half the proceeds of the sale of No. 8 Inbhir Íde. Mr. Nolan was then asked about what it would cost to rent a two bedroom property in the same general area as that in which the plaintiff now resides and he suggested that it would cost €1,200 per month on the basis of a twelve month lease. He agreed that a rental subsidy might theoretically be available to somebody in Mr. Talbot’s position, although he would have to be means tested in respect of that. However, he stated it was probably not realistic to expect that he would qualify for a state subsidy. He was then asked about the possibility of income being generated by the rental of part of a property to a lodger. He was unable to offer a view on this, as his work did not involve letting property on that basis.
16. The next witness was Mr. Patrick Ryan, a building contractor. Mr. Ryan confirmed that he built the kitchen extension that was added to the property in 2002. The extension amounted to 240 square feet and he looked after constructing the floors walls and roofs, as well as plumbing, electrics and the constructing of decking to the rear of the building. It took twelve weeks to do the work. The contract price was €34,000 and he was paid in stage payments. There were also extras and he was paid a sum of €3,632 in respect of extras, principally the decking. He did not install the fitted kitchen nor did he do the tiling or paving. He was asked about the cost of partitioning the house. He was reluctant to volunteer an estimate of the cost but when pressed suggested that you would be talking of a sum of in or around €200,000.
17. Under cross examination by Mr. Talbot, Mr. Ryan agreed that the old kitchen was functional but not beautiful. Mr. Ryan confirmed that he dealt solely with the plaintiff. He said that he was not asked to the opening of the extension. Indeed, he was not aware that there had been an opening. That concluded the plaintiff’s case.
18. The defendant was then asked if he wished to go into evidence and he stated that he did. He was invited into the witness box and was sworn. He then commenced to read from a document which he had provided to the court in advance. It is in the nature of a written submission. It was pointed out to the defendant that there is a difference between giving evidence and making submissions. He was informed that if he wanted the court to take into account any matter with respect to the facts of the case, the court would have to receive sworn testimony on oath so that he could be cross examined if necessary by counsel for the respondent. In addition, he would have an entitlement to make any submissions that he might wish to make at the end of the case. It does not appear that the defendant appreciated the distinction being made and proceeded in any event to read his pre-prepared submission into the record as though it were evidence. As the “submission” in question contained a mixture of factual and legal assertions, the court decided, in the exercise of its discretion, to allow the procedure, albeit that it was an irregular one. However, counsel for the plaintiff was allowed to cross examine him when he had finished.
19. The defendant’s submission commenced with a request “for judgment and transcript.” He also asked for costs under the “Litigants in Person Act, 1975”, though there is no such Act on the statute books in this country. He then asked that in the event of a sale being ordered that carriage of the sale would be granted to his solicitor, Neil Blaney of Portmarnock, who holds the deeds to the property. The defendant then referred to an application made by him to the Supreme Court on 19th June, 2008, for a priority hearing of the appeal in his matrimonial litigation. He stated that he had been informed that the court cannot allocate him a date at this time because the list is already full. He stated that he had been told that while it remains possible, it is also unlikely, that he will get a hearing this term, or even next term.
20. The defendant then referred to previous motions in the present proceedings, some of which were heard by Mr. Justice McGovern, and some of which were heard by this Court. These motions related to procedural issues and, strictly speaking, have no bearing on the merits of the case. However, as the defendant is clearly under a misunderstanding and misapprehension as to what in fact occurred in the course of these interlocutory hearings, and feels deeply about it, I think it is desirable to address these matters. Insofar as I have been able to ascertain what occurred in this case from a perusal of the file, the following seems to be the position. Following the Circuit Court hearing the defendant lodged a Notice of Appeal. That Notice of Appeal was lodged within time and after some months the matter came up in the High Court list of Circuit Appeals for hearing. It appears that both sides missed it in the list and it was struck out in default of an appearance by anybody on the hearing date. When the defendant discovered that the case had been struck out for no appearance he was anxious to have it reinstated. This could only be done on consent. In fairness to them, the solicitors for the plaintiff were willing to consent. In that regard they wrote a letter to the defendant dated 18th February, 2008, in the following terms:-
“Dear Mr. Talbot,
We confirm that we have discussed the matter of the extension of time for re-entry in the appeal with our client and she is agreeable to same provided the matter is applied for within the next week to ensure that there is no further delay in this matter and that the case gets on for hearing.”
Unfortunately, this letter though it was intended to be helpful sowed the seeds of a misunderstanding.
21. It sowed the seeds of a misunderstanding because the letter referred, somewhat unfortunately, to “the extension of time for re-entry”. The defendant did not need any extension of time. What he needed was the plaintiff’s consent to the matter being re-entered. I am completely satisfied that the letter was intended to convey just that, namely that the plaintiff’s solicitors were prepared to consent to re-instatement as long as it would be done promptly. However, the actual phraseology of the letter falls into the category of “things that could have been better put” and as a result it created unnecessary confusion, at least in the mind of the defendant.
22. The next thing that happened was that the defendant brought a motion before Mr. Justice McGovern on 3rd March, 2008, claiming:
“That appeal set aside 14th January, 2008, without notice to, or knowledge of self- representing respondent, be instead allowed maximum time to proceed because of related matter outstanding in Supreme Court and unsuitability of Partitions Act 1868 to 1876.”
This motion was grounded upon a handwritten affidavit of the defendant. That affidavit is in the following terms:-
“I seek enlargement of time to appeal, agreed by the plaintiff, the facts being 9th July, 2007, was the first and only precipitant hearing before President C.C. sympathetic to the strong case for unequal sharing but restricted to 50/50 by Partitions Act 1868-76 which sits uneasily with common law principles of justice. Plaintiff’s resources stretch far beyond those I can summon so that judgment leaves me homeless and destitute a second time. It is impossible to get Partitions Act 1868-76 to understand why 50/50 is mandatory and, although not married, why there is not recourse to provision in Family Law (d) Act 1996 for the safe and easy partitioning that already exists. Mr. Keane, at the time Chief Justice, said, “Equal division of assets is emphatically not mandated in Irish law”. Mrs. Justice Susan Denham said, “The need is for proper provision not division”. Only income @ 71 y.o. is €230 p.w. pension from Social Welfare. Once married, now single, I feel discriminated against unconstitutionally by outdated Partitioning Act 1868-76. Mr. David Neenan, Registrar, 14th January, 2008, accepts, as self-litigant, “I should have been forewarned of strike out prejudiced by not being present to object and conversely ask maximum enlargement of time when resolution of related matter before Supreme Court helps, hopefully, finances.”
23. When the matter came on for hearing before McGovern J. on the return date, he reinstated the proceedings. It is clear that this much happened because the Registrar recorded the outcome in his notes with the single word “reinstated”. However, the defendant appears to have mistakenly believed that McGovern J., who had been handed up the letter of the 18th of February 2008 as confirmation of the plaintiff’s attitude, had also agreed to adjourn the proceedings until after the Supreme Court appeal in the defendant’s matrimonial case had been concluded. What seems to have happened next was that, in apparent conflict with his belief that the proceedings had been adjourned for a lengthy period, the defendant received notification that the re-instated appeal would be heard on the 26th of May 2008. This undoubtedly provoked his ire. He then attempted to take up an order to the effect that “time” in the proceedings “had been extended”. He claims that the Registrar refused to draw an order to that effect. Now it is clear to me from the defendant’s submissions that he is confused in his own mind as to what the notion of “extension of time” involves, and that he erroneously equates it to adjournment of the proceedings. A perusal of the file establishes that no order has been drawn reflecting an adjournment of the present proceedings by McGovern J until after the Supreme Court has given judgment in the defendant’s matrimonial proceedings. Moreover, there is no note of any such an order having been made. Of course, the Registrar could only draw such an order if McGovern J. had indeed made an order to that effect. I do not believe that McGovern J made any such order, and I consider that the defendant is mistaken in believing that he did.
24. What happened next was that the defendant then caused the matter to be re-entered before McGovern J. and it came on before him again on 21st May, 2008. It seems that on this occasion the defendant complained bitterly that he had been unable to take up an order after the previous hearing in early March. Further, that notwithstanding that the plaintiff had on that occasion “consented to an extension of time” this was now being disputed. In the circumstances, he requested confirmation from the court that “time had been extended”. He further sought a stay on the present proceedings (presumably until after his appeal to the Supreme court in the matrimonial case had been dealt with). It seems that McGovern J, though possibly having little or no specific recollection of the particular case, and probably not fully appreciating the nature of the confusion then existing in the mind of the defendant, was happy to “confirm” whatever it was that he had done in March, but there was no question of him agreeing to stay the proceedings. The file discloses that following this hearing an order was drawn in the following terms:-
“And counsel for the applicant indicating to the court that the applicant consented to an extension of time for the issuing of the said notice of appeal on 3rd March, 2008, the court, for the avoidance of doubt, confirms that on consent that the time for the issuing of the notice of appeal had been extended.
And the court THUS REFUSES to stay the hearing of the notice of appeal on Monday 26th May, 2008.”
25. The court as presently constituted was assigned the Circuit Appeals list on 26th May, 2008. When the case was called, the defendant made two applications to me. His first application was that the proceedings should be in camera. I refused that application because these are not proceedings brought under either the Judicial Separation and Family Law Reform Act 1989 as amended by the Family Law Act 1995 or under the Family Law (Divorce) Act 1996. The parties are not, in fact, married. Moreover, there is no other statutory provision on foot of which the defendant would be entitled to have the proceedings heard in camera. I pointed out to the defendant that the Constitution requires that justice be administered in public save where the Oireachtas has, by Statute, expressly provided otherwise and that, in the circumstances, the case would have to proceed in public. The defendant then applied to me for an adjournment of the proceedings. The grounds on which he sought his adjournment were two-fold. Firstly, he stated that he had understood that the case would not be proceeding as a result of McGovern J. confirming that time was being extended; secondly, he was not in any case ready to proceed. It was unclear to me at that point what exactly had happened previously and what exactly the defendant meant by his statement that “time had been extended”. However, I was sympathetic to his application for an adjournment on the second ground advanced, namely that he was not ready, and I asked him how long he would need. At that point, he stated he would need two years. When I enquired as to why he would require two years in order to be ready to do the case, he informed the court about the pending appeal in the Supreme Court in his matrimonial proceedings. I informed him that I was not prepared to postpone the hearing of the appeal in the present proceedings until after the outcome of the Supreme Court appeal in his matrimonial proceedings but that, in the exercise of my discretion, I would give him a reasonable time within which to make the necessary preparations, given that he seemed to be under the impression that the case was not to proceed, possibly arising out of some misunderstanding. I informed him that I was willing to adjourn the case for four weeks to enable him to prepare and that the matter would be listed for hearing on 23rd June, 2008.
26. It is quite clear to me that the genesis of the problem is that Mr. Talbot seized upon the phrase “extension of time for re-entry in the appeal” which appears in the letter of 18th February, 2008 from the plaintiff’s solicitors and mistakenly interpreted that as being consent on their part to a deferral of the entire proceedings herein until after the hearing of his Supreme Court appeal in the matrimonial proceedings. Perhaps it was a case of hearing only what he wanted to hear, but he seems to have been of the view that that was what McGovern J. agreed to as well. Manifestly, McGovern J. did not agree to this. Unfortunately, the defendant’s misunderstanding in that regard has caused him to perceive conspiracies everywhere and he has regrettably been free and easy with robust and unfortunate allegations of deliberate obstruction on the part of officials, of bias on the part of members of the judiciary, of the telling of deliberate lies and untruths by his opponent’s legal team, and of duplicity on the part of the plaintiff. I am satisfied that all of these allegations are groundless and I hope that this judgment will, in part, serve to reassure the defendant that there has simply been a misunderstanding on his part as to what it was that the plaintiff’s solicitors were agreeing to. It is quite clear to me that notwithstanding the meaningless terms of the plaintiff’s solicitor’s letter of 18th February, 2008, and the incorrect reference therein to an extension of time for re-entry, McGovern J., when the matter was before him in early March 2008, interpreted this letter as representing the consent of the plaintiff to the reinstatement of the appeal and he made an order accordingly.
27. As I have said, much of the submission read into the record by the defendant at the hearing of the appeal sets out the plaintiff’s perspective on the events that I have just outlined. Apart from that, however, there is little of substantive relevance to the issues that I have to decide in this case. The defendant submitted that the Partition Acts were solely designed for married couples and could not be used for the determination of proprietary disputes between an unmarried couple. He is quite simply wrong about this and I so rule. He directed the court’s attention to para. 19.61 in Shatter’s Family Law, Fourth Edition, under the heading ‘Property Rights’. However, this passage deals with s.36 of the Family Law Act 1995. The plaintiff is, in this case, relying on the Partition Acts 1868-1876 and is not relying upon the Family Law Act 1995. The defendant also referred to the unsuitability and unconstitutionality of the Partition Acts 1868-1876, pointing out that they pre-date the foundation of the State. However, as I have pointed out to the defendant several times, I have no jurisdiction to hear a challenge to the constitutionality of the Partition Acts, in the context of a circuit appeal. The court was also referred to a judicial statement of former Chief Justice Ronan Keane wherein he is said to have stated in a particular case that “equal division of assets is emphatically not mandated by Irish legislation”. Further, Mrs. Justice Susan Denham was cited as having stated “the need is for proper provision not division”. This court acknowledges that these statements (or statements approximating to those quoted) were made. However, it is also aware of the context in which those statements were made. Neither statement was made in the context of relief claimed under the Partition Acts, 1868 to 1876 in respect of a property owned by an unmarried couple. Rather, they were made in the context of family law proceedings between married persons, under specific family law legislation providing, inter alia, for the making of property adjustment orders in respect of matrimonial property.
The defendant further submitted that under inequality (sic) legislation, discrimination is outlawed on the grounds of marital status. Accordingly, the defendant argues that co-habiting couples are to be regarded as equal before the law regardless of whether they are married or unmarried. I am satisfied that no question of discrimination on the grounds of marital status arises in the present case. The defendant further asserted that “to ensure the existence of amiable partitioning” he pays all bills in respect of the house and has done so since the 1st March, 2007. By way of example he points out that he paid a heating bill recently in the sum of €457 and another one subsequently in the sum of €280. He claims to be paying all bills including food bills (except for treats that the plaintiff decides to bring in for her). The defendant asserts that the plaintiff has far more resources than he has but that nevertheless he has made every effort to accommodate her demands. He asserts that she is just too demanding.
When the defendant had concluded his submission the Court enquired whether he had any problem with the 50/50 apportionment that had been given in the Circuit Court and, if so, what alternative apportionment he contended for. He replied that he did have a problem with the 50/50 apportionment and felt he was entitled to a 70/30 apportionment in his favour. He reiterated that he wanted the status quo maintained. He stated that he was in favour of amiable partitioning on the basis that has already existed for some time, in other words that the parties would continue to live separate lives under the same roof but that there would no physical partitioning of the property or no sale and division of the proceeds in lieu of physical partition. It was put to the defendant that from the plaintiff’s perspective the present situation is intolerable. He was asked what outcome he was contending for in the event of the court accepting the plaintiff’s evidence in that regard. He was asked if he was asking for a physical partitioning or a sale in lieu of partitioning and division of the proceeds. He agreed that physical partitioning was not a practical solution – that it was not on at all.
28. In cross-examination by counsel for the plaintiff he was asked to clarify his financial means. He confirmed that his pension has now gone up from €208 to €230 per week. He was asked about other assets and told the court that he has four life policies, one for each child, and that they are single payment fixed term policies. They will not mature until 2018 when he is eighty-two years of age and his youngest daughter Nicola is fifty. He was asked if the policies could be cashed in at this stage and he stated that they could not. He was then asked about his pension entitlements arising by virtue of his former employment. He acknowledged that his pension entitlements have been apportioned as between himself and his estranged wife in the ratio 60/40. That leaves him personally with a current gross pension entitlement of €9,600 p.a. However, he points out that he is not drawing his pension because he is in dispute with his former employers and is engaged in litigation with them. He expressed confidence that he would win that litigation. In the meantime the pension which has not drawn is accumulating. He accepted that the current value of pension entitlements not drawn down is in the order of €63,000 or thereabouts. He further acknowledged that he was entitled to a gratuity upon retirement but stated once again that he has not yet availed of this because of his dispute with his former employer. As the court understands it, the gratuity is not in addition to his pension entitlements. Rather, he can take some of his pension entitlement as a cash lump sum instead of as an annuity. If he opted for this it would obviously reduce the amount of the annuity payable to him. In any event he has not availed of any lump sum entitlement. He confirmed that with respect to the legal proceedings that he has in being against his former employer he is not legally represented. He claims that the reason he is not legally represented is that it is impossible to get any solicitor or barrister to act against an insurance company. He was then asked about other litigation that he is involved in including a professional negligence claim against a firm of solicitors and a claim against a golf club and the Golfing Union of Ireland. He acknowledged his involvement in those other cases. He was asked about his weekly outgoings and he confirmed that his full pension of €230 is spent on household bills and on his car. He was asked about the Mercedes Motor Home referred to in the plaintiff’s evidence, and how much he got for it when he sold it. He stated that he received something in the order of €20,000 to €24,000. He has €8,000 to €10,000 left at this stage and it is in a Post Office account. He draws on it from to time to supplement his old age pension. He has no other assets.
Decision
29. I am satisfied on the evidence that both parties contributed equally to the acquisition and initial renovation of No. 8 Inbhir Íde. However, with respect to the extension that was added in 2002, it is clear that the plaintiff paid for the vast majority of the costs of it in direct contributions. The total costs came to €53,841 and the defendant paid only €2,890 of that. The plaintiff paid the balance of €50,951. Accordingly to the valuer, the added value accruing to the premises overall by virtue of this extension is actually less than the cost of constructing it. The added value amounts to some €40,000, which in approximate terms amounts to 8% of the total value of the property (ie 8% of €515,000). Mr Talbot’s direct contribution to that added value amounts to about 0.6% (ie 0.6% of €515,000). For ease of calculation, I will round that up to 1%. Accordingly of the 8% added value created by the extension a proportion representing 7% is attributable to the plaintiff’s direct contributions, and a proportion representing 1% is attributable to the defendant’s direct contributions.
Additionally, Mr. Talbot contends he made indirect contributions to both the acquisition and improvement of the overall premises. The evidence is unsatisfactory in that regard because it is greatly lacking in detail. Moreover, the evidence is that the plaintiff’s contributions to both the acquisition and improvement of the premises came from savings and not from borrowings. In those circumstances, it is very difficult to say that the parties would not have been able to acquire and improve the property “but for” the indirect contributions of the defendant. As against that, the plaintiff herself has acknowledged that the defendant did make some indirect contributions by providing general maintenance services in respect of the property over the years.
If I was deciding this case solely on the basis of direct contributions I would, on the evidence, have to apportion beneficial ownership in the following way.
In respect of the 92% of the property value represented by the premises excluding the 2002 extension the parties are each entitled to an equal share, ie 46% each. In respect of the 8% added value represented by the 2002 extension this must be apportioned between the parties in the ratio 7:1. Accordingly the overall apportionment will be 53%: 47% in favour of the plaintiff. However, having regard to the evidence that I have with respect to indirect contributions from the defendant I am prepared to increase the defendant’s proportion on account of that. It is very difficult to do so on any exact or scientific basis because of the unsatisfactory state of the evidence but having regard to the plaintiff’s acceptance that the defendant has made indirect contributions in the nature of general maintenance, having regard to the defendant’s own evidence with respect to that, and having regard to the period concerned, I am prepared to raise the defendant’s proportion by 3%, and correspondingly reduce the plaintiff’s proportion by 3%, so as to the give each of the parties a 50/50 interest in the property. It follows from this that I regard the defendant’s claim that he should be entitled to 70% interest in the property as being not sustainable on the evidence and wholly unrealistic.
I accept the evidence of the plaintiff that the relationship between the parties has deteriorated to the point where it is virtually non existent. I accept that the parties are not friends anymore. I further accept the evidence of the plaintiff that she finds the present situation to be a huge strain and that this is having an adverse effect on both her physical and psychological health. She has characterised the situation as intolerable and I accept that it is intolerable for her. In those circumstances I believe that the defendant’s suggestion that the status quo should be maintained is simply untenable. As the plaintiff is interested in the property to the extent of one moiety she is entitled to an order for a sale of the property in lieu of partition and a distribution of the proceeds on a 50/50 basis pursuant to s.4 of the Partition Act, 1868. Accordingly, I grant her a declaration to that effect, and I direct that the property be sold and that the net proceeds of the sale after payment of taxes (if any) and the costs and expenses associated with the sale should be divided equally between the parties. I direct that the plaintiff’s solicitors Messrs. Tom Collins and Company of 132 Terenure Road, North, Terenure, Dublin 6 and the solicitor nominated by the defendant, namely Mr. Neil Blaney of Portmarnock, County Dublin are to have joint carriage of the sale. The solicitors having joint carriage shall agree between them the most appropriate mode of sale with a view to obtaining the best possible price for the property, including whether or not it is to take place by tender, by private treaty or by public auction, and in that regard they may advertise the property (or cause it to be advertised), they may retain such third party professional assistance as they may require, and they may fix an appropriate reasonable reserve.
I further grant an order directing the defendant to do all such things, perform all such acts and sign all such documents as may be necessary to give effect to the sale that I have ordered. Further, I wish to make it clear to him that if he fails to co-operate in the sale, or if he attempts to frustrate the sale in any way, I will regard it as a contempt of court and the matter can be re entered before me at any time for the purposes of seeking to have him attached and possibly committed to prison for contempt of court.
In case it is necessary for her to do so I grant the plaintiff liberty to apply to this Honourable Court for an order directing the County Registrar/Registrar of Titles to execute all such documents as may be necessary to give effect to the sale that I have directed.
Costs
30. The normal rule is that costs should follow the event. However, I am acutely conscious that if I award the costs of these proceedings against the defendant it may not leave him with sufficient funds to put a roof over his head after the sale. I think that in all the circumstances of the case I am going to exercise my discretion to make no order as to costs. In other words each side should bear their own costs of these proceedings. However, all reasonable conveyancing costs associated with the sale, and all expenses reasonably incurred by the solicitors having joint carriage of the sale, are to come out of the sale proceeds.
Liberty to apply
31. Both sides are to have liberty to apply in the event of unforeseen difficulty in giving effect to any or all of my orders and directions.