Property Receivers
Cases
Silven Properties Ltd. & Anor v Royal Bank of Scotland Plc & Ors
[2003] EWCA Civ 1409 [2004] 4 All ER 484, [2004] WLR 997, [2003] EWCA Civ 1409, [2004] 1 WLR 997 Lightman J
THE LAW
The Claimants’ submissions require an examination and comparison of the duties of mortgagees and receivers. We shall therefore first consider the relevant duties of mortgagees and then turn to the duties of receivers.
MORTGAGEES
A mortgagee has no duty at any time to exercise his powers as mortgagee to sell, to take possession or to appoint a receiver and preserve the security or its value or to realise his security. He is entitled to remain totally passive. If the mortgagee takes possession, he becomes the manager of the charged property: see Kendle v. Melsom [1998] 139 CLR 46 at 64 (High Court of Australia). He thereby assumes a duty to take reasonable care of the property secured: see Downsview Nominees Ltd v. First City Corp [1993] AC 295 (“Downsview”) at 315A per Lord Templeman; and this requires him to be active in protecting and exploiting the security, maximising the return, but without taking undue risks: see Palk v. Mortgage Services Funding Plc [1993] Ch 330 at 338A per Nicholls V-C (“Palk”).
A mortgagee “is not a trustee of the power of sale for the mortgagor”. This time-honoured expression can be traced back at least as far as Sir George Jessel MR in Nash v. Eads (1880) 25 Sol. J. 95. In default of provision to the contrary in the mortgage, the power is conferred upon the mortgagee by way of bargain by the mortgagor for his own benefit and he has an unfettered discretion to sell when he likes to achieve repayment of the debt which he is owed: see Cuckmere Brick Co v. Mutual Finance Limited [1971] Ch 949 (“Cuckmere”) at 969G. A mortgagee is at all times free to consult his own interests alone whether and when to exercise his power of sale. The most recent authoritative restatement of this principle is to be found in Raja v. Austin Gray [2002] EWCA Civ 1965 paragraph 95 per Peter Gibson LJ (“Raja”). The mortgagee’s decision is not constrained by reason of the fact that the exercise or non-exercise of the power will occasion loss or damage to the mortgagor: see China and South Sea Bank Limited v. Tan Soon Gin [1990] 1 AC 536. It does not matter that the time may be unpropitious and that by waiting a higher price could be obtained: he is not bound to postpone in the hope of obtaining a better price: see Tse Kwong Lam v. Wong Chit Sen [1983] 1 WLR 1349 at 1355B.
The Claimants contend that a mortgagee is not entitled to ignore the fact that a short delay might result in a higher price. For this purpose they rely on certain obiter dicta of Lord Denning MR in Standard Chartered Bank v. Walker [1982] 1 WLR 1410 (“Standard Chartered”) at 1415G-H and 1416A. The mortgagee in that case, having obtained insufficient on the sale at auction of the property charged to recover the sum secured, applied for summary judgment against the mortgagor for that sum. The mortgagor resisted the application alleging that the mortgagee had sold at an undervalue on a variety of grounds one of which was that the sale took place at the wrong time of year. The Court of Appeal gave the mortgagor leave to defend on the ground that there was an arguable case that the sale had been negligently handled. It was common ground in that case that a mortgagee can choose his own time for sale: see Fox LJ at p.1418 F-G. Lord Denning accepted that there were dicta to this effect, but added that he did not think that this meant that the mortgagee could sell at the worst possible moment and that it was at least arguable that in choosing the time he must exercise a reasonable degree of care. The view expressed by Lord Denning cannot stand with the later authorities to which we have referred and which state quite categorically that the mortgagee is under no such duty of care to the mortgagor in respect of the timing of a sale and can act in his own interests in deciding whether and when he should exercise his power of sale.
The mortgagee is entitled to sell the mortgaged property as it is. He is under no obligation to improve it or increase its value. There is no obligation to take any such pre-marketing steps to increase the value of the property as is suggested by the Claimants. The Claimants submitted that this principle could not stand with the decision of the Privy Council in McHugh v. Union Bank of Canada [1913] AC 299. Lord Moulton in that case (at p.312) held that, if a mortgagee does proceed with a sale of property which is unsaleable as it stands, a duty of care may be imposed on him when taking the necessary steps to render the mortgaged property saleable. The mortgage in that case was of horses, which the mortgagee needed to drive to market if he was to sell them. The mortgagee was held to owe to the mortgagor a duty to take proper care of them whilst driving them to market. The duty imposed on the mortgagee was to take care to preserve, not increase, the value of the security. The decision accordingly affords no support for the Claimants’ case
The mortgagee is free (in his own interest as well as that of the mortgagor) to investigate whether and how he can “unlock” the potential for an increase in value of the property mortgaged (e.g. by an application for planning permission or the grant of a lease) and indeed (going further) he can proceed with such an application or grant. But he is likewise free at any time to halt his efforts and proceed instead immediately with a sale. By commencing on this path the mortgagee does not in any way preclude himself from calling a halt at will: he does not assume any such obligation of care to the mortgagor in respect of its continuance as the Claimants contend. If however the mortgagee is to seek to charge to the mortgagor the costs of the exercise which he has undertaken of obtaining planning permission or a lessee, subject to any applicable terms of the mortgage, the mortgagee may only be entitled to do so if he acted reasonably in incurring those costs and fairly balanced the costs of the exercise against the potential benefits taking fully into account the possibility that he might at any moment “pull the plug” on these efforts and the consequences for the mortgagor if he did so.
If the mortgagor requires protection in any of these respects, whether by imposing further duties on the mortgagee or limitations on his rights and powers, he must insist upon them when the bargain is made and upon the inclusion of protective provisions in the mortgage. In the absence of such protective provisions, the mortgagee is entitled to rest on the terms of the mortgage and (save where statute otherwise requires) the court must give effect to them. The one method available to the mortgagor to prevent the mortgagee exercising the rights conferred upon him by the mortgagee is to redeem the mortgage. If he redeems, there can be no need or justification for recourse by the mortgagee to the power of sale to achieve repayment of the debt due to him secured by the mortgage.
When and if the mortgagee does exercise the power of sale, he comes under a duty in equity (and not tort) to the mortgagor (and all others interested in the equity of redemption) to take reasonable precautions to obtain “the fair” or “the true market” value of or the ” proper price” for the mortgaged property at the date of the sale, and not (as the Claimants submitted) the date of the decision to sell. If the period of time between the dates of the decision to sell and of the sale is short, there may be no difference in value between the two dates and indeed in many (if not most cases) this may be readily assumed. But where there is a period of delay, the difference in date could prove significant. The mortgagee is not entitled to act in a way which unfairly prejudices the mortgagor by selling hastily at a knock-down price sufficient to pay off his debt: Palk at 337-8 per Nicholls V-C. He must take proper care whether by fairly and properly exposing the property to the market or otherwise to obtain the best price reasonably obtainable at the date of sale. The remedy for breach of this equitable duty is not common law damages, but an order that the mortgagee account to the mortgagor and all others interested in the equity of redemption, not just for what he actually received, but for what he should have received: see Standard Chartered at 1416B.
In our judgment there can accordingly be no duty on the part of a mortgagee, as suggested by the Claimants, to postpone exercising the power of sale until after the further pursuit (let alone the outcome) of an application for planning permission or the grant of a lease of the mortgaged property, though the outcome of the application and the effect of the grant of the lease may be to increase the market value of the mortgaged property and price obtained on sale. A mortgagee is entitled to sell the property in the condition in which it stands without investing money or time in increasing its likely sale value. He is entitled to discontinue efforts already undertaken to increase their likely sale value in favour of such a sale. A mortgagee is under a duty to take reasonable care to obtain a sale price which reflects the added value available on the grant of planning permission and the grant of a lease of a vacant property and (as a means of achieving this end) to ensure that the potential is brought to the notice of prospective purchasers and accordingly taken into account in their offers: see Cuckmere. But that is the limit of his duty.
RECEIVERS
We turn to the question of the duties regarding mortgaged properties of receivers and in particular of receivers who under the term of the mortgage under which they are appointed are designated as agents of the mortgagor.
There is binding authority for the proposition that (again in default of agreement to the contrary) in the exercise of the power of sale receivers owe the same equitable duty to the mortgagor and others interested in the equity of redemption as is owed by the mortgagee: they are both obliged to take care to obtain the best price reasonably obtainable: see e.g. Cuckmere; Downsview; Yorkshire Bank plc v. Hall [1999] 1 WLR 1713 at 1728E-F; Medforth v. Blake [2000] Ch 86 at 98H-99A (“Medforth”); and Raja at paragraph 55. The critical issue however is whether the receiver (unlike the mortgagee) is under a duty of care in regard to the date of sale and to ensure that steps are taken (in particular in respect of planning and the grant of leases) to realise the full potential of the secured property before sale by obtaining permission or granting the leases.
In a number of respects it is clear that a receiver is in a very different position from a mortgagee. Whilst a mortgagee has no duty at any time to exercise his powers to enforce his security, a receiver has no right to remain passive if that course would be damaging to the interests of the mortgagor or mortgagee. In the absence of a provision to the contrary in the mortgage or his appointment, the receiver must be active in the protection and preservation of the charged property over which he is appointed: see Lightman & Moss, Law of Receivers and Administrators 3rd ed para 7.030. Thus if the mortgaged property is let, the receiver is duty bound to inspect the lease and, if the lease contains an upwards only rent review, to trigger that rent review in due time: see Knight v. Lawrence [1991] BCC 411. His management duties will ordinarily impose on him no general duty to exercise the power of sale: see Routestone Ltd v. Minories Finance Ltd [1997] BCC 180 at 187G. But a duty may arise if e.g. the goods are perishable and a failure to do so would cause loss to the mortgagee and mortgagor.
The critical issue raised is whether (as contended by the Claimants) the wider management duties imposed on a receiver (but not on a mortgagee) may require a receiver (and in particular a receiver appointed the agent of the mortgagor) to postpone a sale until after steps have been taken (in this case proceeding with an application for planning permission and with the grant of a lease) calculated to increase the price obtainable in a sum greater than the cost of taking those steps plus the sum representing accrued interest over the period whilst those steps are being taken.
The existence and scope of the duties of an agent, fiduciary and otherwise, depend on the terms on which they are acting: see Kelly v. Cooper [1993] AC 205 at 214. In the case of an agent appointed to manage his principal’s property on his behalf alone, general agency principles will apply. The agent will be obliged to pursue single-mindedly the interests of his principal and he will owe the duties to his principal for which the Claimants contend. This is reflected in the passage in the judgment of Millett J in the case of Re Charnley v. Davies Ltd (No 2) [1990] BCLC 760 cited by Patten J. The administrator as agent for the company owes a duty of care to the company in the choice of the time to sell and (by parity of reasoning) in the decision whether to take the appropriate available advantageous pre-marketing steps which are calculated to achieve the best price. The issue raised is whether receivers who are appointed by a mortgagee to act as agents of the mortgagor are in a like legal position and owe a like duty to the mortgagor.
The character and incidents of such receivers’ agency has been the subject of judicial and extra-judicial consideration. Mr Peter Millett QC (as he then was) in “The Conveyancing Powers of Receivers After Liquidation” (1977) 41 Conv. (NS) 83 at 88 wrote: “The so called ‘agency of the [receivers]’ is not a true agency, but merely a formula for making the company rather than the [mortgagee] liable for his acts”. But this agency of the receivers is a real one, even though it has some peculiar incidents: see Re Offshore Ventilation (1989) 5 BCC 160 at 166A-B. Its reality is reflected in the continuity after the appointment of receivers of the rateable occupation of the mortgagor through the agency of the receivers (see Ratford v. Northavon RDC [1987] QB 357) and in the absence of personal liability of the receivers for tax in respect of receipts which come to the hands of the receivers as agents: see In re Piacentini [2003] 3 WLR 354.
The peculiar incidents of the agency are significant. In particular: (1) the agency is one where the principal, the mortgagor, has no say in the appointment or identity of the receiver and is not entitled to give any instructions to the receiver or to dismiss the receiver. In the words of Rigby LJ in Gaskell v. Gosling [1896] 1 QB 669 at 692: “For valuable consideration he has committed the management of his property to an attorney whose appointment he cannot interfere with”; (2) there is no contractual relationship or duty owed in tort by the receiver to the mortgagor: the relationship and duties owed by the receiver are equitable only: see Medforth and Raja; (3) the equitable duty is owed to the mortgagee as well as the mortgagor. The relationship created by the mortgage is tripartite involving the mortgagor, the mortgagee and the receiver; (4) the duty owed by the receiver (like the duty owed by a mortgagee) to the mortgagor is not owed to him individually but to him as one of the persons interested in the equity of redemption. The class character of the right is reflected in the class character of the relief to be granted in case of a breach of this duty. That relief is an order that the receiver account to the persons interested in the equity of redemption for what he would have held as receiver but for his default; (5) not merely does the receiver owe a duty of care to the mortgagee as well as the mortgagor, but his primary duty in exercising his powers of management is to try and bring about a situation in which the secured debt is repaid: see Medforth at p86; and (6) the receiver is not managing the mortgagor’s property for the benefit of the mortgagor, but the security, the property of the mortgagee, for the benefit of the mortgagee: see Re B Johnson & Co (Builders) Ltd [1953] Ch 634 per Jenkins LJ at 661 cited with approval by Lord Templeman in Downsview at 331B and at p646 per Evershed MR cited with approval by Scott V-C in Medforth at p95H to 96A. His powers of management are really ancillary to that duty: Gomba Holdings v. Homan [1986] 1 WLR 1301 at 1305 per Hoffmann J.
In the context of a relationship such at the present, which is no ordinary agency and is primarily a device to protect the mortgagee, general agency principles are of limited assistance in identifying the duties owed by the receiver to the mortgagor: see Gomba Holdings v. Homan [1986] 1 WLR 1301 at 1305 B-D (Hoffmann J); [1988] 1 WLR 1231 at 1233 D-H (Fox LJ). The core duty of the receiver to account to the mortgagor subsists, but (for example) the mortgagor has no unrestricted right of access to receivership documents. The mortgage confers upon the mortgagee a direct and indirect means of securing a sale in order to achieve repayment of his secured debt. The mortgagee can sell as mortgagee and the mortgagee can appoint a receiver who likewise can sell in the name of the mortgagor. Having regard to the fact that the receiver’s primary duty is to bring about a situation where the secured debt is repaid, as a matter of principle the receiver must be entitled (like the mortgagee) to sell the property in the condition in which it is in the same way as the mortgagee can and in particular without awaiting or effecting any increase in value or improvement in the property. This accords with the repeated statements in the authorities that the duties in respect of the exercise of the power of sale by mortgagees and receivers are the same and with the holding in a series of decisions at first instance that receivers are not obliged before sale to spend money on repairs (see Meftah v. Lloyds TSB Bank [2001] 2 All ER (Comm) 741 at 744 and 766 per Lawrence Collins J), to make the property more attractive before marketing it (Garland v. Ralph Pay & Ransom [1984] 2 EGLR 147 at 151 per Nicholls J) or to “work” an estate by refurbishing it (Routestone Ltd v. Minories Finance Ltd [1997] 1 EGLR 123 at 130D per Jacob J).
In summary, by accepting office as receivers of the Claimants’ properties the Receivers assumed a fiduciary duty of care to the Bank, the Claimants and all (if any) others interested in the equity of redemption. This accords with the statement of principle to this effect of Lord Browne-Wilkinson in Henderson v. Merrett Syndicates Limited [1995] 2 AC 145 at 205 E-H relied on by the Claimants. The appointment of the Receivers as agents of the Claimants having regard to the special character of the agency does not affect the scope or the content of the fiduciary duty. The scope or content of the duty must depend on and reflect the special nature of the relationship between the Bank, the Claimants and the Receivers arising under the terms of the mortgages and the appointments of the Receivers, and in particular the role of the Receivers in securing repayment of the secured debt and the primacy of their obligations in this regard to the Bank. These circumstances preclude the assumption by, or imposition on, the Receivers of the obligation to take the pre-marketing steps for which the Claimants contend in this action. Further no such obligation could arise in their case (any more than in the case of the Bank) from the steps which they took to investigate and (for a period) to proceed with applications for planning permission. The Receivers were at all times free (as was the Bank) to halt those steps and exercise their right to proceed with an immediate sale of the mortgaged properties as they were.
CONCLUSION
For these reasons this appeal should be dismissed.
Donohoe v. A.C.C. p.l.c
[1986] IR 165 Keane J. HC
It is submitted on behalf of the plaintiffs that the power to appoint the receiver in this case derives from the Conveyancing and Law of Property Act, 1881, s. 24, sub-s. 3 of which provides:”The receiver shall have power to demand and recover all the income of the property of which he is appointed receiver, by action, distress, or otherwise . . .”
It is submitted that the defendant is accordingly confined to receiving the income, whether it takes the form of rent or otherwise, of the property actually comprised in the security on foot of which the receiver was appointed. Since the dairy herd were not the subject of any chattel mortgage of any sort in favour of the defendant, it follows that they were not in any sense comprised in any security on foot of which the receiver was appointed. Moreover, even if the receiver was entitled to recover the proceeds of sale of the dairy produce, etc., as part of the income of the mortgaged property, he was obliged by virtue of s. 24, sub-s. 8, of the Act of 1881 to apply all money received by him first in discharge of any outgoings affecting the mortgaged property.
It was submitted on behalf of the defendant that, since s. 2, para. (iii), of the Act of 1881 provides that “in relation to land, income includes rents and profits . . .”, an exhaustive definition was not intended and that, accordingly, the receiver was not confined to simply collecting the rent from a farm such as this but could also legitimately collect the income resulting from the farming activities themselves. In practical terms, the milk yield and its cash equivalent was the income of the farm and the milk itself could be regarded as processed grass.
Section 19, sub-s. 1 (iii), of the Act of 1881 gives certain powers to a mortgagee where the mortgage is made by deed, including:
“(iii) A power, when the mortgage money has become due, to appoint a receiver of the income of the mortgaged property, or of any part thereof.”
In the present case, Mr. Kavanagh was appointed by virtue of this statutory power to be the receiver of the income of the property comprised
in the two deeds of charge dated the 5th December, 1973, and the 22nd December, 1978. The power he enjoys under s. 24 of the Act of 1881 to recover “all the income of the property of which he is appointed receiver”is, accordingly, confined to the income of the lands comprised in those two deeds of charge. The dairy herd which the plaintiffs maintain on the entire area farmed by them (which is, of course, substantially greater in area than the property comprised in the deeds of charge) was not part of the property comprised in the deeds of charge and was not made the subject of any chattel mortgage in favour of the defendant. It follows that the defendant is not entitled to appropriate any part of the proceeds of sale of the dairy produce or the cattle in purported exercise of the receiver’s powers under s. 24, sub-s. 3, of the Act of 1881. This conclusion is supported by the authorities referred to by Mr. Gordon on behalf of the plaintiffs, i.e., Salmon v. Matthews (1841) 8 M & W 827 and Charles Hoare & Company v.Hove Bungalows Ltd. (1912) 56 Sol. Jo. 686, where it was held that where a mortgagor has leased land together with furniture or other chattels and the mortgage only extended to the land, the rent must be apportioned between the land and the chattels.
Having reached this conclusion, it is unnecessary for me to express any opinion on the submission advanced by Mr. Fitzsimons on behalf of the defendant that the effect of s. 24, sub-s. 8, of the Act of 1881 is not to require the receiver to apply all the money received by him in the first place in discharge of the outgoings affecting the mortgaged property, since, as Mr. Fitzsimons puts it, the sub-section does not in terms provide for an order of payments by the receiver and leaves it to his discretion as to the order in which he will make the payments required to be made. It is sufficient to say that the passage in Picarda on The Law Relating to Receivers and Managers p. 204 which deals with the corresponding section under the English Law of Property Act, 1925, appears to proceed on the assumption that the section does in fact prescribe an order of payments.
It is, of course, the case, as was pointed out by Mr. Fitzsimons, that there is a certain unreality in the proceedings brought by the plaintiffs and in the present application, since the defendant has more potent weapons at their disposal than the appointment of a receiver, should it choose to deploy them. Since, however, the defendant has not elected to make use of them, no doubt for very good reasons, I must deal with the powers which it has in fact availed of. There will, accordingly, be an interlocutory injunction in terms of the notice of motion pending the trial of the action.
OBG Ltd & Anor v Allan & Ors
[2005] EWCA Civ 106 [2005] BLR 245, [2005] PNLR 27, [2005] 1 All ER (Comm) 639, [2005] 2 All ER 602, [2005] BPIR 928, [2005] 2 WLR 1174, [2005] QB 762, [2005] EWCA Civ 106, [2005] 1 BCLC 711 Gibson LJ
Before I deal with the specific issues, I would make certain preliminary observations about this unusual case. The dispute is not about any land of either of the Claimants of which the Receivers took control. It is conceded by the Receivers and Penningtons that the Claimants have a cause of action in trespass in respect of such land. The dispute is not about any chattels of either of the Claimants of which the Receivers took control. It is accepted that the Claimant has a cause of action in conversion in respect of those chattels. It is not suggested that the businesses of the Claimants have been lost in consequence of the trespass and conversion in respect of the land and chattels. The dispute is not about whether the Receivers became liable in equity in some way, for example as trustees for intermeddling with the assets of the Claimants. No claim in equity is maintained. Nor is the dispute about negligence on the part of the Receivers in dealing with the assets of which they took control. That was conceded by the Claimants as noted in the recital to the order of 18 December 2002. Nor is it alleged that here there has been interference with a trade or business, a tort which requires the presence of an intention to cause loss. The dispute in relation to the first two issues is limited to whether any, and if so what, tort was committed in relation to the Claimants’ contractual rights. Moreover the Claimants have limited their case to a tort committed on 9 June 1992 such that the ascertainment of damages resulting therefrom required a valuation of the contractual rights as at that date.
Wrongful interference with contractual relations
Since Lumley v Gye (1853) 2 E & B 216 it has been recognised that an actionable wrong is committed by a person deliberately inducing a party to a contract to breach it. In Millar v Bassey [1994] EMLR 44 at p. 62 I described the tort as “a species of the genus of economic torts whereby the common law protects against the intentional violation of economic interests”. In Greig vInsole [1978] 1 WLR 302 at p. 332 Slade J. identified 5 conditions for the tort:
(1) either (a) direct interference or (b) indirect interference (if coupled with unlawful means);
(2) knowledge of the contract;
(3) intention to interfere with it;
(4) damage which is more than nominal;
(5) so far as necessary, the rebuttal of any defence based on justification for the interference.
The cases in which the conditions for the tort have been fulfilled have all been decided in circumstances where the breach of a contract has been procured or induced or the performance of the contract has been prevented or hindered. However, Mr. Steinfeld submits that the tort should not be confined to cases where the breach of the contract or the prevention or hindrance of its performance is intended. He points to the width of the language used in statements of the ambit of the tort and in particular Lord Macnaghten’s reference to interference with contractual relations, on which the Judge relied, as I have noted in para. 32 above. He submits that there is no reason in principle why the displacement of the board of a company by invalidly appointed receivers who take over the business of the company should not fall within the tort when it can be shown that loss, which would not have been suffered by the company but for the receivership, has resulted. That, he suggests, is direct interference with contractual relations. He supports the Judge’s conclusion that the requisite mental element is satisfied by the Receivers knowing of the contracts and intending to interfere by assuming control of the contractual rights and purporting to act on behalf of the Claimants in relation to the contracts.
Mr. Mitchell accepts that interference is a word of wide meaning which can cover many circumstances, and that the acts of invalidly appointed receivers can be characterised as “interference” as a matter of ordinary language. But he points out that this is not the way the term is used in the authorities where the primary meaning is causing a breach of contract. The most crucial point in any event, he submits, is that the defendant must know and intend his acts to be interference. He relies on the observations of Rix L.J. in Stocznia v Latco [2002] 2 Lloyd’s Rep 436 where Rix L.J. set out the policy considerations of what he called the “wide ranging” tort of inducing breach of contract. He said (para. 130):
“The tort is an economic tort designed to place limits on the self-interested rough and tumble of the business world. Its philosophical basis appears to be that contracts should be kept rather than broken. Where, as here, A (Latco) procures B’s (Latreefers’) breach of his contract with C (the yard), adopting it as his own because he is interested to do so, seeking a benefit for himself or a fortiori a detriment for C, and does so deliberately, knowingly and intending the breach to take place, then A puts himself in the way of incurring a liability, even though not himself a party to the contract, unless (i) he does not directly procure the breach, and (ii) he uses no (relevant) unlawful means, or (iii) he can claim some justification. The significance of (i) is that where A directly procures a breach of contract he makes himself as it were directly privy to the breach. The significance of (ii) is that in the absence of making himself privy to the breach, he cannot be faulted as long as he acts as he is entitled to act, but if (deliberately, knowingly and intending the breach to take place) he commits an unlawful act, by which I have in mind an unlawful act of sufficient causative relevance, then he renders himself liable. It may be that unlawful means ought to be necessary even where there is direct procurement (see the wide-ranging work by Hazel Carty, An Analysis of the Economic Torts, 2001, at 82). The significance of (iii), an area which has not been clearly worked out in the cases, appears to be that there may be moral or perhaps economic factors which may mitigate even to the point of justifying conduct otherwise incurring a prima facie liability.”
Rix L.J. had earlier (at para. 120) considered in some detail the differing views expressed by this court in Millar v Bassey in which the majority (Ralph Gibson and Beldam L.JJ.) held that the action should not be struck out but should go to trial. Rix L.J., however, pointed out that Ralph Gibson L.J. was in agreement, in terms of principle, with the views which I expressed on the intention needed for the tort, viz. that there had to be the deliberate interference with a contract with a view to bringing about its breach rather than interference causing a breach when that interference was merely the incidental consequence of the defendant’s conduct. Those remarks in Millar v Bassey were made in the context of a case where a breach of contract had in fact occurred.
As the Judge noted, there do not appear to have been any previous cases in which the tort of interference with contractual rights has been found in circumstances similar to the present. There is no doubt that the tort has been extended from its Lumley v Gye origins of an intentional procurement of a breach of contract to an intentional procurement of a breach of other obligations. Indeed in Lumley v Gye 2 E & B at p. 233 Erle J. stated the relevant principle as being:
“He who maliciously procures a damage to another by violation of his right ought to be made to indemnify; and that, whether he procures an actionable wrong or a breach of contract.”
Further, in Torquay Hotel Co. Ltd. v Cousins [1969] 2 Ch 106 Lord Denning M.R. extended the tort to include deliberate direct interference in the execution of a contract by preventing or hindering one party from performing the contract even though that would not have been an actionable breach. In that case the contract interfered with contained a clause excluding liability for the relevant breach. That extension has been approved by the House of Lords in Merkur Island Corp. v Laughton [1983] 2 AC 570 at p. 608 per Lord Diplock in a case involving interference by unlawful means with the performance of a contract under which no damages were recoverable for that non-performance. Although these cases have been trenchantly criticised by some academics (see, for example, Weir: Economic Torts (1997) pp. 37, 38), the extension must be accepted as binding on this court.
The question to which the present case gives rise is whether the tort should be further extended to cover the interference by a third party with the right of a party to a contract to perform the contract and manage his contractual rights as he chooses when that interference is not directed at procuring an actionable wrong such as a breach of contract nor at hindering or impeding the performance of the contract. In the present case the Receivers would have liked to perform the NWW contracts and to do so in the name and on behalf of the Claimants. But NWW was not willing to let that happen. It is also a tort for a third party directly to do an act, with knowledge of the contract, which, if done by one of the parties to the contract, would have been a breach of contract (see D C Thomson & Co. Ltd. v Deakin [1952] Ch 646 at p. 694 per Jenkins L.J.). That is not this case.
I am not aware of any case where the tort has been held to apply to an act of a third party who, although aware of a contract between the contracting parties, was not intending to procure a breach of the contract or other actionable wrong or to prevent or hinder the performance of the contract nor would the act have been a breach of contract if performed by a party. The decided cases are concerned with interference with the performance of a contract where such interference was aimed at procuring a failure to comply with some obligation imposed by a term of the contract (see Cane: Tort Law and Economic Interests 2nd ed. (1996) p. 119). As is said in Clerk & Lindsell on Torts 18th ed. (2000) para. 24-05 an interference with contractual performance that causes no breach of contractual obligation on principle cannot be tortious. It is powerfully argued by Hazel Carty in Analysis of Economic Torts (2001) at pp. 63 and 271 that there must be an actionable wrong sought to be procured by the alleged tortfeasor for this tort to arise That, as it seems to me, was the essence of the tort, but cases such as Torquay Hotel and Merkur Island breach that purist principle. However, the present case would extend that breach even further. The fact that the tort has been extended to include prevention of the due performance of a primary obligation even though no secondary obligation to make monetary compensation came into existence does not justify a further extension of the tort to circumstances where the alleged tortfeasor was not intending to prevent the performance of any primary obligation of the contract. That would be to change the nature of the tort which hitherto has had as an essential ingredient the intention to procure a breach, or the non-performance of an obligation, of a contract or a breach of duty. Such intention is lacking in a case such as the present, where the interference is not directed at preventing or hindering the performance of any obligation imposed by a contract. The objection to the interference goes only to who should be managing the contractual rights of one party. No doubt the Receivers did intend to manage the contractual rights of the Claimants, but, whilst that was an intention to interfere with the Claimants’ business (though without intending to cause loss or damage), it does not seem to me to amount to an interference with contractual relations in any relevant sense. Accordingly, I would respectfully disagree with the Judge in his holding that the tort of interference with contractual relations was committed. I would allow the appeal on this point.
If I am wrong on that and the tort does extend to the invalid appointment of receivers who manage the contractual rights of one of the parties to a contract, I have difficulty in seeing how the damages fall to be assessed by reference to a valuation as at the date of the Receivers accepting their appointment. A necessary ingredient of the tort is damage which must be more than nominal. Although the Judge found that Mr. Stevenson attended at OBG’s premises that day and “took control of the business”, it is not apparent that the Receivers did anything that day in relation to the Claimants’ contractual rights which caused loss. It is not apparent when or how the contractual rights became less valuable because there is no pleading or other allegation identifying how the loss was caused. I find it impossible to escape the conclusion that the Claimants, by making the statement recorded in the order of 18 December 2002, committed themselves to a case based on the valuation of their businesses at 9 June 1992 on the footing that the claim was one of conversion of a business which was destroyed by the Receivers’ assumption of control but which would have survived but for the receivership. That is not the claim which the Judge upheld. Again, I respectfully disagree with the Judge on this point.
Is there a tort of conversion of contractual rights?
The Judge dealt very briefly with the Claimants’ primary submission that the Receivers converted the businesses (with the contractual rights) of the Claimants. He referred to two cases on which the Claimants relied, Foulds v Willoughby (1841) 8 M & W 540, relating to the conversion of horses, and Kuwait Airlines Corp. v Iraqi Airways Co. (Nos. 4 & 5) [2002] 2 AC 883, relating to the conversion of aircraft, but said that they could not be applied to the ‘conversion’ of contractual rights.
The Judge referred to three Canadian authorities, McLachlan v Canadian Imperial Bank of Commerce (1987) 12 BCLR (2d) 300, approved on appeal (1989) 57 DLR (4th) 687 (“McLachlan”), Bradshaw Construction v Bank of Nova Scotia (1993) 1 WWR 596 and Royal Bank v Got (1994) 17 Alta LR (3d) 23, confirmed on appeal by the Alberta Court of Appeal (1997) 196 AR 241 and by the Supreme Court of Canada (1999) 3 SCR 408 (“Got”). But they were referred to in the context of the measure of damages for the primary claim of the Claimants that they would have survived but for the receivership.
In this court the Claimants rely on the Canadian authorities, and in particular McLachlan and Got, not as establishing that invalidly appointed receivers of a company commit the tort of conversion of the company’s contractual rights, but as proceeding on the footing that such receivers do incur a tortious liability in respect of such rights as part of the business of which they wrongfully took control. The highest it can be put is that the Canadian decisions assume that trespass and conversion extend to all types of assets in a case where a receiver has wrongfully taken control and the business of the company has in consequence failed.
In McLachlan, a bank as a secured creditor appointed an agent to realise the bank’s security. The agent seized the assets of the plaintiff’s company which in consequence became insolvent. The plaintiff succeeded in claiming that the assets were wrongly seized and that damages should be assessed on the basis of the value of the company as a going concern at the date of seizure. It was found that the company would have survived but for the seizure.
In Got a bank as a secured creditor of a company successfully applied ex parte for the appointment by the court of a receiver. The receiver sold the assets of the company. The bank sued the company for its debt. The company counterclaimed for the loss of its assets. It succeeded in its claim that the bank had misled the court in seeking the appointment of the receiver and was liable in damages for trespass and conversion. This liability extended to amounts receivable by the company.
Mr. Steinfeld referred us to another Canadian case, Kavcar Investments Ltd. v Aetna Financial Services Ltd., an unreported decision of Hollingworth J. in the Ontario Supreme Court on 11 April 1986. In that case a secured creditor put the debtor company into receivership and sold the debtor’s assets. It was held that the receiver was invalidly appointed and the creditor and the receiver were liable for damages for trespass and conversion. In assessing damages the judge assessed the value of the business which the debtor had lost and took account of assets other than land and chattels.
However, none of these cases contains any analysis of the relevant torts in relation to such intangible assets. It may well be that the trespass and conversion had the consequence that the entire business of each relevant company was also lost with the result that the value of intangibles such as receivables was correctly included in the damages awarded. I can obtain no assistance from the Canadian cases in determining whether in English law a tort was committed by the Receivers other than trespass and conversion in relation to the land and chattels.
In my judgment, as a matter of English law there can be no conversion of a chose in action. Historically that is obvious, the tort of conversion being derived from trover, which required averments of goods lost by their possessor and found by the defendant. No English textbook suggests otherwise.
Convenient though it would be for English law to recognise a tort, in the case of invalidly appointed receivers, where the receivers wrongfully took control of a business, I do not think it open to this court to invent such a tort. In my judgment the Judge was right to reject the claim based on conversion.
I confess that I arrive at the conclusion which I do on the first two issues with regret. The wrongful taking of control of intangible assets by an invalidly appointed receiver leading to loss which but for the receivership would have been avoided ought to have consequences in law. It may be that had the Claimants pursued other claims such as in equity or in negligence, they could have achieved the result they desired. But for the reasons which I have given, the Claimants, in my judgment, fail on both the ways they frame their case in tort.
Remuneration
I have had some difficulty in discerning what is the true difference between the parties on this issue. The Judge has determined that in principle the Liquidators’ actual remuneration and expenses, to the extent that they exceed the agreed figure of £300,000 for the notional costs and expenses of the liquidator on a notional liquidation, can be recovered as damages so far as they are shown to have been caused by the receivership.
Mr. Mitchell submitted that the Judge should have held that the Liquidators’ remuneration and expenses were only claimable as against the Receivers to the extent that they (1) were caused by the tortious acts of the Receivers, (2) were not too remote, and (3) were not part of the preparation by the Liquidators for this litigation. However, he accepted that damages in tort which are payable to a company may include the additional costs incurred by the company in the form of the remuneration and expenses of the liquidator arising out of the acts of conversion and trespass. Mr. Mitchell said that his clients feared that much of the costs claimed will have been incurred on claims which have failed.
Mr. Steinfeld pointed out that the Judge was only concerned with whether the claim was recoverable in principle. He accepts that, whether as a matter of causation, remoteness or failure to mitigate, the Claimants cannot recover remuneration and expenses unreasonably incurred. If, for example, it was found on the inquiry that it was unreasonable for the Liquidators to have prosecuted the unsuccessful claim that the Claimants would have survived but for the receivership, then their remuneration and expenses for that claim would, he accepts, not be reasonable.
Mr. Steinfeld also drew attention to the fact that the unusual circumstances of this case meant that the only asset which the Liquidators had was the claim against the Receivers, the Receivers having dealt with the other assets of the Claimants, and that this inevitably meant that the remuneration and expenses of the Liquidators were incurred in preparation for the litigation. I agree that it would be wrong to exclude in advance of the inquiry all remuneration and costs incurred by the Liquidators in preparation for the litigation. Of course, to the extent to which the court in the exercise of its discretion awards costs to the Liquidators, those costs cannot be recovered as damages.
I think it premature to try to give further general guidance on the points which will arise on the inquiry which the Judge has directed. It is sufficient to say that the limited decision taken by the Judge on this issue has not been shown to be wrong in principle. I would therefore dismiss the appeal on this issue.
Fergus Lowe -v- Gerard Burns & Anor
[2012] IEHC 162
Laffoy J.
2. The basis of the plaintiff’s claim for relief
2.1 The plaintiff has brought the proceedings a receiver appointed by Danske Bank A/S (the Bank). In the case of the Navan property and in the case of each of the Dublin Properties the form of security held by the Bank is identical. Therefore, in the first instance, I propose considering the plaintiff’s status as receiver and his powers in that capacity by reference to the Navan Property).
2.2 As the description in the notice of motion discloses, the Navan Property is registered on Folio 22133F of the Register of Freeholders County Meath. Mr. Burns was registered as full owner with absolute title on that folio on 9th April, 2008. On the same day a charge was registered as a burden of the folio. The charge is described as a charge “for present and future advances repayable with interest”. The Bank is registered as owner of the charge on the folio.
2.3 The Navan Property is a commercial property which is let to two tenants. The tenant on the ground floor carries on the business of seamstress and pays a weekly rent. The offices on the first and second floors are let to Ormonde Mining Plc, but, according to the plaintiff, are currently not being used owing to a dispute with Mr. Burnsover the terms of the lease.
2.4 The charge in favour of the Bank was created by a deed dated 20th December, 2007 made between Mr. Bums of the one part and the Bank of the other part (the Navan Charge), which, as I have stated, is registered as a burden on Folio 22133F. It contained the following provisions:
(a) Mr. Burns charged the property registered on Folio 22133F, that is to say, the Navan Property, with payment to the Bank of all sums of money from time to time becoming payable under the covenants contained therein. The charge was an “all sums” charge (Clause 3 and Clause 4(1)).
(b) It was declared that the secured monies should be deemed to become due within the meaning of the Conveyancing Acts 1881 to 1911 immediately on demand for payment being made by the Bank (Clause 6(1)).
(c) It was declared that the powers of sale and appointing a receiver conferred by the Conveyancing Act 1881 should apply at any time after such demand was made by the Bank (Clause 6(2)).
(d) It was declared that a receiver appointed by the Bank should, in addition to the relevant statutory powers, if the Bank should so direct, have the following powers-
(i) to enter upon and take possession of the mortgaged property or any part thereof,
(ii) to sell the mortgaged property,
(iii) to do all such acts and things as an absolute owner could do in the management of the mortgaged property, and
(iv) to exercise the further powers set out therein, which is not necessary to outline (Clause 6(3)).
2.5 By letter dated 17th January, 2012 to Mr. Burns, having recorded that Mr. Burns had failed to make payment to the Bank on the accounts itemised in the heading of the letter, the Bank demanded immediate payment from Mr. Burns of the sum of €1,334,295.38, being the aggregate amount due for principal and interest at the date of the letter on the itemised accounts. The Bank threatened that, in the event that it did not receive payment of the amount due immediately, it would take action for recovery of the amount. I understand that summary proceedings are in being in the High Court to recover that amount and, presumably, interest which has accrued in the interim. That is a separate issue and does not impinge on the plaintiff’s application. It was further threatened that the Bank might proceed to exercise all or any of the rights available to it under the security documentation, including the appointment of a receiver.
2.6 In fact, by deed executed on 27th January, 2012 the Bank appointed the plaintiff to be receiver of the assets charged by the Navan Charge, that is to say, the Navan Property, and to enter upon and take possession of the assets in the manner specified in the Navan Charge and to exercise all powers conferred by the Navan Charge and by law. The plaintiff accepted the appointment on 3rd February, 2012, which is the date of the appointment.
2.7 Following the appointment of the plaintiff as receiver, his solicitors, Peter Morrissey & Co., who are acting for him on this application, wrote to Mr. Burns advising him of the appointment and inviting him to contact the plaintiff. Mr. Burns’ response of 14th February, 2012 to them was to the effect that the plaintiffs solicitors were acting without authority and had no legal standing. It continued:
“We do not have a contract, any permission that YOU believe you may have from us is hereby withdrawn. If you believe you have the power of attorney or any authority to act on our behalf, you are hereby fired, and any consent that you think you may have, tactic or otherwise, is hereby withdrawn. Please look up the doctrine of privity in contract law.”
There followed accusations of potential breaches of, inter alia, the “Protection from Harassment Act 1997”, which is an English, not in Irish, statute, and the “Data Protection Acts 1998/2003”, the reference to 1998 presumably being a typographical error for 1988. The response also contained threats of complaints by Mr. Bums to the Data Protection Commissioner, the Law Society and the Minister for Justice, Equality and Law Reform. The letter dated 14th February, 2012 was also signed by Mrs. Bums.
2.8 In summary, the authority of the plaintiff in relation to the Dublin Properties has arisen as follows:
(a) Apartment 29, Emmet Court is the subject of a mortgage dated 25th October, 2006 made between Mr. Bums and Mrs. Bums of the one part and the Bank of the other part, which was in the same form as the Navan Charge. It was registered in the Registry of Deeds on 27th November, 2008.
(b) Apartment 4, 109 Parnell Square is the subject of a mortgage dated 25th October, 2006 made between Mr. Bums and Mrs. Bums of the one part and the Bank of the other part, which was in similar terms to the Navan Charge. It was registered in the Registry of Deeds on 3rd June, 2009.
(c) The property registered on Folio 110613F of the Register of Freeholders County Dublin, of which Mr. Bums and Mrs. Bums are registered as full owners, is the subject of a charge dated 11th March, 2007 made between Mr. Bums and Mrs. Bums of the one part and the Bank of the other part, which was also in similar terms to the Navan Charge. That charge was registered as a burden on Folio 110613F on 16th January, 2008 and the Bank is registered as owner of the charge on the folio.
Letters of demand dated 12th January, 2012 were issued separately to Mr. Burns and Mrs. Bums demanding immediate repayment of the sums secured on the Dublin Properties (€148,209.73, €186,882.81 and €228,097.55). By deed of appointment executed on 20th January, 2012 the Bank appointed the plaintiff to be receiver of the Dublin Properties and the plaintiff accepted that appointment on 25th January, 2012. The deed of appointment was similar to the deed of appointment in relation to the Navan Property, in that the plaintiff was expressly empowered to enter upon and take possession of the Dublin Properties and to exercise all powers conferred on him by the relevant mortgages and charge and by law. The reaction of Mr. and Mrs. Bums to the appointment of the receiver over the Dublin Properties was similar to their reaction to his appointment as receiver over the Navan Property.
2.9 There is absolutely no doubt but that the Bank has valid securities over the Navan Property and the Dublin Properties as outlined above. Moreover, there is no doubt but that when the Bank appointed the plaintiff as receiver over both the Navan Property and the Dublin Properties its power to do so under the various security documents was exercisable. Indeed, Mr. Burns made it clear that he was not challenging the entitlement of the Bank to appoint the plaintiff as receiver. Prima facie, the plaintiff was validly appointed as receiver with the authority to exercise the powers conferred on him by the various security documents in relation to both the Navan Property and the Dublin Properties.
2.10 In the interests of clarity, I should record that each of the Dublin Properties is let and that the defendants are not in occupation of any of those properties.
3. The evidence adduced by the plaintiff
3.1 The application is grounded on the affidavit of the plaintiff, which was sworn on 23rd March, 2012. The plaintiff has averred that on 16th February, 2012 he attended at the Navan Property to take possession of it. He was accompanied by a local estate agent, Michael Farrelly of Sherry Fitzgerald Harlan Farrelly, whom he had engaged to place the Navan Property on the market. He also brought a locksmith with him. The locks on the Navan Property were changed. He spoke to the tenant of the ground floor and informed her that he was taking possession of the Navan Property on behalf of the Bank and that she should henceforth pay her rent to him directly. The first and second floors were vacant.
3.2 There followed in the plaintiff’s affidavit an outline of information he obtained from various sources. For instance, he has exhibited an e-mail of 16th February, 2012 from Mr. Farrelly, who had attended at the Navan Property later on 16th February, 2012 and who informed the plaintiff that Mr. Burns was there. There was also a locksmith engaged by Mr. Bums there who changed the locks on the premises once again. Mr. Farrelly reported that the tenant on the ground floor was distressed. Arising out of that contact and out of contact which the plaintiff received directly from the tenant of the ground floor, the plaintiff’s solicitors wrote to Mr. Bums and Mrs. Bums by letter dated 23rd February, 2012 setting out the plaintiff’s entitlement to the rent payable by the tenant and threatening injunction proceedings. On the same day, 23rd February, 2012, the plaintiff engaged a security firm, Pinnacle Security, to attend at the Navan Property daily from 8am to 8pm. He also contacted An Garda Siochana at Navan Garda Station to apprise them of the situation. The locks were changed once again on 23rd February, 2012 on the direction of the plaintiff.
3.3 Thereafter, the plaintiff has exhibited a series of documents, each of which is described as an “Incident Report”, made by security officers of Pinnacle Security. On the basis of what is reported, it is clear that Mr. Bums, in combination with associates of his, has acted in a manner which has interfered with and frustrated the activities of the plaintiff in relation to the plaintiff’s rights as receiver validly appointed in relation to the Navan Property. Moreover, I am satisfied that, whether intentional or not, Mr. Bums, in combination with his associates, has harassed the tenant occupant of the ground floor of the Navan Property. The contents of three Incident Reports describing what happened on 9th March, 2012 when, at the behest of Mr. Bums, the locks on the property were changed once again demonstrate that. A later Incident Report in relation to events on 20th March, 2012, which was also exhibited by the plaintiff, indicates that Ormonde Mining Plc has been locked out of the first and second floors of the Navan Property through the actions of Mr. Bums.
3.4 The plaintiff also exhibited an e-mail from an official of his firm, Sherry Fitzgerald Kennedy Lowe, sent on 15th March, 2012, which contains evidence, which has not been disputed by Mr. Bums, that Mr. Bums has intimidated at least one of the tenants of one of the Dublin Properties.
3.5 Although he did not avail of the opportunity in his replying affidavit, which was sworn on 29th March, 2012, to address the matters of fact outlined in the plaintiffs affidavit, at the hearing of the application Mr. Bums objected to the evidence in relation to harassment of the occupants of the property.
3.6 I am satisfied that it is proper for the Court to rely on the hearsay evidence contained in the plaintiff’s affidavit. As is pointed out in Delany and McGrath on Civil Procedure in the Superior Courts (3rd Ed.) at para. 20 -70, Order 40, rule 4 of the Rules of the Superior Courts 1986 lays down the important principle that, except on interlocutory applications, an affidavit should be confined to facts within the first hand knowledge of the deponent. In relation to an affidavit sworn in an interlocutory application, the authors state as follows at paras. 20 – 71:
“‘In an affidavit sworn in relation to an interlocutory application, it is permissible to include hearsay, this is to say, averments of facts that are not within the knowledge of the deponent. Indeed, it appears that it is possible for a deponent to give second-hand hearsay evidence whereby he avers that he has been informed of something by X who in turn has been informed by Y. However, rule 4 requires that the grounds for the belief stated by the deponent must be given.”
The plaintiff in his affidavit has been astute in identifying the grounds for his belief in the information he has obtained from third parties to which he deposes and in every case has exhibited a document signed by the third party, which corroborates his averment.
4. Mr. Burns’ answer to the application and the plaintiff’s response
4.1 Mr. Bums’ replying affidavit is more concerned with making assertions as to what he believes to be the relevant law than to setting out factual matters. In it he has asserted that the plaintiff has an equitable duty of care to him and to the Bank, that the plaintiff performed his duty of care to the Bank with great diligence but was completely negligent in his duty of care to Mr. Burns. He has exhibited a letter of 9th March, 2012, which he had sent to the plaintiff, in which he raised variousquestions starting with the question: “Do you have a duty of care to me?” That letter contained a range of questions which, in my view, are wholly immaterial to the issues which the Court has to determine on the interlocutory application. For instance, the question was raised as to what steps the plaintiff had taken “to ensure that my mortgages have not been securitised”. There is no evidence before the Court to indicate that the Bank has in any way ceased to be the mortgagee or chargee in relation to the properties the subject of this application or to suggest that the Bank has divested itself of its legal powers as mortgagee or chargee. Two bulky documents, which between them run to 340 pages, exhibited by Mr. Burns and designated Exhibit A, which appear to be prospectuses for the issue of so-called “Credit Linked Notes” by a company incorporated in this jurisdiction and a company incorporated in the Federal Republic of Germany do not suggest otherwise, in that a cursory glance at the first page of each document reveals that each “Reference Loan”, as defined, is secured on property located in Denmark. Further, it was asserted by Mr. Burns that the appointment of the plaintiff is flawed, which, having regard to his submissions, I understand to be based on his belief that the securities which he and Mrs. Burns gave the Bank have been securitised.
4.2 In his replying affidavit, Mr. Burns also exhibited correspondence from Padraig O’Connell to the Bank. In the first letter, dated 7th February, 2012, Mr. O’Connell stated that he was acting as “a Mediator” in order to resolve the outstanding amount due by Mr. Burns and Mrs. Burns. In a subsequent letter dated 16th February, 2012, Mr. O’Connell made reference to what I understand to be the summary proceedings in this Court by the Bank against Mr. Bums and asked to be contacted with regard to setting up a meeting to discuss the matter. There was a further letter dated 20th February, 2012 from Mr. O’Connell to the Bank seeking a meeting. Finally, there was a letter dated 13th March, 2012 from Mr. O’Connell of “O’Connell Mediation Services”, setting out “a proposal” to the Bank and seeking a meeting. Mr. Bums complained that the Bank had not provided a meeting, as requested. I am satisfied on the evidence that Mr. O’Connell was one of the associates of Mr. Bums and was involved in a number of the incidents reported by officers of Pinnacle Security to have taken place at the Navan Property.
4.3 In his submissions Mr. Burns relied on a decision of the Court of Appeal of England and Wales delivered on 26th May, 1999 and furnished the Court with a copy of the judgment as approved by the Court. In fact, the authority in question has been reported as Medforth v. Blake [1999] 3 All ER 97. The facts in that case were that the plaintiff owned a pig farming business which was financed by loans from a bank, which were secured by a charge over his farm. The bank appointed receivers over the mortgaged property. The receivers managed the farm business under a power contained in the charge. The plaintiff was dissatisfied with the management of the business, alleging, in particular, that the receivers had failed to obtain freely available discounts on feed. Accordingly, he commenced proceedings against the receivers, contending, inter alia, that they had owed him a duty of care in managing the farm business. On the trial of a preliminary issue, the receivers contended that they owed the plaintiff no duty beyond one of good faith. The decision of the Court of Appeal is succinctly summarised in the head-note as follows:
“Where a receiver managed mortgaged property, his duties to the mortgagor and anyone else interested in the equity of redemption were not necessarily confined to a duty of good faith. Rather, in exercising his powers of management, the receiver owed a duty to manage the property with due diligence, subject to his primary duty of attempting to create a situation where the interest on the secured debt could be paid and the debt itself repaid. Thus although due diligence did not oblige the receiver to continue a business at the mortgaged property, it did require him to take reasonable steps to manage it profitably if he did choose to continue that business. Such a duty, like the duties owed by a mortgagee to the mortgagor, was imposed by equity.”
The foregoing summary accurately reflects the conclusions of Sir Richard Scott V.-C. at page 111. Responding to Mr. Burns’ reliance on that authority, counsel for the plaintiff stated that it is not disputed that the plaintiff, in his capacity as receiver, owes a duty of care to Mr. Burns, in the case of the Navan Property, and to Mr. Burnsand Mrs. Burns, in the case of the Dublin properties. However, counsel submitted that there is no evidence of a breach of that duty of care.
4.4 Mr. Burns also submitted that he had “fired” the receiver because the receiver did not realise that he had an equitable duty to him. He submitted that the Conveyancing Act of 1881 and also s. 108(2) of the Land and Conveyancing Law Reform Act 2009 (the Act of 2009) are biased towards receivers and banks. Section 108(2) of the Act of 2009 provides that a receiver appointed under s. 108(1) is the agent of the mortgagor, who is solely responsible for the receiver’s acts or defaults, unless the mortgage provides otherwise. Mr. Burns submitted that he must have power to dismiss the receiver because, if the position were otherwise and he was required to be responsible for an agent, that situation would be against his human rights and unlawful.
4.5 In responding to that point, counsel for the plaintiff relied on the decision of the Court of Appeal of England and Wales in Gomba Holdings UK Ltd. & Ors. v. Minories Finance Ltd & Ors. (I 989) 5 BCC 27 and, in particular, the following passage from the judgment from Fox L.J. in relation to the nature of a receiver’s agency (at p. 29):
“The agency of a receiver is not an ordinary agency. It is primarily a device to protect the mortgagee or debenture holder. Thus, the receiver acts as agent for the mortgagor in that he has power to affect the mortgagor’s position by acts which, though done for the benefit of the debenture holder, are treated as if they were the acts of the mortgagor. The relationship set up by the debenture, and the appointment of the receiver, however, is not simply between the mortgagor and the receiver. It is tripartite and involves the mortgagor, the receiver and the debenture holder. The receiver is appointed by the debenture holder, upon the happening of specified events, and becomes the mortgagor’s agent whether the mortgagor likes it or not. And, as a matter of contract between the mortgagor and the debenture holder, the mortgagor will have to pay the receiver’s fees. Further, the mortgagor cannot dismiss the receiver since that power is reserved to the debenture holder as another of the contractual terms of the loan. It is to be noted also that the mortgagor cannot instruct the receiver how to act in the conduct of the receivership.”
4.6 In my view, what is stated in that passage reflects the law in this jurisdiction. As regards the Navan property, Mr. Burns cannot dismiss the plaintiff, as receiver, nor can he instruct the plaintiff, as receiver, how to act in the conduct of the receivership. The same applies to the position of Mr. Bums and Mrs. Burns vis-á-vis the Dublin Properties.
4.7 In a nutshell, Mr. Bums’ answer to the plaintiff’s application is misconceived, being based on an erroneous belief as to the relevant legal principles.
5. Conclusions on the plaintiff’s entitlement to an interlocutory injunction
5.1 The objective of the plaintiffs application for an interlocutory injunction is to obtain an order from the Court regulating the relationship of the plaintiff, as receiver appointed by the Bank as mortgagee/chargee, on the one hand, and the defendants, as mortgagors/chargors, on the other hand, pending the determination of the substantive proceedings. The tests to be applied by the Court in determining whether such an order should be made are the tests laid down by the Supreme Court in Campus Oil Ltd. v. Minister for Industry and Energy (No. 2) [1983] I.R. 88.
5.2 As regards the Navan Property, of which Mr. Bums is the owner, he entered into the Navan Charge with the Bank whereby he agreed that, at any time after demand for repayment of the monies secured by the Navan Charge, the Bank could appoint a receiver who could enter upon and take possession of the Navan Property. That is what has happened. The Bank demanded repayment of the monies secured by the Navan Charge, and, Mr. Burns not having complied with the demand, the Bank appointed the plaintiff as receiver and, as he was entitled to do, the receiver entered into possession of the Navan Property on 16th February, 2012. What has happened since then is that Mr. Burns has endeavoured to prevent the receiver retaining possession and from receiving the rents and profits of the Navan Property. Mr. Bums has adduced no evidence whatsoever, nor has he made any argument on the basis of which it is possible to conclude, that he has any entitlement to oust the plaintiff from possession or receipt of the rents from the Navan Property. I have absolutely no doubt that the plaintiff meets the first test on an application for an interlocutory injunction, in that there is a fair issue to be tried that he is entitled to remain in possession and is entitled to receipt of the rents and profits of the Navan Property, pending the determination of the substantive proceedings. The same applies to the Dublin Properties.
5.3 As regards the second test, whether damages would be an adequate remedy for the plaintiff, if he were to establish an entitlement to a permanent injunction at the substantive hearing but an interlocutory injunction had been refused, the glaring reality of the situation, on the basis of the evidence put before the Court by Mr. Bums, is that Mr. Bums and Mrs. Bums would not be able to meet a claim for damages. It is interesting to note that the “proposal”, formulated as two alternative proposals, made by Mr. O’Connell on his behalf to the Bank in the letter of 13th March, 2012 were: to sell the property at its best possible selling price, and “for the remainder of the loan to be a write off’; or to ”bring down the loan to the actual market value at present, therefore lower repayments will be passed on to a possible tenant”. Mr. O’Connell also stated in the letter that, having reviewed Mr. Bums’ finances, those proposals seem to be the only way forward. On the other hand, the plaintiff has given an undertaking as to damages on foot of which Mr. Bums and Mrs. Bums could be adequately compensated for any loss which they might sustain by reason of the grant of an interlocutory injunction, if it were to transpire on the determination of the substantive proceedings that the interlocutory injunction should not have been granted.
5.4 I am also satisfied that the third test, whether the balance of convenience lies in favour of the grant of an interlocutory injunction, has been met by the plaintiff. Before the Bank demanded repayment of the monies secured by the various mortgages, Mr. Bums and Mrs. Bums had not been meeting their undenied and undeniable obligations to the Bank. I think it is reasonable to infer that, if they were allowed to continue in receipt of the rents out of the various properties, they would not rectify that situation, in consequence of which their joint liability to the Bank, which is now just short of €1.9m, would increase in circumstances in which it is obvious on Mr. Burns’ own evidence that they will not be able to discharge the liability. Apart from that, I consider that it is appropriate that the Court should have regard to the position of the tenants in the various properties and to the strong evidence, which was not contradicted on affidavit, that some at least of those tenants are being harassed and intimidated by Mr. Bums and his associates and, as a matter of probability, will not continue to put up with that conduct. In the circumstances, I am satisfied that the balance of convenience favours the grant of, and the continuance in force of the interlocutory injunction which I granted on 30th March, 2012.
5.5 Accordingly, all the relevant tests having been met, the interlocutory injunction will continue until the determination of the substantive proceedings, or further order.
Lynch and Others v. Ardmore Studios (Ir.) Ltd.
[1966] IR 143
By a deed of agreement made between the Industrial Credit Company Ltd. and the receiver, dated the 31st October, 1963, being supplemental to the mortgage debenture and further deeds of charge the Industrial Credit Company Ltd. did thereby:
“1. Appoint the Receiver to be Receiver of all the undertaking property and assets present and future of the Borrower including its uncalled capital book debts and goodwill and also all other if any the property and assets comprised in the said recited Mortgage Debenture and deeds of Further Charge and the property and assets from time to time subject to the floating charge created by the said recited mortgage debenture and deeds of further charge all of which said property is referred to in the said recited Mortgage Debenture and Deeds of Further Charge and also hereinafter referred to as ‘the mortgaged property.’
2. Delegate to the Receiver the powers following, that is to say:
(a) Power to enter upon take possession of collect and get in the mortgaged property or any part or parts thereof and for that purpose to take proceedings in the name and on behalf of the Borrower or otherwise as it may seem expedient.
(b) To carry on or concur in carrying on the business of the Borrower or any part thereof and in particular (without restricting the generality of the foregoing powers) to employ and dismiss managers, agents, servants and others upon such terms and with such salaries wages or remuneration as he shall think proper and pay out of the said mortgaged property or the proceeds thereof for materials and machinery and things as he may consider necessary and with the consent in writing of the Credit Company to raise money on the security of the mortgaged property or any part thereof in priority to the said recited Mortgage Debenture and Deeds of Further Charge.
(c) To sell or concur in selling the mortgaged property or any part thereof and to carry any such sale or sales into effect on behalf of the Borrower or otherwise convey the same to a purchaser.
(d) To make any arrangement or compromise which he shall think expedient in the interests of the Credit Company.
(e) To do all such other acts and things as may be necessary and expedient in pursuance of the powers conferred on the receiver by law and by the said recited Mortgage Debenture and Deeds of Further Charge.”
The receiver’s agreements are set out in paras. 3 and 4 of the agreement and are as follows:
3. The Receiver agrees that he shall act as such Receiver and exercise the powers delegated to him as aforesaid subject to and in conformity with any directions that may be given to him by the Credit Company from time to time and shall subject to the payment of all debts having priority to any charge created by the said recited Mortgage Debenture and Deeds of Further Charge by virtue of sections 107 and 209 of the Companies (Consolidation) Act, 1908, and subject to the provisions in that behalf contained in the said recited Mortgage Debenture and Deeds of Further Charge and transfer all monies received by him to the Credit Company and otherwise carry out his duties in accordance with the provisions on that behalf in the said recited Mortgage Debenture and Deeds of Further Charge.
4. The Receiver further agrees that he will from time to time furnish to the Credit Company all such accounts documents and information regarding the affairs of the Borrower as may be required by the Credit Company
PROVIDED ALWAYS that the receiver shall for all purposes be the agent of the Borrower and the Borrower alone shall be responsible for his acts and defaults.
AND PROVIDED ALSO that the Credit Company shall be at liberty to discharge the receiver at any time by giving to the receiver one week’s notice in writing.”
The effect of the appointment of Mr. Sandys under the terms of the debenture was to make him receiver and manager of the Company’s business and property. As to the position of a person appointed to be a receiver and manager under a mortgage debenture of this kind there are some observations in the judgments of the Court of Appeal in England in In re B. Johnson & Co. (Builders) (1) to which I wish to refer. The applicant in that case sought an order under the Companies Act, 1948, for the investigation of the conduct of the receiver and the liquidator. It was held that the receiver was not within the class of persons whose conduct could be the subject of an examination under the section proceeded on, but in the course of arriving at this conclusion the character of a receiver’s managership was considered. At p. 644, Lord Evershed M.R. said:”The situation of someone appointed by a mortgagee or a debenture holder to be a receiver and manageras it is said, ‘out of court’ is familiar. It has long been recognised and established that receivers and managers so appointed are, by the effect of the statute law, or of the terms of the debenture, or both, treated, while in possession of the company’s assets and exercising the various powers conferred upon them, as agents of the company, in order that they may be able to deal effectively with third parties. But, in such a case as the present at any rate, it is quite plain that a person appointed as receiver and manager is concerned, not for the benefit of the company but for the benefit of the mortgagee bank, to realise the security; that is the whole purpose of his appointment; and the powers which are conferred upon him, and which I have to some extent recited, are (as Sir Lynn observed, and I think fairly observed) really ancillary to the main purpose of the appointment, which is the realisation by the mortgagee of the security (in this case, as commonly) by the sale of the assets.”
At p. 661, Jenkins L.J. states the position of a receiver as follows: “. . . receiver and manager for debenture holders is a person appointed by the debenture holders to whom the company has given powers of management pursuant to the contract of loan constituted by the debenture, and, as a condition of obtaining the loan, to enable him to preserve and realise the assets comprised in the security for the benefit of the debenture holders. The company gets the loan on terms that the lenders shall be entitled, for the purpose of making their security effective, to appoint a receiver with powers of sale and of management pending sale, and with full discretion as to the exercise and mode of exercising those powers. The primary duty of the receiver is to the debenture holders and not to the company. He is receiver and manager of the property of the company for the debenture holders, not manager of the company. The company is entitled to any surplus of assets remaining after the debenture debt has been discharged, and is entitled to proper accounts. But the whole purpose of the receiver and manager’s appointment would obviously be stultified if the company could claim that a receiver and manager owes it any duty comparable to the duty owed to a company by its own directors or managers.”
Finally, at p. 664, Parker L.J. says:”What, however, in my judgment, is decisive of the case is that any work of management done by a receiver is not done as manager of the company. The powers of management are ancillary to his position as receiver, and, in exercising those powers, he is not acting as manager of the company but as manager of the whole or part of the property of the company.”
These observations, with which I respectfully concur, support the contentions made that a receiver appointed acts for the benefit of the debenture holder, but with the precise nature of his position I shall deal more fully later.
On the actual point in issue in this action, regarding the right to set off a debt due by a company before the appointment of a receiver against a debt becoming due to the company after the appointment of a receiver, there was cited to me a case of N. W. Robbie & Co. Ltd. v. Witney Warehouse Co. Ltd. (1) which has many features strikingly similar to the present case, as will be seen from the following recital of the facts.
In January, 1960, the plaintiff company issued a debenture to the Bank of Ireland. In July, 1961, the Bank appointed a receiver and manager. Prior to the appointment of the receiver and manager the plaintiff company had sold goods to the defendant company on credit for £95. After the receiver was appointed, he permitted the plaintiff company to carry on business and the plaintiff company sold further goods to the value of £1,251 to the defendant company, again on credit, the goods being portion of the stock of the company when the receiver was appointed. Between November, 1960, and January, 1961, that is, before the appointment of the receiver, the plaintiff company purchased goods from a company called English Spinners Ltd. to the value of £852. After the appointment of the receiver English Spinners Ltd., on the 6th October, 1961, assigned the benefit of their debt to the defendant company. The plaintiffs sued the defendants for the sum of £1,346 due to then. The defendant company, admitting that the balance of £494 was due, claimed to set off the sum of £852. It was held that it was not entitled to do so by a majority of the Court.
Russell L.J., in the course of his judgment, with which Sellers L.J. concurred, stated certain reasons for the decision which are relevant, in my view, to the present case. At p. 1336, he stated his view of the facts as follows:
“The facts giving rise to the present problem may be shortly stated. First: the mortgage created a floating charge which ceased to float, or crystallised, when the receiver and manager was appointed on July 6, 1961, under the power contained in the debenture dated January 26, 1960. Secondly: with the exception of £95 worth (as to which no special point is taken) the debts for goods delivered totalling £1,346 now sued upon arose as choses in action after the appointment of the receiver and manager, and the goods sold were all in stock when he was appointed. Thirdly: the debt of £852 due from the company which the defendants as assignees thereof seek to set off, arose before the appointment of the receiver and manager, was unsecured, and was assigned to the defendants after the last of the debts constituting the total of £1,346 came into existence.”
He then said:”The first question for consideration is whether on the true construction of the debenture the debt owed by the defendants as it arose became a chose in action of the company subject to an equitable charge in favour of the debenture-holders. I consider that it did.”
Having dealt with certain matters on the construction of the debenture, he then gave reasons why the debt owing by the plaintiff company and assigned by English Spinners Ltd. to the defendant company could not be set off against the plaintiffs’ claim. I quote from p. 1338 of the judgment:”Thus far, in my judgment, by force of the debenture charge an equitable charge attached in favour of the debenture-holders not only on the £95 debt existing at the date of the appointment of the receiver and manager, but also upon the other debts constituting the total of £1,346 as they came into existence on delivery of goods to the defendants after such appointment. These choses in action belonging to the company became thus assigned in equity to the debenture-holders, at times when the defendants had no cross-claim of any kind against the company and consequently no right of set-off. Before the defendants acquired by assignment this cross-claim the defendants must be fixed with knowledge of this equitable assignment to the debenture-holders (by way of charge) of the debt owed by the defendants to the company. A debtor cannot set off his claim against X against a claim by X against him which the debtor knows has been assigned by X to Y before the debtor’s claims arose. Just as an assignee of a chose in action takes subject to an already existing right of set-off, so a debtor with no existing right of set-off cannot assert set-off of a cross-claim which he first acquires after he has notice of the assignment of the claim against him; here, for instance, no part of the £852 could have been set off against the £95.
Applying these considerations to the present case, at the time when the defendants first acquired the claim for £852, the choses in action sought to be enforced against the defendants had been assigned to the debenture-holders by way of charge, but the £852 claim in no way involved the debenture-holders. There was, consequently, at the first moment of assertion of set-off, no identity between the persons beneficially interested in the claim and the person against whom the cross-claim existed. There was, therefore, not that prerequisite of set-off, mutuality, to use a word which though perhaps not very exact, was made by Parliament philologically acceptable in the statutes of set-off.”
Later, at p. 1339, he states his conclusions in these words:
“I conclude, therefore, that there is in this particular case no right of set-off because there is no ‘mutuality’ in beneficial interest. The claimants are primarily the debenture-holders: the cross-claim is against the company alone, and is indeed one which in its origin could not be met and was not entitled to be met until the debenture-holders had been paid off in full.”
The decision is founded on the following reasoning, neatly summarised in the head-note of the report of the case in the All England Reports, 1963, vol. 3, at p. 613, which I have paraphrased somewhat. The charge created by the debenture crystallises on assets including choses in action, as they come into existence. Therefore debts as they became due became subject to the equitable charge (tantamount to an equitable assignment) to the debenture holder. Thus, the debts due to the plaintiff company became assigned in equity to the debenture holder before the cross-claim arose.
There was therefore no mutuality at the first moment of assertion of the set-off because the cross-claim by the defendant company did not involve the debenture holder, being against the plaintiff company alone, and consequently there was no right of set-off.
The plaintiffs submitted that the decisions of the Court of Appeal in England in both the cases I have referred to ran counter to the decision of the House of Lords in Gosling v.Gaskell (1). In that case trustees for debenture holders had appointed a receiver under the terms of a deed of a debenture so empowering them, the deed inter alia providing that the receiver in carrying on the business of the company should be the agent of the company. Soon after his appointment, the company was ordered to be wound up compulsorily. The receiver continued to carry on the business and ordered goods from the respondents. The trustees were sued for the price of the goods. It was held that, although the receiver ceased to be the agent of the company after the winding-up order, he did not thereby or at any tine receive any implied or actual authority from the trustees to act as their agent so that the trustees were not liable for the goods. There are certain observations in the speeches of the Law Lords relating to the beneficial interest in the profits made by the receiver as belonging to the company and as to the business being carried on by and on behalf of the company which were strongly relied on as showing that assets acquired by a receiver in a case such as the present were the beneficial property of the company so that a debt of the company could properly be set off against them. The words particularly relied on were those of the Lord Chancellor, Lord Halsbury, at p. 583:”The company is still the person solely interested in the profits, save only that it has mortgaged them to its creditors. It receives the benefit of the profits as they accrue, though it has precluded itself from applying them to any other purpose than the discharge of its debts. The trade is not carried on by, or on account of, the creditors, though their consent is necessary in such a case, but the trade still remains the trade-of the company. The company is the person by, or on whose behalf, the business is carried on.”
These observations must be read in the light of what the House was deciding. The actual decision was that the receiver was not the agent of the trustees in ordering the goods. It was assumed that up to the time of the winding-up order he was the agent of the company in carrying on the business. The fact that he ceased to be so on the winding-up order being made did not make him the agent of the trustees.
In my view the decision itself turns on the matter of liability to third parties, and the matters dealt with in the decisions of the Court of Appeal were not involved in the decision of the House of Lords. Something outside and beyond the decision in the House of Lords was dealt with. Lord Evershed M.R., in In re B. Johnson & Co. (Builders)(1), in that part of his judgment to which I have referred, said that it has long been recognised that receivers and managers for debenture holders are treated as agents of the company to enable them to deal effectively with third parties. Moreover, the Court of Appeal actually applied Gosling v. Gaskell (2)in its decision in N. W. Robbie & Co. Ltd. v. Witney Warehouse Co. Ltd. (3) and clearly did not regard it as contrary to the view it formed. The answer to the arguments of the plaintiffs herein, based on the observations of the Lord Chancellor which I have quoted, are, I consider, to be found in certain observations of Russell L.J. in the course of his judgment in that case in which he refers to arguments founded on the provision in the debenture that the receiver should be considered the agent of the company. At p. 1340 he says:”The argument for the defendants depended very largely upon the fact that in this case the receiver and manager was appointed by the debenture-holders and that, as is normal, it was provided that the receiver and manager so appointed should be considered to be the agent of the company. Of course, the purpose of this agreement between the company and the debenture-holders is that the latter should avoid the responsibilities of a mortgagee in possession: but this agency is a reality, as was pointed out in Goslingv. Gaskell (2). It was, however, accepted that if the receiver and manager had been appointed by the Court, the set-off in this case could not have been successfully asserted, because, since such receiver and manager would not have been agent of the company there would be no ‘mutuality.’ It would, I think, be a defect in the law if there was in the present context such a distinction between a receiver and manager appointed by the debenture-holders under the common form which makes him agent for the company and a receiver and manager appointed by the Court, more especially since at any time the latter may be substituted for the former, and where possible the costs of litigation should be avoided. In both cases the receiver and manager is a piece of administrative machinery designed to enforce a charge, in the present case (as in most) an equitable charge, on property of the company. For myself I am not prepared to accept this distinction in the field of set-off; and this would work both ways. In each case proceedings necessary to enforce a claim would be brought by the company, the writ being issued in the name of the company by solicitors instructed by the receiver and manager. In each case the purpose is to recover that which is the property of the company subject to the fact that it is also the beneficial concern of the debenture-holders to whom it has been assigned in equity by way of charge. The substance of the situation is the same in each case, and it is, I venture to think, by the substance and not by the form that the existence or non-existence of a right to set-off is to be ascertained.”
In the last two sentences the very situation referred to by Lord Halsbury is adverted to and accepted; the matter is, however, carried a step further in that the substance of the situation relating to the beneficial interest of the debenture holder arising by reason of the assignment of the charge in equity is recognised in considering whether or not a right of set-off exists. In my opinion therefore the decision in Gosling v. Gaskell (1) does not run contrary to the decision of the Court of Appeal in England in N. W. Robbie & Co. Ltd. v. Witney Warehouse Co. Ltd. (2).
I find myself, with respect, in accord with the reasoning and decision in N. W. Robbie & Co. Ltd. v. Witney Warehouse Co. Ltd. (2) and, applying the reasoning to the present case, the position is this: the first-named defendants in these proceedings (being the plaintiffs in the second action) recovered a judgment for costs amounting to the sum of £1,208 0s. 8d. That was a judgment debt owing to the Company. The charge created by the debenture crystallised on that asset of the Company when it came into existence and it became assigned in equity to the debenture holder at latest upon the taxation of the costs on the 5th August, 1965. That was before the assignment of the cross-debt of the costs in the first action on the 15th October, 1965. At the time of the assertion of the set-off on the 27th October, 1965, there was no mutuality, because the claim founded upon the judgment in the first action involved the Company alone and did not involve the debenture holder. Accordingly, following the decision in N. W. Robbie & Co. Ltd. v. Witney Warehouse Co. Ltd. (2), I am of the view that there can be no valid set-off of the nature claimed by the plaintiffs.
Apart entirely from the conclusions I have come to following the decision of the Court of Appeal in England, I am fortified in the view I have taken by the fact that the same conclusions in principle were arrived at by Mr. Justice McLoughlin in deciding the second action in which the Company were plaintiffs (1). Having cited much the same passages from the judgments in In re B. Johnson & Co. (Builders) Ltd. (2) as I have, he stated his view in so many words that the receiver was not bound by all the Company’s contracts entered into before he became receiver, and in particular was not bound by an alleged agreement with the Electrical Trades Union (Ireland), thus indicating that the obligations of the Company were distinct from those of the receiver put in by the debenture holder.
Since in my view no set-off is available to the plaintiffs in these proceedings, it follows that the defendant Company is entitled to levy execution on foot of its judgment against the plaintiffs and that I must refuse the relief sought and dismiss the proceedings.
Solicitors for the plaintiffs: James O’Connor and Co.
Solicitors for the first-named defendants, Ardmore Studios (Ireland) Limited: Orpen and Company.
Irish Bank Resolution Corporation Ltd & Ors -v- Quinn & Ors
[2012] IEHC 507
Kelly J.
The Receivers
28. The allegations made against the receivers are to the effect that (a) they have not acted impartially and/or in a way which demonstrates independence from the bank and (b) that employees of RSM Farrell Grant Sparks (Sparks), the firm to which the receivers belong, have some connection with either the bank or Quinn finance. I will deal with these allegations in turn.
29. Mr. Taite points out that neither he nor his co-receiver was a party to the action in which the Quinn family have brought proceedings against the bank nor is he a party to these proceedings. The receivers are disinterested as to the outcome of all of these proceedings.
30. Mr. McPartland’s affidavit deals in great detail with various items which he contends are supportive of this application. Since I am of opinion that this application misunderstands the independence which is required of the receivers it is not necessary to deal with them in minute detail. Rather, I will deal with the major elements of the complaints made.
Bazzely
31. Mr. McPartland alleges a lack of independence and partiality in favour of the bank on the part of the receivers, particularly in relation to a Portuguese company called Bazzely. The receiver’s solicitors raised a series of detailed questions concerning this company. It is alleged that this was inappropriate and furthermore that Arthur Cox have a conflict of interest in respect of it.
32. Insofar as the receiver is concerned, he points out that Bazzely was used by members of the Quinn family to purchase contracts for difference in the bank. Bazzely is beneficially and legally owned by a number of the defendants in these proceedings. That being so, it is incumbent on him as receiver of the Quinns’ assets to investigate their shareholding in it. That was why his solicitors wrote to the defendants’ former solicitors seeking such details. The information was not requested because of any instruction issued to him by the bank in a direct or indeed indirect form. The information, rather, was directly relevant to his investigation of the defendants’ assets. He does not share Mr. McPartland’s view that because Bazzely is allegedly valueless that it is not of any relevance to the receiver’s inquiries. He makes a similar point concerning allegations made regarding information sought by him in respect of Quinn Group (ROI) Limited. This was, he says, part and parcel of him doing his job of gathering information in furtherance of his work and not because he was in any way influenced by the bank.
Sparks
33. Mr. McPartland alleges that Sparks “has already been instructed in matters in relation to the Quinn/Anglo dispute”. The receivers accept that Sparks was instructed by QuinnFinance to prepare reports on certain transactions that had been entered into concerning shares in and loans to certain Quinn Finance Group companies. It was asked to comment on whether, in its opinion, certain transfers of shareholdings in and loans to various companies within the Quinn Finance Group to third parties would have taken place for less than full value, and to comment on any commercial rationale for such transactions. That report was requested by Quinn Finance when a court case was ongoing but no representative of Sparks was called to give evidence at the trial. The particular engagement was not carried out by either of the receivers and neither they, nor any member of their team, were involved in the engagement. It is the receiver’s belief that no conflict arises as a result of this and he reiterates that he has no knowledge of the basis of an action by Quinn Finance’s against Mr. McPartland. Sparks have no involvement in that case. The fact that a former client of Sparks has sued Mr. McPartland he says cannot prevent him from acting as receiver in this case.
34. Mr. McPartland also averred to having carried out a web search with a view to identifying employees of Sparks who might have some connection to the bank. There are indeed persons who once worked for the bank and now work for Sparks and vice versa .
35. Two of the individuals named by Mr. McPartland are former employees of Sparks and now work for the bank. Four more once worked for the bank and now work or have worked for Sparks. None of these individuals have any involvement in the current engagement. Two of them ceased to be employees of the bank a number of years ago and a third, whilst formerly an employee of the bank, subsequently became an employee of Irish Nationwide Building Society and moved from there to Sparks.
36. The receivers contend that there is no actual or apparent conflict of interest and that they have not acted in a manner inconsistent with the duties imposed upon them by the court order. The receivers believe that having regard to the task imposed upon them they have acted properly and independently and are objective in their approach to their work.
37. The Quinns also contend that the receivers ought not to pass onto the bank any information which they may acquire. The intention to do so is alleged to be evidence of bias. The receivers say that in so doing in respect of relevant non-privileged information they are merely carrying out their task.
The Solicitors
38. The allegations made against the solicitors are that they have conflicts of interest and have demonstrated a lack of impartiality and independence and furthermore have attempted to mislead the Quinns.
39. Mr. William Day, a partner in Arthur Cox retained by the receivers has sworn a detailed affidavit dealing with these various allegations.
40. When Mr. Taite first approached Mr. Day, he contacted his firms’ conflicts committee and discussed the assignment with members of that committee in detail. He did this because he knew that his firm had acted in connection with and against the bank on many occasions on separate and distinct assignments. However, he points out that the issue of client confidentiality is treated with utmost seriousness by his firm and its members do not share information gained from instructions by third parties without client consent. Because of that it is not possible for him to go into the specifics of the other instructions and activities of his firm on behalf of different clients referred to in Mr. McPartland’s affidavit.
41. He admits that Cox’s were appointed to act for a syndicate of banks who are owed significant sums by Quinn Group Limited which was the holding company of the group of companies commonly referred to as the Quinn manufacturing group. Subsidiaries of Quinn Group Limited have provided guarantees in respect of the borrowings of that company. Neither Quinn Group Limited nor any of its subsidiary guarantors within the Quinn manufacturing group formed part of the international property group which is a distinct collection of companies established by the Quinn family that forms the subject matter of the proceedings which have resulted in the appointment of the receivers.
42. Quinn Group Limited was the counter party with whom the bank syndicate was obliged to deal with on the restructuring of the debts of the Quinn manufacturing group. Quinn Group Limited negotiated a consensual restructuring of the debt due by it to the banking syndicate. Cox’s did not act for the bank in relation to that matter and it was at all times represented by separate Irish and United Kingdom solicitors. The bank was not a creditor of Quinn Group Limited nor was it either an instigator or the instructing party in relation to the creditor’s contingency planning.
43. Mr. Day says that his firm’s involvement on behalf of the banking syndicate to the Quinn manufacturing group was a matter of public record and was known to both Seán Quinn Snr and Peter Darragh Quinn, both of whom were directors of Quinn Group Limited at the relevant time. There was, therefore, no question of Arthur Cox having attempted to mislead the defendants or anyone else.
44. Insofar as the queries raised concerning Bazzely are concerned, he says that these were made with a view to ascertaining what assets the defendants own so that the receiver could fulfil the duties imposed upon him by the court.
45. More generally, Mr. Day says that he believes that Mr. McPartland is of opinion is that if an individual or firm has acted for the bank or its shareholder, the Department of Finance, at any time, such involvement conflicts that person or firm and precludes them from acting for the receivers. He says that this proposition is incorrect and is not really believed by the Quinns because their former solicitors have acted for the bank themselves on many occasions. That firm only ceased to act for the defendants due to funding issues. Indeed, he points out that the profile of one member of Eversheds (the Quinns’ former solicitors) makes specific reference to his role as adviser to the joint administrators of Quinn Insurance Limited on the sale of the general insurance business to a joint venture entity.
46. Mr. Day swears that neither his firm nor himself have any conflict of interest in acting for the receivers. His firm upholds, he says, the correct highest standards of professional conduct and that there is and will be no question of client confidentiality being breached. He furthermore indicates that if the court is of opinion that he ought to, he is quite willing to withdraw and cease to act for the receivers.
The Legal Position
47. I am of opinion that the Quinns in seeking the discharge of the receivers and their solicitors have done so on a misunderstanding of the legal position coupled with a great distrust of the bank and its approach to them.
48. The receivers were appointed in aid of orders made by the court. Those orders required the defendants to disclose all of their assets in circumstances where there was a finding by Dunne J. that the assets of the Quinns had been dealt with by them with a view to placing them beyond the reach of the plaintiffs in these proceedings. The receivers’ role is an active rather than a passive one. It is not merely to preserve such assets as the defendants have chosen to disclose. Rather, it is to collect in and preserve all of the assets of the defendants in whatever jurisdiction they may be and whether they have chosen to disclose them or not.
49. The Quinns apprehend that information is going to be furnished by the receivers to the bank. They believe that this demonstrates a lack of independence which justifies the receivers removal. I believe this to be an incorrect view.
50. Nobody could dispute the statement contained in Kerr and Hunter on Receivers and Administrators (19th Ed.) relied upon by Mr. McPartland where at para. 12 it is said:-
“A receiver in a claim or other proceeding is an impartial person, appointed by the court to collect, protect and receive, pending the proceedings, the rents, issues and profits of land, personal estate or any other kind of asset which it does not seem reasonable to the court that either party should collect or receive, or for enabling the same to be distributed among the persons in title.”
51. In chapter 4 of the same work which was also relied upon by Mr. McPartland, the authors state:-
“A receiver appointed in a claim should, as a general rule, be a person wholly disinterested in the subject matter.”
That particular passage goes on to point out that it is competent for the court in a proper case to appoint as receiver a person who is interested in the subject matter of the claim if it is satisfied that the appointment will be attended with benefit to the estate.
52. In the present case, the crucial thing to bear in mind is that the receivers have to be wholly disinterested in the subject matter of this action. The receivers have no interest in the assets of the Quinns. That is not in dispute.
53. The receivers accept that they have important obligations to the court. These are summarised by Ferris J. in Mirror Group Newspapers Plc v. Maxwell [1998] 1 BCL 638 where he said:-
“The essential point which requires constantly to be borne in mind is that office holders are fiduciaries charged with the duty of protecting, getting in, realising and ultimately passing on to others assets and property which belong not to themselves but to creditors or beneficiaries of one kind or another. They are appointed because of their professional skills and experience and they are expected to exercise proper commercial judgment in the carrying out of their duties. Their fundamental obligation is, however, a duty to account, both for the way in which they exercise their powers and for the property which they deal with.”
54. Obviously, receivers are obliged not to place themselves in a position where their duties to the court are allowed to conflict with some other interest. The position was summarised by Millet L.J. in Bristol and West Building Society v. Mothew [1998] Ch 1 where he said:-
“A fiduciary must act in good faith; he must not make a profit out of his trust; he must not place himself in a position where his duty and his interest may conflict; he may not act for his own benefit or the benefit of a third person without the informed consent of his principal.”
55. In the present case, there is no dispute but that the receivers have no interest in the property which they are charged to preserve.
Onus of Proof – Receivers
56. It is trite law to state that he who asserts must prove. In the present case, the onus is on the Quinns to demonstrate grounds which would justify the removal of the receivers. They have to produce specific evidence of partiality or real or perceived bias.
57. In Thomas v. Dawkin [1792] 1 Ves Jun 452, Thurlow L.C., held that where an applicant seeks to set aside the appointment of a receiver on the grounds of bias there must be “some substantial objection to induce the court to overturn the appointment”.
58. Assistance as to the yardstick to be applied by the court on an application such as this can be gleaned from a number of more recent English cases. The first dealt with an application seeking to remove trustees in bankruptcy from their office on the grounds that they had colluded with a creditor of the bankrupt to work against the latter’s interest. The case is that of Doffman & Isaacs v. Wood & Hellard [2011] EWHC 4008. Proudman J. had this to say:-
“It is common ground that cause must be shown for removal and that case law generally on the removal of office holders is relevant. Section 298 uses similar wording to that of s. 172(2) relating to the removal of a liquidator on a compulsory winding up. The question of whether to remove an insolvency practitioner of any kind must therefore be measured by reference to the ‘real substantial honest interest’ of the process, and to the purpose for which the office holder is appointed: See Adam Eyton Limited [1887] 36 Ch D. 299 per Bowen L.J. at 306 quoted with approval in Re Edennote Limited [1996] 2 BCLC 389 at 398.”
59. An older English case in which such an application was successful was in Re Sir John Moore Gold Company [1879] 12 Ch D. 325. The liquidator in that case was sought to be removed because of partiality in circumstances where he had to investigate whether proceedings should be brought against the company’s former directors. He knew both of them. He expressed his support for one of the directors in a letter and expressed the view that there would be no evidence to support the allegation that he had acted improperly. Bacon V.C. held:-
“That is strong testimony in their favour, but it is also a proof that he takes their side very strongly. That being so, Mr. Dicker having expressed a strong view against the applicant, having himself an interest adverse to the application, and having according to his own view nothing of importance left to be done in the liquidation, I think that his continuing in the office of liquidator can have no other effect than to impede Schlotel’s proceedings. Everybody knows the difference which it makes in the conduct of such proceedings to have a liquidator who is hostile to them and disposed to put obstacles in the way. It seems to me that the case is one in which Mr. Dicker ought not to be continued as liquidator.”
60. In my view, where the removal of a court appointed receiver is sought because of alleged partiality or bias, the court has to be satisfied as to specific evidence of some improper conduct on the part of the receiver. It is not enough to suggest that the receiver will not be capable of acting independently because of a former relationship with one of the parties to the dispute. The relationship would have to be a subsisting one with evidence that the receiver will act improperly under the direction of one of the parties.
61. I am of the view that there is no basis established for removing the receivers because of their firm’s former involvement in the manner already described with aspects of Quinn Finance. Neither is there any case established by reference to employees who were or are employees of the bank.
62. I of the opinion that Mr. Taite did not act inappropriately in initially seeking the appointment of McCann Fitzgerald as his solicitors. While Dunne J. did not accede to that application she made no suggestion express or implied that he had acted inappropriately in seeking to do so. I have already dealt with his motivation for seeking to appoint McCann Fitzgerald and his belief that that course of action would save considerably on costs and time. Indeed, such occasionally occurs in official liquidations where liquidators have sought to instruct the solicitor who acted for a creditor which originally presented the petition. Whilst that does not happen frequently it nonetheless has had judicial approval as, for example, in Re Schuppan [1996] 2 All E.R. 664 where Robert-Walker J. held:-
“In a case where the real difficulties that are foreseen are in connection with the identification, tracing and recovery of assets for the bankrupt’s estate, the retainer of solicitors who already had a good grasp of these difficulties can be of great advantage to all the creditors, not just the petitioning creditor.”
63. A similar view was expressed by Pumfrey J. in Re Barron Investments (Holdings) Limited (In Liquidation) [2000] 1 BCLC 272, where he accepted that whilst it was unusual for a liquidator to seek to instruct the solicitor who had acted for the petitioning creditor, it would not be prohibited simply because of a theoretical possibility of conflict. He said:-
“I think that it is necessary to analyse the particular facts of the particular case in order accurately to identify the manner in which the conflict arising by reason of dual employment is said to occur. Then I think it is necessary to be satisfied that there is a genuine dual employment. It seems to me that if the apprehended conflict is a mere theoretical possibility, it will not always be necessary for the court to take steps to deal with it unless and until the actual conflict arises.”
64. Much emphasis was placed upon the receivers’ original decision to instruct McCann Fitzgerald. It created suspicion and soured the Quinn’s view thereafter. As I have shown there was nothing necessarily wrong with that decision, given the particular circumstances of this case. In any event, that appointment did not proceed. I am satisfied that the onus of proof to warrant the order sought has not been discharged by the applicants.
65. Likewise, I am of the view that there is no demonstration of partiality or bias by reference to the receivers’ activities concerning Bazzely. The Quinns seem to believe that the receivers are not obliged to carry out any investigative work. That is not so. In order to secure and preserve the assets, they must first locate them. I do not perceive any impropriety on the receivers’ part in this regard. Indeed, the receivers could be criticised for not pursuing this line of enquiry.
66. In due course the receivers will be entitled to disclose to the bank all relevant non-privileged information obtained by them pertaining to the assets. An intention to do so is not indicative of bias or partiality.
Onus of Proof – Solicitors
67. The onus of proof on somebody seeking to remove a solicitor is no less than that in respect of a receiver.
68. One begins with the proposition that parties are free to chose their own legal advisers. There is, nonetheless, a jurisdiction to intervene so as to ensure that a solicitor does not remain on record for any party where his doing so would not be in the interests of justice. The jurisdiction to remove a solicitor is, however, exercised sparingly. In Re Recover Limited [2003] 2 BC LC, Pumfrey J. said:-
“That jurisdiction must, in my view, be exercised with caution, as in general parties to litigation are entitled to the advisers they have chosen.”
69. It is not the law that a solicitor or a firm of solicitors can never act for and against a client, even in the same matter. In Re Schuppan [1996] 2 All E.R. 664, Robert Walker J. said:-
“It is not the law that a solicitor or firm of solicitors can never act for and against a client, even in the same matter. The law and practice in England is less inflexible that in (for instance) the United States (see Re a Firm of Solicitors [1995] 3 All E.R. 482 at 488 – 489 where Lightman J. said:-
‘The basis of the courts’ intervention is not a possible perception of impropriety: it is the protection of confidential information’.”
70. In Farrington v. Rowe McBride and Partners [1985] 1 NZLR 83, Richardson J. said:-
“A solicitor’s loyalty to his client must be undivided. He cannot properly discharge his duties to one whose interests are in opposition to those of another client. If there is a conflict in his responsibilities to one or both he must ensure that he fully discloses the material facts to both clients and obtains their informed consent to his so acting: no agent who has accepted an employment from one principal can in law accept an engagement inconsistent with his duty to the first principal from the second principal, unless he makes the fullest disclosure to each principal of his interest, and obtains the consent of each principal to the double employment. And there will be some circumstances in which it is impossible, notwithstanding such disclosure, for any solicitor to act fairly and adequately for both.”
71. That view was cited with approval by Sapolu C.J. in Apia Quality Meats Limited v. Westfield Holdings Limited [2007] 3 LRC 172.
72. Sometimes it is a former client who takes exception to his erstwhile solicitor acting against him. This has been considered on a number of occasions by the English courts.
73. In Prince Jeffri Bolkiah v. KPMG (A Firm) [1999] 2 AC 222, Lord Millett said this:-
“In Rakusen’s case the Court of Appeal founded the jurisdiction on the right of the former client to the protection of his confidential information. This was challenged by counsel for Prince Jefri, who contended for an absolute rule, such as that adopted in the United States, which precludes a solicitor or his firm altogether from acting for a client with an interest adverse to that of the former client in the same or a connected matter. In the course of argument, however, he modified his position, accepting that there was no ground on which the court could properly intervene unless two conditions were satisfied: (i) that the solicitor was in possession of information which was confidential to the former client and (ii) that such information was or might be relevant to the matter on which he was instructed by the second client. This makes the possession of relevant confidential information the test of what is comprehended within the expression ‘the same or a connected matter.’ On this footing the court’s intervention is founded not on the avoidance of any perception of possible impropriety but on the protection of confidential information.
My Lords, I would affirm this as the basis of the court’s jurisdiction to intervene on behalf of a former client. It is otherwise where the court’s intervention is sought by an existing client, for a fiduciary cannot act at the same time both for and against the same client, and his firm is in no better position. A man cannot without the consent of both clients act for one client while his partner is acting for another in the opposite interest. His disqualification has nothing to do with the confidentiality of client information. It is based on the inescapable conflict of interest which is inherent in the situation.”
74. In dealing with the position where a former client objects to a solicitor acting for a new client, Lord Millett said:-
“Where the court’s intervention is sought by a former client, however, the position is entirely different. The court’s jurisdiction cannot be based on any conflict of interest, real or perceived, for there is none. The fiduciary relationship which subsists between solicitor and client comes to an end with the termination of the retainer. Thereafter the solicitor has no obligation to defend and advance the interests of his former client. The only duty to the former client which survives the termination of the client relationship is a continuing duty to preserve the confidentiality of information imparted during its subsistence.”
75. Returning to the decision of Pumfrey J. in Re Barron Investments, he said:-
“I think that it is necessary to analyse the particular facts of the particular case in order accurately to identify the manner in which the conflict arising by reason of dual employment is said to occur. Then I think it is necessary to be satisfied that there is a genuine dual employment. It seems to me that if the apprehended conflict is a mere theoretical possibility, it will not always be necessary for the court to take steps to deal with it unless and until the actual conflict arises.”
76. The Quinns do not allege that Arthur Cox is in breach of the prohibition against dual employment. It is not alleged that the firm is currently acting for two clients whose interests are adverse to each other. Neither is it alleged that Arthur Cox may be in possession of information that is confidential to a former client and which is relevant to the matters on which Mr. Day has been instructed by the receivers.
77. What the Quinns contend is that because of the identity of some of its former clients, Arthur Cox may give biased evidence to the receivers or part with information confidential to the receivers. But in this regard, there is no evidence of any particular incidents of improper advice being given or of any apprehended or actual disclosure of confidential information. Merely because Cox’s have in the past acted for clients whose interests may be perceived by the Quinns to be adverse to theirs is not evidence of bias.
78. I do not find any evidence of any form of wrongdoing, conflict of interest or impropriety on the part of Mr. Day or Arthur Cox to warrant the making of the order sought.
Conclusion
79. It is for the above reasons that I dismissed the application to remove both the receivers and the solicitors.
Ruby Property Company Ltd. v. Kilty
[1999] IEHC 50
Mr. Justice McCracken delivered the 1st day of December 1999
CHALLENGE TO THE RECEIVER
8. In the amended statement of claim a declaration is sought that the purported appointment of the Receiver was invalid and of no effect. It is conceded by the Defendants that at the date of the appointment of the Receiver on the 20th day of October 1994, there were substantial monies due to the Bank, but it is alleged that because the loan terms were revised in January 1992, after the date of the debenture, in effect a new debt was created, and the debenture was void and inoperative in relation to it, notwithstanding the fact that it was expressed to be a continuing security for all monies due from the First Plaintiff to the Bank, and in particular it was alleged that it contravened the provisions of section 31(1)(c) of the Companies Act, 1990. This section provides that, subject to certain exceptions:-
“A company shall not enter into a guarantee or provide any security in connection with a loan, quasi-loan or credit transaction made by any other person for such a director or a person so connected”.
9. There is no doubt in the present case that the company did enter into a guarantee and provide security in connection with loans by the Bank to the Second and Third Plaintiffs, who were it’s directors, however, this section only came into force on the 1st day of February 1991, while the guarantee and security were granted on the 3rd day of August 1990. The Defendants argued that this part of the claim cannot succeed because, at the time of the debenture, it was perfectly lawful for the company to give security for it’s directors in this way. The Plaintiffs, on the other hand, argued that the amount and terms of the loan were revised after the 1st day of February 1991, and that in reality that amounted to the giving of a new security. While I think it unlikely the Plaintiffs could succeed on this argument, it is possible that more detailed evidence of the nature of the arrangements could lead to a finding that a new security was given, which would be void. However, any issue of this nature would be an issue between the First Plaintiff and the Bank, and not between the Plaintiffs and the Defendants in these proceedings. Unless and until the transaction has been avoided as against the Bank, the debenture and the appointment of the Receiver remain valid.
10. It is acknowledged by the Plaintiffs that if the debenture is valid, then the Bank was entitled to appoint a Receiver at the time it did so, but they go on to make a further argument on the basis that the Receiver had no power to sell the property unless, at the time of the sale, there were in fact monies due to the Bank, and that the Receiver had a duty to satisfy himself that there were monies so due. The situation was that, in addition to the property at issue in these proceedings, the Bank also had a mortgage over the dwelling house of the Second and Third Plaintiffs, and that on the 11th day of October 1994 the Bank were owed some £287,161.00 on foot of the said mortgage. On the 12th day of October 1994 the Bank took possession of the said dwelling house, but they had not disposed of it on the date they appointed the Receiver. The house was ultimately sold by public auction in November 1994 for the sum of £305,000.00, a sum which the Plaintiffs say was sufficient to discharge the liability of the Second and Third Plaintiffs to the Bank, and they claim that as of that date no monies were due to the Bank on foot of the debenture. It would appear, however, that the Bank claims that further monies were due for costs and expenses, including the costs of their action for possession of the dwelling house against the Second and Third Plaintiffs, and that in fact a sum of some £15,000.00 was due to them over and above the £305,000.00 realised for the dwelling house. It would appear that the Second and Third Plaintiffs never in fact challenged this claim by the Bank, other than by an abortive attempt to have the Bank joined as a co-Defendant in these proceedings, a matter which I will deal with further. That being so, I am quite satisfied that the Receiver was entitled to treat those monies as being due on foot of the debenture, and was entitled to sell the property accordingly. Accordingly, I am quite satisfied that, unless the security in some way offended section 31 of the Companies Act, 1990, which it does not, the Plaintiffs could not succeed in setting aside the transaction or in challenging the Receiver’s right to sell.
11. Finally, in the context of the possibility of the security being in breach of section 31 of the Companies Act, 1990, I am quite satisfied that even if that were the case, the Plaintiffs would not have any remedy against either of the Defendants in the present case. Section 38(1) of the Companies Act, 1990 provides that:-
“Where a company enters into a transaction or arrangement in contravention of section 31 the transaction or arrangement shall be voidable at the instance of the company unless:-
(a) restitution of any money or any other asset which is the subject matter of the arrangement or transaction is not longer possible,…or
(b) any rights acquired bona fide for value and without actual notice of the contravention by any person other than the person for whom the transaction or arrangement was made would be affected by its avoidance.”
12. Firstly, the transaction which could be said to contravene section 31 is the transaction between the company and the Bank. As I have said, the Bank is not a party to these proceedings, and they do not seek to avoid that transaction as against the Bank. Secondly, I have no doubt whatever that the Second Defendant acquired the property bona fide and for value without actual notice of any contravention of section 31, if there has been such a contravention. Therefore, any challenge to the sale on the basis of a possible contravention of section 31 must fail.
SALE AT UNDERVALUE
13. The Plaintiffs allege that the Receiver sold the property at an undervalue, and was in breach of section 316A of the Companies Act, 1963, which provides:-
“A Receiver, in selling property of a company, shall exercise all reasonable care to obtain the best price reasonably obtainable for the property as at the time of sale.”
14. This is simply a statutory acknowledgement of the position at common law, as it has long been decided that a Receiver owes a duty of care to the company when selling it’s property. Holohan -v- Friends Provident and Century Life Office (1966) I.R.1. To consider whether this claim can succeed, it is necessary to detail some of the events leading up to the sale, and the evidence put forward by the Plaintiffs.
15. I propose to consider firstly the correspondence which took place between the Plaintiffs’ Solicitors and the Solicitors for the Receiver in the weeks leading up to the sale. While I only propose to refer to portions of this correspondence which are relevant to the question of value, I think it is necessary to refer to it at some length.
16. On the 6th day of March 1995 the Receiver’s Solicitor wrote to the Plaintiffs’ Solicitor saying:-
“The highest offer made to date is £79,000.00. In the circumstances Jones Lang have recommended to the Receiver that this offer should be accepted in the absence of any increased offer over the coming few days. The offer has the advantage of avoiding advertising expenses which would be considerable. At one point it was thought that the property would be offered for sale through tender but once again the Receiver has been advised by the Auctioneer that any tender was liable not to exceed the offer currently on the table and consequently the opinion of the Auctioneer is that a tender should be avoided with of course, the consequent costs involved therein.
Following upon that professional advise, the Receiver is now prepared to accept the offer in the absence of any increased offer over the coming seven days. The offer is of course subject to contract and good title.
The purpose of this letter is to put you on notice of the Receiver’s proposals in this regard irrespective of the fact that the Receiver has no legal obligation to put your client on notice of his intentions. That said, the Receiver is conscious of the fact that your client may be interested in purchasing the property and to that end would like to afford your client the opportunity of making a bid in respect thereof.”
17. The Plaintiffs’ Solicitor replied by letter of the 9th day of March saying that his clients wished to negotiate with the Bank to discharge the amount due and asked that the sale should be put on hold until they could sort out the actual amount due and discharge it. By letter dated the 13th day of March the Receiver’s Solicitor wrote saying:-
“We note what you say in the final paragraph of your letter. We understand that a slightly increased offer has in fact been made by a third party and that the figure now on offer is of the order of £82,500.00.
We will take instructions with respect to the undertaking requested by you that the Receiver withhold the acceptance of any offer and revert to you as soon as possible.”
18. By letter dated the 15th day of March , although apparently only received by the Receiver’s Solicitors on the 22nd day of March, the Defendants’ Solicitors said:-
“We refer to your letter of the 13th March 1995 and we note that there is now an increased offer on the property of £82,500.00.
We are very concerned that despite not putting the property up for sale through an Auctioneer, that the Receiver is receiving private bids on the property.
The value of the property is worth substantially more than £82,000.00 and we cannot understand why an Auctioneer has not been appointed, why the property has not been sold by Auction and why not even a sign has not been erected describing the property for sale.
We require by return an undertaking from you on behalf of the Receiver that he will not proceed to accept any offers on this property
……in the meantime kindly note that we take great exception to the fact that the Receiver has not complied with his duty, in that he has offered the property up for sale to a limited market, he has not gone to the market, he has not erected the appropriate sign, has not instructed an Auctioneer to sell the property in accordance with normal standard procedures.
The property is valued at substantially more than £82,000.00, please be good enough to confirm that your client will not proceed to accept an offer on this property.
Failing to hear from you, we will be left with no alternative but to apply to the High Court by way of injunction, to restrain the Receiver selling the property on the basis that the Receiver is not proceeding to sell the property in accordance with standard practice of a Receiver in terms of placing the property on the open market for the public.”
19. By letter dated the 20th day of March the Plaintiffs’ Solicitors wrote:-
“Yet again, we have visited the locus and have found no sign standing on the premises advertising the property for sale, in particular we require you to confirm on behalf of the Receiver why the Receiver has not placed the property on the open market and has not completed a full advertising campaign”.
20. These two letters were replied to by the Receiver’s Solicitor by letter dated the 23rd day of March in which he said:-
“Your letter of the 15th March raises certain issues which we specifically wish to deal with as follows:-
(1) Our client has engaged the services of a reputable auctioneering company, Messrs. Jones Lang. Our clients are following the advice of this auctioneering company both as regards the manner of disposing of this premises and as regards it’s value. Our clients are satisfied that the advice they are receiving from this firm is good advice. The Receiver does not have an obligation to market the property for sale by public auction.
(2) Once again, we cannot give you the undertaking which you request in the fifth paragraph of your letter. We have already explained the reason for this in previous correspondence to you.
….Finally, we note the final paragraph of your letter where you make reference to an application to the High Court by way of injunction to restrain the Receiver selling the property on the basis that the Receiver is not proceeding to sell the property in accordance with standard practise of a Receiver by placing the property on the open market for the public. We wish to reiterate that the Receiver is in receipt of advice from a reputable Auctioneer and is following that advice.”
21. On the 4th day of April the Receiver’s Solicitor wrote to the Defendants’ Solicitor saying:-
“On advices received by the Receiver of the company it has been decided to put the sale of the property at Station Road out to tender.
We therefore enclose conditions of sale (one set) incorporating the tender document.
As you will note from the special conditions of the contract the terms of the tender are clearly set out.”
22. By letter dated the 11th day of April, although not received by the Receiver’s Solicitors until the 19th day of April, the Plaintiffs’ Solicitors said:-
“We note the up to date advice that your clients have received, that the property be put up for sale by way of tender.
Can you confirm now, that the new advice, that your client has received also includes a very important factor and that is to say that the property be put up for sale in accordance with normal practice by advertising it in the national newspapers and more especially, placing a sign on the property advertising the property for sale.
Kindly note that our client has instructed us to inform you on behalf of your client the Receiver, that he requires details of all offers made to date and as a shareholder of the company he is entitled to receive the following information.
(1) Name and address of all persons who have made an offer
(2) The price offered in respect of each property, the Receiver has a duty of care to the company and its shareholders and that duty has not been complied with insofar as the property has not been offered for sale to the public.
Can you confirm to whom you are going to submit a tender document, how will the public know that the property is for sale?
Perhaps you might answer these two important questions, so that we can advise our client accordingly.
In the meantime, kindly note that should the property be sold on the basis that it is being sold now, to only those who know about the property and to those people who have tendered a price for the property, our client has instructed us to inform you that he will take proceedings against the Receiver for any loss and damage as a result of his failure to place the property up for sale in order to secure the proper market value of the property.
In the meantime, we require you to furnish us with information confirming who has made an offer to buy the property and the amount of the offers made, we note that the Receiver was prepared to accept an offer of £80,000.00 on the advice of Jones Lang and Wootton.”
23. On the 20th day of April the Receiver’s Solicitors wrote to the Plaintiffs’ Solicitors saying:-
“We confirm that the tender process has now been concluded. Arising therefrom, Superquinn have tendered for the purchase of the premises on the basis of the contract issued to them for a consideration of £102,500.00. This is far in excess of any offer previously received. Furthermore, the contract has been returned unconditional. A copy of this contract was sent to you by courier with our letter of the 4th April 1995 and we presume that your letter of the 11th inst. is the response to that letter. You will note from the contract furnished that there were certain difficulties with this title and all of these difficulties have been taken on board by Superquinn.
Following receipt of the tender document at 11.55 a.m. on the 12th April 1995, the Receiver took advice from Jones Lang Wootton. On the advice of that firm, the Receiver has accepted the unconditional offer from Superquinn in the sum of £102,500.00 and intends now to proceed with the completion of the sale as soon as possible.
No other tender was received.
Your letter of the 11th inst. raises again the issue of the advertising of the premises for sale. We had previously advised you and wish to advise you once again that the Receiver has taken the advice of Jones Lang Wootton in this regard. It was on the basis of the advise from that firm that the Receiver proceeded to dispose of the property by way of tender. You were given adequate notice of this.
We also wish to put it on record yet again that the Receiver took advise from a firm of professional Planning Consultants concerning any possibility of development on this site. In the light of that advise and the advise from Jones Lang Wootton, the Receiver is of the view that he has received an excellent price for this property from Superquinn.”
24. What happened next is a matter which is somewhat in dispute. An affidavit has been filed by Mr. Hugh Miller, the Receiver’s Solicitor, in which he avers to a telephone conversation with Mr. David Turner, the Plaintiffs’ then Solicitor on 20th April, 1995. It is common case that Mr. Turner was in hospital at the time. Mr. Miller’s evidence is that he told Mr. Turner of the tender received from Superquinn and that Mr. Turner said his clients would not be raising any more difficulties regarding the sale and wanted the sale to proceed as quickly as possible. Mr. Miller then wrote to Mr. Turner on 25th April referring to the telephone conversation on 20th April and saying:-
“We note that your client will not now raise any further queries concerning the completion of the sale of this premises.
We anticipate closing the sale on the 28th April”.
25. It should be said that the son of the Second and third Defendants has sworn an affidavit in which he says:-
“I can categorically state that my parents would never have given any such instructions to Mr. Turner. Mr. Turner himself has confirmed to my Solicitor by letter of 19th February 1996 that no such information was imparted by Mr. Turner to Mr. Miller. On the contrary, Mr. Turner advised Mr. Miller that he entertained a concern at the Receiver selling the property to Superquinn when they were the only party on notice that it was for sale”.
26. He then exhibits a copy of a letter from Mr. Turner, which confirms the telephone conversation, but denies that he said that his clients would not taken any further issue with the Receiver. I have to say I find it extremely strange that this has not been put on affidavit by Mr. Turner, who, it ought to be said, no longer acts for the Plaintiffs, but that the only evidence put forward is a copy of a letter written some nine months after the sale.
27. The sale was in fact completed on 28th April 1995, and the conveyance was executed both by the Receiver in his position as Receiver, and also by the Receiver as agent for the Company.
28. There is no doubt from this correspondence that the Plaintiffs were at all times maintaining that the property should be advertised to the public both in the press and by an advertisement on the premises themselves. The Receiver’s answer to this is that he at all times acted on the advice of Messrs Jones Lang Wootten, who, it is conceded by all parties, are a well known and competent firm of estate agents. He claims that, by acting on such advice, he fully complied with the provisions of Section 361A of the Companies Act, 1963, and indeed any common law duty which he might have to the Plaintiffs.
29. The advice which the Receiver obtained has been put in evidence. He received lengthy and detailed advice from a firm of planning consultants relating to the possible development potential of the property, and it is quite clear that the advices obtained from Jones Lang Wootten were influenced to a considerable degree by this. To ascertain whether there was in fact a breach of Section 361A, it is necessary to consider the advice which was actually obtained by the Receiver. The initial advice was contained in a letter dated 14th December 1994, which included the following:-
“3. Marketing Methods
There are three marketing options open for the property as follows:-
(a) Sale by private treaty – this would involve the preparation of a brochure, the erection of good advertising board on site and limited advertising (estimated budget £2,500/£3,000). The disadvantage of this method is that it fails to deadline or time-scale for the completion of a sale.
(b) Auction – this would involve the preparation of a brochure, a good sign erected on site and considerably more advertising. It does concentrate the mind on a particular date, but a poorly attended auction which produces no bids could influence subsequent negotiations adversely with any interested parties. Likely budget £5,000.
We feel that this would be excessive given the potential value of the site and its negative planning history.
(c) Public tender – again, a brochure, board and advertising would be required. This would involve interested parties submitting their best offer for the site on an unconditional basis prior to a certain date. It would involve the marketing costs of approximately £2,500/£3,000 but we believe may be the best way to progress matters given that there appear to be two identifiable parties who could have a special interest in this site.
Tender can deadline a sale and allow the vendor to keep the results of same confidential for approximately one month during which time conditions may be negotiated away.
If you are to proceed with the sale using one of the above methods, we feel that any campaign should commence in early February with a view to auction date/tender date being first or second week in March. Approaches to the two intended parties could be made now in advance of incurring any marketing expenditure”.
30. On 17th January 1995 the Receiver wrote to the estate agents saying:-
“We confirm our agreement to the proposed tactics outlined in your letter of 14th December being public tender subject to a marketing ceiling of £2,500 and approaches to intended parties in advance of incurring such expenditure”.
31. On 24th January the Receiver wrote to the estate agents setting out five parties who had expressed an interest in the property, and on 1st February the estate agents received an offer of £60,000 from one of those parties subject to certain conditions. On 7th February Jones Lang Wootton wrote to the Receiver setting out approaches which they had made to certain parties quoting a guideline price of £80,000. The ended the letter by saying:-
“I appreciate that these negotiations to date have taken a little while, but obviously if it were possible to agree a sale without incurring expenditure on public marketing, I am conscious that this would be of assistance in the situation.
However, on the assumption that we are unable to agree terms with any of the “special purchasers”, the property must go on the open market. I note from your letter of 17th January 1995, you asked us to deal with the property by way of public tender subject to a market ceiling of £2,500. I am taking this opportunity of enclosing herewith a draft marketing budget for your approval.
If we are instructed to proceed on this basis, I believe that the earliest realistic tender date (allowing time for preparation of boards, brochure and advertising) would be the week commencing 20th March 1995.”
32. There was then enclosed a marketing schedule detailing recommended press advertisements and advertising boards at a cost of £1,700.
33. Following this two offers were received by Jones Lang Wootton, namely, an offer from Superquinn dated 16th February of £70,000 and an offer from another party dated 17th February for £79,000. Neither of these offers were accepted, and on 24th March the estate agents advised, inter alia , as follows:-
“As you will recall, we discussed the indications of interest from parties since we began target marketing of the premises. Since January details of the site have appeared on our summary list of properties. The approaches that we have made have been to parties who would appear to have a special interest in the site. This has resulted in some confirming an interest and others making claims with regard to right of way which I understand from you have not been substantiated.
As you are aware, a number of conditional offers have been made both below and above our previously advised opinion of value.
It appears that parties who have some knowledge with regard to the planning history of the premises, while also having a special interest in the site, appear willing to purchase.
Because of the planning history, the service on the Receiver of a derelict site notice and a claimed right of way, it remains our view that the property has specialist rather than general market appeal. I think it is agreed that the best course of action would be to secure the maximum bid from those parties who have already expressed interest in the property with a view to having to bid competitively and unconditionally for the purchase of the property.
Correctly drafted and with tight deadlines, the potential ‘worth’ this property has may well be taken on board more willingly by bidders.
In relation to any issues affecting title, it is also agreed that the tender documents prepared by the Solicitor should incorporate details of the current title, planning history, alleged right of way and the existence of a derelict site notice. A substantial (non-refundable for the accepted bidder) deposit of not less than 10% should be required by way of draft. Because of the risk of the title putting a number of bidders off or depressing likely proceeds, we would recommend that the Receiver not be obliged to accept the highest bidder. ….
As we have succeeded in generating interest from a number of parties, I think now is an appropriate point to invite competitive bids with a view to achieving an early closing, allowing say, ten days within which to undertake their due diligence on title and other matters.
Completed tender documentation should be returned to the Receiver’s Solicitor and the decision on which, if any, tender be accepted may be taken within a period of say, ten days.
It should be expressly stated that tender bids must be unconditional”.
34. It should be noted that this advice makes no mention of advertising, and indeed by implication appears to recommend that tenders only be sent to persons who have already expressed an interest. While it is not clear exactly how many people were asked to tender, in fact only one tender was received, namely, that from the Second Defendant in the sum of £102,500. When asked by the Receiver for their views as to whether this should be accepted, the estate agents advised on 18th April in the following terms:-
“I refer to the above and to your fax advising that you have received an unconditional signed tender from Superquinn for the sum of £102,500.
Having spoken with Stephen Murray, we are both of the opinion that this figure should be accepted, as it is unconditional. We were always of the opinion that it would be a ‘special purchaser’ who would be in a position to maximise the use of the site, or to frustrate others doing this. Therefore we believe that this figure is most unlikely to be matched by any other party and consider the further advertising of property for sale is in our opinion unnecessary”.
35. On 9th August 1995, over three months after the sale was completed, the Plaintiffs’ Solicitors obtained a valuation of the site, which has been exhibited. This valued the house as a dwelling house at £100,000, but then continued:-
“The situation becomes very different indeed if we take into consideration that the property is actually zoned commercial and is next door to the thriving up-market location of Sutton Cross. There is potential here for a serious commercial refurbishment or redevelopment. In the light of this and even if the commercial development were to be restricted by the planning authorities to the same space as the property now occupies, it is our opinion that the market value would be not less than £160,000 and is very likely to exceed that sum by a further 10% to 20%”.
36. The Plaintiffs’ case is based on this valuation, taken together with the fact that there was no advertising at all, despite the protestations of the Plaintiffs.
THE LEGAL PRINCIPLES
37. It does seem to be clearly established that the Court has an inherent jurisdiction to dismiss a claim where under certain circumstances the Court comes to the view that the action cannot succeed. The general principle was set out by Costello J. in Barry v. Buckley (1981) I.R. 306 at page 308 where he said:-
“But apart from Order 19, the Court has an inherent jurisdiction to stay proceedings and, on applications made to exercise it, the Court is not limited to the pleadings of the parties but is free to hear evidence on affidavit relating to the issues in the case: see Wylie’s Judicature Acts (1906) at pp. 34/37 and the Supreme Court Practice (1979) at para. 18/19/10. The principles on which the Court exercises this jurisdiction are well established. Basically its jurisdiction exists to ensure that an abuse of the process of the Courts does not take place. So, if the proceedings are frivolous or vexatious they will be stayed. They will also be stayed if it is clear that the Plaintiff’s claim must fail; per Buckley L.J. in Goodson v. Greerson at page 765.
This jurisdiction should be exercised sparingly and only in clear cases; but it is one which enables the Court to avoid injustice, particularly in cases whose outcome depends on the interpretation of a contract or agreed correspondence. If, having considered the documents, the Court is satisfied that the Plaintiff’s case must fail, then it would be a proper exercise of its discretion to strike out proceedings whose continued existence cannot be justified and is manifestly causing irrevocable damage to the Defendant”.
38. That case concerned an action for specific performance, and the proceedings were struck out on the basis, as set out at page 310:-
“The agreed facts established beyond any doubt that the Defendant’s Solicitor had made it abundantly clear in his first letter (dated the 5th January 1981), that there would be no binding contract between the parties until the written contract had been signed by both parties and the deposit paid. That remained the situation. No written contract was signed and no deposit paid. Therefore, there was no concluded contract in existence which can now be specifically enforced and this action must plainly fail”.
39. This case was considered by the Supreme Court in Sun Fat Chan v. Osseous Limited (1992) 1 I.R. 425. This again was a specific performance action, and the principles set out in Barry v. Buckley were not disputed before the Supreme Court. McCarthy J. went so far as to say, at page 428:-
“Since the matter has not been debated, I express no view upon the decision in Barry v. Buckley save to comment that applying the underlying logic, a defendant may be denied the right to defend an action in a plenary hearing if the facts are clear and it is shown that the defence is unsustainable”.
40. He went on to say that the High Court should be slow to entertain an application of this kind and grant the relief sought. He then added at the bottom of page 428:-
“I recognise the enforcement of a jurisdiction of this kind as a healthy development in our jurisprudence and one not to be disowned for its novelty though there may be a certain sense of disquiet at its rigour. The procedure is peculiarly appropriate to actions for the enforcement of contracts, since it is likely that the subject matter of the contract would, but for the existence of the action, be the focus of another contract”.
41. It should be noted that in both these cases the decision to strike out was made on agreed facts or on undisputed documents. In a similar application in Ennis v. Butterly (1997) 1 ILRM 28, it was actually conceded by Counsel for the Defendant that the Court must assume that every fact pleaded by the Plaintiff in the Statement of Claim is correct and can be proved at the trial and that every fact asserted by the Plaintiff on affidavit is likewise correct and can be proved. While I think that concession may have been somewhat rash, it is quite clear that the Court can only exercise the inherent jurisdiction to strike out proceedings where there is no possibility of success. If there is a dispute on facts on affidavit which is not resolved by admitted documents, then it will be virtually impossible for a defendant to have proceedings struck out as being unsustainable. The remedy sought by the Defendant is a remedy which has the effect of shutting out a citizen’s right of access to the Courts, which is a right which is very closely guarded and protected by the Courts themselves, and by the Constitution. Therefore, if the Defendants are to succeed in this motion, they must show that on facts which either are not in dispute, or are disputed on grounds which can only be considered as frivolous of vexatious, the Court should allow the action to proceed.
CONCLUSIONS – THE CLAIM AGAINST THE FIRST DEFENDANT
42. There is evidence in the form of a valuation given less than four months after the sale that at that time these premises were worth a sum more than 50% greater than that achieved in the sale to the Second Defendant. I am certainly not going to determine on a motion like this whether the effect of that evidence is that the actual sale that took place was or was not at an under value. It is arguable from the evidence before me that it was in fact an under value. There is a further matter which also concerns me in this regard. I have quoted at length in this judgment from correspondence between the Solicitors for the Plaintiffs and the Solicitor for the Receiver. The Receiver was at all times requested by the Plaintiffs to advertise these premises for sale. He received the same initial advice from his own estate agents, although this does appear to have altered subsequently. It must have been quite clear to the Receiver at all times that there was going to be a very considerable surplus arising on this sale, which of course would belong to the First Plaintiff, and the Receiver was in law the agent of the First Plaintiff. This is a somewhat unusual situation in that the First Plaintiff is not an insolvent company, and therefore monies received by it from the sale of these premises will be an asset of the company, and indeed if the company is wound up, of its shareholders. While I am not making any decision on the matter, as it was not argued before me, I certainly think it is open for consideration by the Court as to whether in those circumstances the Receiver has some form of obligation at least to consider representations made to him by the company as to how to conduct the sale, provided he is satisfied it will, in any event, realise enough to discharge the debenture holder in full.
43. In my view, therefore, it could not be said that this action must fail as against the Receiver insofar as it alleges a sale at an under value, but I do think that it must fail insofar as it seeks to challenge the Receiver’s right to sell the property.
CONCLUSION – THE CLAIM AGAINST THE SECOND DEFENDANT
44. As I have already indicated, any challenge to the validity of the appointment of the Receiver in these proceedings must fail, and the Receiver was entitled under the terms of the debenture to sell the premises. The Second Defendant was invited to make an offer by way of tender for the premises, and did so, and in due course a contract was entered into based on that offer, and the sale was ultimately completed. Even if this was a sale at an under value, or if the Receiver is in breach of Section 316A of the Companies Act, 1963, there is no suggestion that the Second Defendant in any way conspired with any other party to acquire the property at less than its full value. I have no doubt that the Second Defendant is a bona fide purchaser for value of this property, and its title cannot be challenged. The Statement of Claim also includes a claim for damages for trespass against the Second Defendant, but such a claim could only succeed if the Second Defendant has not got good title to the property, and as I have found that the Second Defendant does have title, there could be no claim for damages against it. Accordingly, I would propose to strike out all claims against the Second Defendant.
POSITION OF SECOND AND THIRD PLAINTIFFS
45. Mr. Hogan S.C., on behalf of the Plaintiffs, has acknowledged that the Second and Third Plaintiff were joined purely as a precaution in case the point was taken that the first Plaintiff, being in receivership, could not maintain these proceedings. That point has not in fact been taken, and in any event I am quite satisfied that a company in receivership at all times retains its legal entity, and, subject to the provisions of the debenture, retains the right to maintain proceedings such as these. Accordingly, the Second and Third Plaintiffs are not in fact necessary parties to these proceedings, but as they are not separately represented, I cannot see that their presence as Plaintiffs in any way prejudices the Defendants’ case.
CONSEQUENCE OF DELAY
46. I am aware that there was a motion brought by the Plaintiffs before the death of the Third Plaintiff to join ICC Bank Plc as a co-defendant. That motion never proceeded, but it has been intimated to me that a similar motion is still being contemplated. I would like to make it quite clear that I am refusing to strike out these proceedings on the grounds of delay expressly on the terms that no motion to add ICC Bank Plc as a defendant is brought, and the proceedings are concluded as rapidly as possible between the existing parties. It should be said that this does not in any way preclude the Plaintiffs from suing ICC Bank Plc in separate proceedings should they see fit to do so.
O’Riordan v Dunne & ors
[2019] IEHC 391 (31 May 2019)
JUDGMENT of Ms. Justice Pilkington delivered on the 31st day of May, 2019.
1. This matter is in essence a dispute over the claim by the plaintiff, as receiver, for possession of the premises known as No. 1 Cherryvalley Green, Rathmolyon in the county of Meath (“1 Cherryvalley”) being part of the lands comprised in folio 53955F in the register of freeholders and county of Meath.
2. The defendants are father and son respectively; the second named defendant joined as a person whom the plaintiff believes to be in possession of 1 Cherryvalley but the dispute is largely between the receiver appointed over M.&M. Construction Company Limited (“M.&M.”) and the first named defendant.
3. Folio 53955F is registered in the name of M.&M. in respect of which 1 Cherryvalley was, together with other lands, subject to an Indenture of Mortgage dated 17 December, 2004 between Anglo Irish Bank Corporation Limited of the one part and M.&M. of the other part. Cherryvalley is a development of some 73 units.
4. By Deed of Appointment dated 3 March, 2010 , the plaintiff was appointed receiver by Anglo Irish Bank Corporation Limited of all the properties, undertakings and assets of M.&M. and a company known as Lark Construction Limited (‘Lark’), which included Cherryvalley. Both companies were involved in the construction business; M.&M. would acquire this and other developments with Lark being responsible for the development/construction of the properties.
5. Eight persons gave evidence for the plaintiff; Mr. Comerford and Mr. Murray on behalf of Lark and M.&M., Ms. Lynham then an accountant with Lark, Mr. Brooks solicitor, who acted for M.&M., then of the firm Brooks and Lee, Mr. McGarry of K-Tech Security, the plaintiff and Messrs. O’Reilly and Lynch, both of PWC on behalf of the plaintiff receiver. Both defendants gave evidence and a valuer Mr. Liam O’Reilly.
6. The first and in my view most important document of note is that entitled “Combined Building Agreement and Contract for Sale” dated 24 June, 2008 between Kevin Dunne called “the employer” and M.&M. Construction described as “the contractor” – it appears that those descriptions should be reversed. In any event the contract states a contract price of €450,000, the closing date to be fourteen days after the completion date which is in turn described as the earlier of: –
“the date upon which the employer shall agree in writing that the works have been completed; or
the date upon which the employer shall receive from the contractor a notice in writing that the works have been completed.”
7. Under the heading of method of payment, the following appears:
“the contract price shall be paid by the employer to the contractor in the following manner; deposit paid: €51,285.
On the closing day the balance of the contract price and payment for any extras or variations agreed between the contractor and employer.”
8. The contract is duly executed with the first named defendant Mr. Dunne signing as employer and the directors of M.&M. signing as contractor, in my view it is quite clear that M.&M. is the employer and Mr. Dunne the contractor.
9. The wording with regard to the deposit within the body of the contract can be construed as having been discharged as opposed to requiring payment in the future.
10. By way of background the first named defendant’s carpentry company was the sole firm employed by Lark for the construction work on the Cherryvalley Development.
11. In is contended by Mr. Comerford and Mr. Murray on behalf of M.&M. and Lark that an agreement was entered into with the first named defendant, whereby in lieu of monies outstanding to the first named defendant’s company (not it appears the first named defendant personally) he would be entitled to purchase one of the properties in the development. Apparently it was not unusual in or about 2006 for contractors to enter into such an arrangement in the hope that there would be a significant uplift in the value of those properties when the development was ultimately completed and also that the contractor’s funder (in this case Anglo Irish Bank Corporation) could see that there were initial sales in respect of the development.
12. Mr. Comerford, Mr. Murray and M.&M.’s solicitor Mr. Brooks gave clear evidence that the deposit in respect of 1 Cherryvalley was in lieu of payment to the first named defendant Mr. Dunne in respect of monies owed to his company KBC Carpentry. Just as Mr. Dunne appears to intermingle his role with that of his company there appeared to also be some mingling between M.&M. and Lark.
13. The first named defendant alleges that he mortgaged his own unencumbered family home to purchase 1 Cherryvalley (primarily for his son, the second named defendant) and that from the drawdown of the monies he paid the deposit sum of €51,285 to M.&M. As a stand-alone deposit it is an unusual figure; in such circumstances deposits are usually a rounded percentage of the overall price.
14. Mr. Declan Brooks solicitor, then of Brooks and Lee Solicitors, was the solicitor for M.&M. and Lark. It was he who issued the contract in respect of 1 Cherryvalley. The entire conveyancing file had initially been transferred to Messrs. McCann Fitzgerald (the then solicitors for the receiver) and thereafter it appeared that it could no longer be located. He had retained the files for the requisite period but thereafter the files had been destroyed. In any event in respect of the file and the documentation generally surrounding this matter, as examined by Mr. Brooks, it appears that the following can be discerned;
(a) In a letter headed subject to contract/contract denied – dated 26 March, 2008, Mr. Brooks forward the relevant documentation for execution by the purchaser Mr. Kevin Dunne.
(b) By letter dated 2 May, 2008 headed in the same manner as above the letter, referencing earlier correspondence and telephone messages asks that if Mr. Dunne is proceeding then contracts be returned. A letter almost in identical terms is then sent by Brooks and Lee on 23 May, 2008.
(c) The contract duly executed is returned by Oliver Shanley & Co. (the then solicitors for Mr. Kevin Dunne) on 29 May, 2008 with the usual subject to contract/contract denied on the letter.
(d) Following the execution of the contract on 28 April, 2008 Brooks and Lee return one part duly executed.
(e) By letter dated 30 June, 2008 from Brooks and Lee to Oliver Shanley & Co. (an open letter) formal notice is given that the works are completed and assert that the closing date for the transaction would be fourteen days from that completion date. A closing statement is attached to that document which clearly shows a contract price of €450,000 a deposit of €51,285, service charge of €190 and therefore an amount due on closing of €398,905.
(f) On 30 June, 2008 the file discloses a letter from Oliver Shanley & Co. to the first named defendant informing him that the solicitors for the vendor have written saying that the property is near completion and ask that if “you would kindly arrange loan approval with your lending institution as soon as possible.” The figures required before completion are then set out within the documentation in terms of professional fees and outlay payable to third parties.
(g) On 2 July, 2008 there was a letter from Oliver Shanley & Co. to Kevin Dunne the penultimate paragraph of which reads: –
“please also arrange to have your loan approval issued to us without delay as it would take at least five working days for the loan cheque to issue from the time we receive our request.”
There is then a handwritten notation at the end of the letter to the following effect: –
“I rang Kevin on Thursday 3/7/08. He is meeting bank manager next Tuesday. He will ring on Wednesday to let me know how soon I have money.”
(h) In chronological order there is then a letter dated 9 January, 2008 from Oliver Shanley & Co. to Homeloans which states the following:
“We have spoken with our client and it would appear that the following figures have been given as follows: –
(1) In or around April, 2008 €70,000 paid to the vendor.
(2) In or around May, 2008 €51,285 was paid to the vendor.
(3) The vendor agreed with our client that due to money owed by them to our client that €100,000 would be deducted from the asking price.”
(i) There is then a letter dated 27 October, 2009 from Oliver Shanley & Co. to Brooks and Lee which in part recites the following: –
“We refer to the above matter and confirm that our client is no longer in a position to proceed with the above purchase. We would be obliged if you could confirm if you require a return of all contract documentation furnished.”
(j) There are then two memoranda apparently within the firm Oliver Shanley & Co.; one is from Michael Shanley to Oliver Shanley asking whether or not Declan Brooks is going to rescind the contract and thereafter a memo from Michael Shanley of 25 June, 2013 in respect of fees due to the firm.
(k) Finally there is a memorandum on the second named defendant Bernard Dunne when he attended at the office on 26 June, 2013 seeking his father’s file in respect of 1 Cherryvalley property from Oliver Shanley & Co. Apparently there was potential difficulty with regard to outstanding fees due to the firm of Oliver Shanley & Co., the final two paragraphs of that memo state the following:-
“I told him (a reference to Bernard Dunne) the original purchase price was €450,000 and that his dad was supposed to have paid €51,258 to the vendor and €70,000 to the vendor as per letter of 29th January, as per instruction. While told that we were not aware that €70,000 was paid, we weren’t aware that the client says he is owed €100,000 by the vendor he said that he was happy that he didn’t need anything else and brought with him a copy of the letter of 27th October, 2009 which I gave him.”
15. In his evidence Mr. Brooks agreed that the deposit was reflected in an unusual manner on the building agreement/contract for sale because it had already been paid and he confirmed that his client had instructed him that this deposit was to be reflected in that amount on the face of the contract/building agreement as it was payment in lieu of services of monies owed to the first named defendant. Mr. Brooks confirmed that he was aware in general terms of the practice where certain sub-contractors were owed money that they would agree terms to acquire a property or an apartment instead of monies owed to them.
16. He questioned in any event whether the Home-Bond policy would be open to the first named defendant but had no knowledge of whether it had been sought on the facts of this case.
17. He confirmed (in response to a query as to why no steps had been taken after the service of the completion notice on 30 June, 2008) that no further instructions were received seeking a forfeit of the deposit or serving a notice of rescission. He also confirmed that his clients were aware throughout 2008/2009 that their position was precarious and were essentially awaiting a receiver to be appointed and that throughout that period there was also some degree of accommodation afforded to any purchaser
18. He further confirmed in response to a question from the plaintiff’s counsel that a ledger card had been opened in respect of 1 Cherryvalley, but no transaction was entered.
19. There matters rest. Counsel for the plaintiff has fairly confirmed that no notice or letter of rescission was ever served in respect of this contract and nor it appears was any letter sent in respect of the return of the deposit. Given the evidence advanced on behalf of the vendor regarding the circumstances of this deposit this is understandable.
20. The first named defendant Mr. Kevin Dunne says that he paid the deposit and in that regard evidences documentation showing that, in respect of his family home (which he contends was previously unencumbered) that he then had taken out a loan from Permanent TSB to fund the purchase at 1 Cherryvalley.
21. In support of the first named defendant’s contention a letter of approval from Irish Life and Permanent Plc. to Mr. Kevin Dunne describing the mortgage of his family home sets out a loan amount of €400,000. Thereafter a current account of K. & B. Dunne and Conor O’Rourke trading as KBC Carpentry is set out showing 6 June, 2008, six payments into that account from Shanley & Co. solicitors which appear to total €347,534.90. It is the first named defendant’s contention that the remainder of that money, (that is subtracting €400,000 from the figure above of €52,465.10) was the deposit which are valued together with fees of €950 costs, VAT and outlay. The amount set aside for fees and outlay is at variance with the documentation set out by Oliver Shanley & Co. but in any event Mr. Kevin Dunne asserts that those monies were held by Brooks and Lee for the deposit monies. No explanation was proffered as to the unusual figure of €51,285.
22. Whilst I understand the arguments regarding the deposit, I do not entirely understand how and in what circumstances it is alleged by the first named defendant that a further €70,000 was agreed to be “knocked off” the purchase price of this property. Moreover, the first named defendant alleges that at a meeting in January 2009 with the Murrays (senior and junior) and Mr. Comerford, it was agreed that if the first named defendant took 1 Cherryvalley “as is” they would not pursue him for the balance of the entirety of the purchase price.
23. All other parties who gave evidence concerning this January 2009 meeting (namely Mr. Murray junior and Mr. Comerford) emphatically denied that this meeting ever took place and/or that there was any such agreement. There is no documentary evidence of it and nor, perhaps more surprisingly given that the first named defendant claims to be entitled to the entirety of 1 Cherryvalley arising from a handshake between certain parties in 2009, it was never disclosed to the plaintiff receiver. It is also clear from the correspondence that his own solicitor never received instructions to this effect. No proceedings were ever issued by way of specific performance or otherwise.
24. It is agreed by all that the contract price was €450,000. If we accept the first named defendant’s evidence that the correct deductions should comprise a deposit of €51,285 and an additional €70,000 totalling €121,285 that would mean that M.&M. Construction had agreed to waive an amount of €328,715 on the purchase price of this property.
25. That agreement allegedly took place in January, 2009. Evidence was also adduced that by 2009 M.&M. Construction and indeed the Cherryvalley project was in severe financial difficulties owning to the economic climate; the phrase that M.&M. was “waiting for the receiver” was used on more than one occasion. I therefore find it inherently implausible that such an arrangement would have been arrived at in the terms advanced by the first named defendant. It is also entirely at variance with the correspondence and memoranda from his own solicitor Mr. Michael Shanley of Oliver Shanley & Co.
26. I also note that the evidence advanced on behalf of M.&M. (Comerford and Murray) that by 2009 and perhaps earlier, funds were only being released by their funder (the Bank) upon notification by them that sales had been effected. One cannot easily imagine a scenario where a funder would sanction an oral agreement enabling the first named defendant to complete the (non-specified) works, forgive a substantial outstanding debt and thereafter simply move into the property.
27. Following the events in January 2009, the first named defendant claims he moved into the property and that he was in possession from that time onwards.
28. Post receivership Mr. Comerford and Mr. Murray had formed a company and (upon the instructions of PWC for the plaintiff) were dealing with outstanding issues on the Cherryvalley site including fortnightly inspections. Both gave evidence confirming that at that time there was some thirteen unsold premises within the Cherryvalley Development and that the property at 1 Cherryvalley was unoccupied. Their evidence was to the effect that the first named defendant or possibly the second named defendant took possession in 2012, but no-one was in possession in 2009/2010.
Evidence of Mr. Comerford
29. Mr. Comerford described himself as a director of M.&M. and a contracts manager for Lark Developments Ltd. which involved him visiting a number of sites – he would visit the site at Cherryvalley approximately once a week. M.&M. was involved in a number of residential developments and that it in turn would subcontract the development works to Lark.
30. The first named defendant did all of the carpentry work for Cherryvalley and had himself expressed an interest in buying a property. He denied there was ever any obligation upon any individual sub-contractor to purchase a property but if a sub-contractor expressed an interest then such interest would be welcomed.
31. He was clear that no deposit was ever paid by the first named defendant but rather that it was an offset between M.&M. and Lark in respect of monies owing by Lark to Mr. Kevin Dunne and that the deposit was inserted in the amount that it was in order to reflect this.
32. He confirmed that the deposit was offset between the companies on an inter-balance company balance sheet, there was no paperwork in this regard to the best of his knowledge nor in respect of the amount of work accrued and not paid over to KBC (the first named defendant’s company).
33. He confirmed that the property was completed when the letter of practical completion issued and it was at that point ready to move into at that time.
34. With regard to the 2009 deal, he confirmed that no meeting took place on site or anywhere else and there was never any agreement of the type contended for by the first named defendant.
35. From 2009 to 2012 he confirmed that none of the unsold houses were occupied.
36. Mr. Comerford (and Mr. Murray) had been retained by PWC after the appointment of the receiver to do various works on the Cherryvalley site including fortnightly inspection, particularly with regard to the thirteen unsold houses. His evidence was that in 2012 he received a phone call from the QS (acting for the receiver) who said that he had noticed activity at 1 Cherryvalley. That evening he sent an email to Messrs. Murphy and Lynch at PWC. Thereafter it was a matter for them.
37. It was his evidence that the property was occupied in August 2012 and not before. He was shown a series of photos taken by Kevin Dunne in or about February/March 2010 (showing what he asserted was the poor state of the property at that time). In his view the house was ready to move into on 24 June, 2009.
38. In respect of an alleged meeting at 2009 he also denied that he or any other person within M.&M./Lark had agreed that the first named defendant Kevin Dunne could acquire the property with any outstanding sums forgiven in consideration for he (Mr. Dunne) not making any claim from Home-Bond. His evidence that Mr. Dunne was entitled to do so if he wished.
Evidence of Mr. Michael Murray
39. Michael Murray stated he was a director of M.&M. and a contracts manager of Lark. He confirmed that the directors of M.&M. comprised of himself, his father Anthony Murray and his sister (she at some point in 2008 resigned her directorship in favour of her husband Mr. Comerford). He also confirmed that he was on site two to three times a week and that in the period 2006/2008 there were four developments on the go at the time.
40. His evidence was that the first named defendant began working for them in 2004/2005 and that his company was the only carpentry sub-contractor for the Cherryvalley Development. He states that whilst none of the sub-contractors were obliged to purchase property they were more than welcome to do so.
41. In the case of the first named defendant he confirmed that in lieu of payment for works done the deposit reflected the unpaid sums and was inserted into the contract for that reason. He did not accept that Mr. Dunne paid the deposit from his own resources. He confirmed that the sale did not complete, that there was no meeting or agreement in January 2009 or at any time that, subject to not making a claim on the Home-Bond policy or for any reason, that Mr. Kevin Dunne was to be “forgiven” the balance of the monies for the purchase of the Cherryvalley site in order that he would move in and do such completion works as were necessary.
42. He also confirmed that in his view the first named defendant never took possession of 1 Cherryvalley, in 2009 he had inspected the property on many occasions and it was not occupied. There was testing on the property (for pyrite) from 2009 onwards and Mr. Kevin Dunne was not in the property at that time. In this view the first named defendant moved in in 2012.
43. Mr. Murray confirmed that from late 2008 to March, 2010 the first named defendant was still working for Lark but his involvement was minimal as they were not effectively doing any new building work they were simply trying to close out the existing properties.
44. Mr. Murray had a clear recollection that prior to the bank holiday weekend in 2012 there had been some form of break-in approximately ten days earlier and some windows had been broken. He understood that PWC sent out security arising from that incident.
45. Mr. Murray confirmed that he didn’t see Mr. Dunne from mid-2009 onwards but saw his son after August, 2012. Since the appointment of the receiver he had no dealings with Mr. Dunne at all.
Evidence of Mr. Kevin McGarry
46. Mr. Kevin McGarry, director of K-Tech Security, stated he had been informed by PWC that they thought there were squatters on the land, that he had called down to 1 Cherryvalley and had changed the locks as requested. He had turned the water off, he said there was no electricity as such but there was lead out of an ESB box which he disconnected.
47. Mr. McGarry inspected the premises gave evidence that he had turned off the water and electricity and reported to PWC that it was indeed occupied and the documentation within it showed that it appeared to be by a Mr. Bernard Dunne the second named defendant and a woman within the property. He confirmed that the water had been turned off and the locks had been changed.
48. Following a complaint from the first named defendant who had contacted PWC, Mr. McGarry again, at their request, went down and met the first named defendant outside the property. The first named defendant explained his situation to Mr. McGarry who then telephoned PWC who in such circumstances asked him to leave the property
49. With regard to the defendants contention that K-Tech caused serious damage to the premise, to the extent that there is a conflict of evidence I prefer the evidence of Mr. McGarry.
Evidence of Ms. Suzanne Lynham
50. Ms. Lynham was called to confirm that she had never sent an email purporting to come from Lark to the first named defendant which sought to confirm that he was obliged to purchase a property if he or his company wished to be employed/retained as a site contractor.
51. In my view, very little turns upon this matter, the first named defendant executed the contract and was independently advised by his own solicitor throughout.
Evidence on behalf of the Receiver
52. Before dealing with the evidence on behalf of the plaintiff it is necessary to set out the position disclosed within the documentation.
53. Pursuant to the appointment of the plaintiff as receiver, a letter was sent addressed to the first named defendant Kevin Dunne at KBC Carpentry. It confirmed that the receivership of Lark Developments Limited took place on 3 March, 2010 and sought details of any claims and other related matters. It is clear at this stage that the receiver had no knowledge of any contract executed on behalf of M.&M. Construction Limited and the first named defendant.
54. It would appear that letter was not responded to until 21 August, 2010 when the first named defendant confirmed he was not a creditor of M.&M. and had an agreement to purchase 1 Cherryvalley.
55. The first file note (created by PWC) is dated 10 September, 2012 and records it as a telephone conversation on that date between Mr. Lynch of PWC and the first named defendant. Amongst other matters the following is recorded within that note: –
“KD stated that he thought the agreed price of the house per the contract was €395,000. Given that he paid a deposit of €61,000 and that he was also due €79,000 for work he had done for the company; the net balance he would be due to pay on the house was €255,000.”
It is further recorded: –
“KD stated that he moved into the house 10/12 weeks ago, roughly around 25th June, 2012.”
Within the record of that telephone conversation he was told not to do any more works and that there were structural problems with the house primarily to do with pyrite. A copy of the contract that Mr. Dunne states he entered into with M.&M. was sought at that point. The following was also recorded: –
“KD stated that he had originally requested for the deposit to be returned to him. BL (a reference to Mr. Lynch) stated that Kevin’s claim was unsecured and that he would not get his deposit back. KD also stated that he had gone to Home-Bond to receive his deposit back, but that they had also refused him.”
56. In a face to face meeting between the parties on the 30 May, 2013; the following matters are recorded: –
“KD said he had paid a deposit on the house and is still owed over €70,000 from the company, which he accepts is a bad debt that is unlikely to be repaid as he is an unsecured creditor in a receivership.”
57. He was informed that the receiver accepted that there was a signed contract that a deposit had been paid but the contract had not been completed and that “he will not have title over the property until various issues have been resolved.”
58. The note continues: –
“KD accepted all of this and asked if he could submit a proposal to the bank through the receiver, BL said this is only possible if it came through his solicitor. KD agreed to submit the proposal to BL by 30th June through his solicitor. KD noted that he had some funds available and he may have to find the balance by way of mortgage for his 23 year-old son.”
He was again advised to undertake no further works in respect of 1 Cherryvalley.
59. On 28 June, 2013 two matters occurred:
(a) On his own behalf the first named defendant submitted a proposal to acquire the property at 1 Cherryvalley based upon the various considerations set out and proposing a payment of €25,000 for the release of the charge over that property.
(b) By email of the same date Con O’Leary and Company who then and now act for the first named defendant Mr. Kevin Dunne write, in a less than conciliatory fashion, making various claims on his behalf. Thereafter Messrs. McCann Fitzgerald reply on behalf of the receiver and there does not appear to have been any direct engagement between the parties thereafter.
Evidence of Mr. Emmet O’Reilly
60. Mr. Emmet O’Reilly of PWC gave evidence in respect of a telephone conversation between the parties on 10 September 2012. In essence his evidence was to confirm his recollection of that meeting as reflected within the contemporaneous file note. He further confirmed that after that telephone conversation they were trying to ascertain the position with regard to Mr. Brendan Lynch. Upon a thorough perusal of the file he could find no record of the letter sent by Mr. Kevin Dunne in August, 2010.
61. With regard to the subsequent face to face meeting in 2013 and the request that any offer be put through Mr. Kevin Dunne’s solicitors – again Mr. O’Reilly from his perusal of the papers stated that a personal letter from Mr. Kevin Dunne was not received by or on behalf of the receiver.
Evidence of the plaintiff
62. The plaintiff, aside from confirming his appointment and other matters relating to the mortgage debentures and the folio lands, stated that the day to day running of this receivership was very much managed by the senior management dealing of his team and that any questions with regard to the day to day matters in respect of this receivership should be directed to them.
Evidence of Mr. Brendan Lynch
63. Mr. Brendan Lynch assists the plaintiff receiver throughout this receivership. He confirmed the two interactions with Kevin Dunne being the telephone call in September 2012 and a meeting in May 2013. He further confirmed that at the time of the receivership, of the properties in the development at Cherryvalley fifty-two were sold, thirteen remained unsold and that 1 Cherryvalley is now the only outstanding unsold property.
64. He further confirmed that with regard to the receivership of M.&M. there was a significant property portfolio above and beyond the properties at Cherryvalley (the overall indebtedness was in the order of €35m).
65. He confirmed that KBC Carpentry was an unsecured creditor of Lark Developments and was not a creditor of M.&M.
66. In or around August/September 2012 he recollected that a QS retained by PWC who was working on the uncompleted houses, particularly those with pyrite, and that he had reported a potential occupation which thereafter was investigated.
67. He confirmed that he had once accompanied Mr. Comerford to view the unsold units and that he went into each. He believed that 1 Cherryvalley was on the list of houses to be completed but that the work required was at the minimal end of that scale. He confirmed that to the best of his knowledge the first named defendant took possession of 1 Cherryvalley in August.
68. With regard to the contents of the memo of 10 September, 2012 he had been surprised to hear that a contract had been executed in respect of one of those houses. He had asked for it but had never received a copy of it. He confirmed that if any offer had been made that it such a proposal that would have to go through certain procedural steps to ultimately be put to the bank for its approval. In the telephone conversation of September 2012, Mr. Lynch learnt the second named defendant was living in the property.
69. He is quite clear that he informed Mr. Dunne that on no circumstances should any further works be done on the property and also informed him of the difficulties with pyrite as it affected 1 Cherryvalley
70. Mr. Lynch confirmed that he never received a copy of the contract had been procured through his then solicitors not the first named defendant.
71. A meeting with the first named defendant took place on 30 May, 2013 and the memorandum was stated to accurately record the events of that day. Mr. Lynch said that at no point was the agreement of 2009 brought up either in the previous telephone call in 2012 or in the May 2013 meeting.
72. Mr. Lynch explained then in the context of a receivership it was for Mr. Kevin Dunne to put any proposals that was not for this receiver or indeed any receiver to put such an offer. In such circumstances where the first named defendant wished to put a proposal Mr. Lynch asked that he put through his solicitor. He further confirmed that, whilst PWC never received a personal letter from Mr. Dunne offering €25,000, in any event that that would be a wholly unacceptable figure. Upon re-reading the file he confirmed that there had been a letter from where the first named defendant’s solicitors of the same date.
73. Mr. Lynch confirmed that two of the houses had been sold by private treaty that the works to fix the pyrite issue had been put out to tender and the houses affected were now been pyrite free. Nine houses had been sold to Cluid the Housing Association and that a property of 1 Cherryvalley was the final asset outstanding. Mr. Lynch pointed out that it would have been much more cost effective to do all of the remedial and remediate works at once but the occupation of 1 Cherryvalley made that impossible and it was decided that, whilst it inhibited the conduct of the receivership, it was best to realise the other assets and to then deal with the position of the defendants thereafter.
74. Mr. Lynch confirmed there was little other remedial work needed to be done in respect of the completion of No. 1 Cherryvalley from his memory of figure of some €10,000 had been put on the value of such remedial works. Dealing with pyrite issue would increase that figure, again from memory Mr. Lynch thought to something approximating €40,000 per house.
75. In response to a question as to why no steps were taken to recover possession between August 2012 and 2016, again Mr. Lynch emphasised that it was not clear he could get vacant possession. In his view it had been preferable to deal with the other matters in receivership; at present 1 Cherryvalley is the only outstanding issue with regard to the Cherryvalley Development.
Evidence of Mr. Kevin Dunne
76. The first named defendant gave evidence of his company having quoted for the carpentry work to Lark for the Cherryvalley Development. He confirmed that he had a gentlemen’s agreement with Tony and Michael Murray that he would be entitled to purchase one of the houses and it was for him to choose the specific property.
77. He confirmed that he borrowed €400,000 and that this money was drawn down and was with Oliver Shanley Solicitors, his son Michael Shanley did all his legal work at that time. Michael Shanley was instructed as his solicitor to draw down the money including the deposit money.
78. He emphatically denied that the deposit sum of €51,285 was in lieu or set off of monies he was owed by Lark. He stated that the agreed price for the property was €450,000 that he himself worked out the deposit sum to be paid and told his solicitor that that sum was to be paid in respect of the premises. He was told he could only borrow €400,000 and that he calculated his total costs of the purchase of the property as being in the order of €470,000.
79. He then stated that he was also told that he would be credited €70,000 in respect of other works that his company (in his mind M.&M. and Lark were interchangeable) that instead of paying him they would give him another €70,000 off the purchase price. By his calculation he had a balance after the deposit and the €70,000 was credited together with his costs and expenses that he would have to pay in the order of €350,000 thereafter for the property.
80. In essence, he states that when it appeared that the property was not completed that he gave instructions to his solicitor that the monies be remitted back to his account and the shortfall (which he says in part was the payment of the deposit of €51,285) remains as the shortfall mortgage on his property.
81. He confirmed that he executed the contract of June 2008 and that he received a letter on 24 June, 2008 stating that the property was ready. Mr. Dunne was emphatic that the property was not remotely finished at that point that he found the suggestion laughable and told his solicitor not to close on that basis.
82. He informed Tony and Michael Murray that the property was not ready and he was not closing until it was. He was aware that M.&M. and Lark were cash strapped at that point and that they were having difficulties with their bank. He said that the next six months were a lot of pressure upon him and he believed also upon M.&M. and Lark. However, he remained emphatic that the property never reached the stage of practical completion and he was not going to close until it did. By October 2008, after the clocks went back there was very little activity on the site and very little activity in respect of the works that he anticipated would be effected on his house to bring it to completion.
83. In respect of the meeting in January 2019, it was a cordial meeting and on the basis of a handshake, following his complaints that the property was very far from complete, it was agreed that he could take the house as is and that he would be given the deeds. He confirmed that whilst he took possession nobody spent any nights there in 2009 and 2010 as the property was not habitable.
84. He was aware that in 2010 a receiver had been appointed and that all contractors including himself would be unsecured creditors with very little prospect of receiving the monies owed to them.
85. He confirmed in emphatic terms that he sent the letter of August 2010 to the receiver that he typed it and sent it himself – his own view was that his claim and concerns were “so far down the food chain” that he had simply been overlooked. He confirmed that 2010 was a bad year for him and his business and he had significant debts and other difficulties. There was no one living full time at 1 Cherryvalley at that time.
86. The first named defendant produced photographs which he said had been taken after the vendors served the completion notice. With regard to the photographs he said he had taken apparently certain units / fixtures had been installed but had later been removed at some point.
87. He is emphatic that he had a short impromptu meeting with Mr. Lynch in or about May 2010 in that he simply walked into the offices and met Mr. Lynch in the foyer and asked to see him. By his account it was a very brief cordial meeting. Mr. Lynch has no recollection of it and in my view, nothing turns on it.
88. With regard to 1 Cherryvalley he had done minimal works to the property in 2009 and 2010 as he himself had financial issues. He had tidied and commenced work on the attic conversion of the property. He said that on occasion he saw Mr. Comerford and Mr. Murray and there was no malice between them and he was unaware of anyone coming into the property at 1 Cherryvalley, he hadn’t changed the locks and he again confirmed he had master keys for the entire site.
89. He said that his son the second named defendant had been in the house more permanently from 2011 when his college course finished and he had taken the power off a generator and thereafter, they had both (with independent contractors) done more significant works to the premises to make it habitable for his son. Sometime later his son’s partner moved into the property and they had a son together in or about August 2012. The three then lived in the property. He stated that the documents that he had put into his discovery were some of the receipts for the monies that he had spent doing up the property he also confirmed that these prices included a cost for his own labour.
90. He confirmed that whilst the works had seriously begun in earnest in 2011, that they were in effect almost complete when he met with Mr. Lynch in 2013 when he informed him that he had done all the works and was effectively only waiting for an ESB connection. He further confirmed that he was clearly told not to do any further works.
91. He confirmed the telephone call with Mr. Lynch in September 2012, he believed that the figures set out in the memo of that conversation are incorrect. Mr. Lynch particularly took issue with the claim of the agreed price he said that €450,000 always was the price of the house. He believed that he was told there were structural problems but it was only at the face to face meeting in PWC that he first heard of the pyrite issue.
92. With regard to his procuring the contract he said that he had no means of getting it and that he did what he possibly could to try and get it. He agreed that Mr. Lynch asked that he put the offer through his solicitor and that he was and remains willing to purchase the property.
93. The offer in the letter of 28 June, 2013 was prepared by his son but signed by him. From late 2011 he employed a new solicitor (he and Mr. Shanley had had issues in respect of a different matter) and that solicitor had sent the letter on his instructions on 28 June, 2013.
94. The second named defendant and his family left the property in mid-2016 as he was aware of the legal proceedings and thought it preferable that they should not reside there. Thereafter he rented the property to Kildare County Council under their local authority H.A.P. Scheme. He rented the property initially for €950 per calendar month. Apparently it is currently tenanted for the period September 2018 to September 2019 being paid the sum of €1,200 per calendar month on a yearly contract. This information had not previously been disclosed to the plaintiff.
95. The first named defendant confirmed that his case was that in addition to the deposit of €51,285 that at some point thereafter between May 2008 and January 2009, a further €70,000 was agreed to be subtracted from the contract price by agreement of the parties. There was nothing in writing to confirm this.
96. He further confirmed that he had keys to the entirety of the development but had only changed the locks in or about August 2012. With regard to the entries on the ledger on the solicitor’s conveyancing file showing no payments, the first named defendant believed that that could well be a fabrication but did not know anything about it.
97. The first named defendant was also at a loss as to explain why in his telephone contact and meeting with PWC that he did not mention that he had done a deal with M.&M. in 2009 that the entirety of the property was his. He confirmed that at no point in any of these conversations with PWC personnel had he informed them that he had acquired the entirety of the property in January 2009.
Evidence of the second named defendant – Mr. Bernard Dunne
98. The second named defendant and son of the first named defendant gave evidence. Following completion of a law degree at NUI Galway, he entered 1 Cherryvalley he believed in or around June/July 2011. He confirmed that at that point the Cherryvalley property was not finished, there was no running water or electricity in the property. In his view, the works were done prior to the arrival of K-Tech in or around summer 2012.
99. By summer 2012, he said that the property was doing well, it needed a little more to be done and also there was an urgency to completing the works because his son was born in August 2013, and he, his partner and son lived in the property. That remained the position until mid-2016 when he, his partner and son moved out of the property. He stated that he had therefore lived for some three and a half to four years in the property.
100. It had been the first and second named defendants’ evidence that he (the second named defendant) had obtained a settlement in a personal injury action – he gave evidence he borrowed monies on the strength of it as it was an assessment only claim in which the firm of Oliver Shanley & Co. had acted for him. He had paid some of those monies for the ongoing repairs to his property but there was no documentary evidence in support of this contention.
101. He confirmed that he attended the offices of Oliver Shanley & Co. but was informed that there were legal fees outstanding and he would not be entitled to the file until those were discharged. He confirmed that it was he who drafted the letter to the receivers putting the proposal forward.
102. The second named defendant further confirmed that he had not been in receipt of rents and profits and nor had his father until the property had been rented post-February 2016. He did not pay any rent himself in respect of the property.
Evidence of Mr. Liam O’Reilly
103. A valuer Mr. O’Reilly gave evidence giving a present valuation of the property (assuming the pyrite problem had been dealt with) in the order of €200,000. With regard to any comparators Mr. O’Reilly was largely of the view that this property was now some 12 years old and its energy rating could not readily be brought up to the standard of the other properties on sale. If the pyrite problem was rectified, he thought that it might bring the property up to €240,000 and he felt that the rental potential for such a property would be between €1,100 to €1,200 per month. He pointed out that the property would be difficult to sell in its current condition owing to the pyrite issue.
104. At the conclusion of this three-day action (there was no transcript), neither counsel offered oral nor written submissions and no authorities were furnished.
105. Accordingly, in my view the position is as follows: –
(a) Given that the April 2008, contract was entered into prior to the enactment of the Land and Conveyancing Law Reform Act 2009, the law prior to that enactment was that a purchaser obtains only a beneficial interest commensurate with the proportion of the purchase price paid (see Tempany v. Hynes [1976] IR 101).
(b) In no documentation that I have seen in respect of 1 Cherryvalley has any contract been expressed to be “time of the essence.” Accordingly, the contract remains in existence until it is rescinded, usually by way of a notice of rescission. In this instance it was fairly acknowledged that no notice of rescission had been served. In such circumstances, a letter could also be written deeming the deposit forfeit, however under the unusual circumstances of how the deposit arose in this case that would not have appeared possible for this vendor to send such a notice.
(c) I am satisfied that the vendor upon the evidence advanced on behalf of M.&M. and in particular from its solicitor Mr. Brooks that a deposit be shown on this contract of €51,285 in lieu of payment to the first named defendant’s company. I can find no satisfactory evidence that this sum was in fact paid in money by the first named defendant as he suggests and it was never explained as to what turned upon that assertion. I favour the evidence of Mr. Brooks who gave evidence as a solicitor as to the insertion of the deposit amount and the instructions of his client in that regard. No other solicitor gave evidence.
(d) Given that no steps were ever taken in respect of this deposit (which appears clearly on the face of a duly executed contract between the parties as “deposit paid” as confirmed by Mr. Brooks), in my view the plaintiff cannot now seek to resile from the position adopted by M.&M. in that regard; that is that on the face of the document (which must of course be construed against them) that a deposit was paid and I accept that in the contract of April 2008, the payment of that deposit remains.
(e) Accordingly, the first named defendant Mr. Kevin Dunne has acquired a beneficial interest in 1 Cherryvalley, being whatever percentage €51,285 is to the overall purchase price of €450,000. He is thereafter entitled to have that interest noted on the register.
(f) I can find no evidence that persuades me of any additional agreement between the parties that entitles the first named defendant to the deduction of a further €70,000 or any other figure.
(g) The least satisfactory aspect of the first named defendant’s evidence was his insistence that in January 2009, on a handshake agreement, he was entitled to the entirety of the property provided he would do whatever works remained to be done in respect of it. On the balance of probabilities particularly arising from his failure to raise this matter in any manner with the plaintiff, I find no further alleged or other agreement as contended for by the defendants (and none was satisfactorily evidenced before the Court) to be binding upon the plaintiff. No written agreement exists and I reject any suggestion that the first named defendant is entitled to a 100% beneficial interest in 1 Cherryvalley.
(h) To the extent that any other figures were put forward by the first and possibly the second named defendant as to monies they claim by virtue of them having expended monies on 1 Cherryvalley, then in my view he has no contractual or other basis for seeking to claim these monies from the plaintiff. The claim is rejected.
(i) Counsel for the plaintiff appeared to suggest that to the extent that Mr. Kevin Dunne might have an equity in the property that those equities could in some way be “cancelled out” or considered in light of the overall facts of this case. In my view, the entitlement of Mr. Kevin Dunne to a beneficial interest in this property by virtue of the deposit stands alone. I do not understand the concept of equitable set off in that regard and no submissions were advanced to me other than a generalised assertion.
(j) There may be other outstanding issues, as counsel for the plaintiff informed the Court that until the first named defendant gave evidence his client was unaware as to the status of 1 Cherryvalley and the receipt of rental monies. This is a significant matter that the first named defendant only disclosed in his evidence before this Court. That will now be a matter for the plaintiff to deal with.
(k) Accordingly, the plaintiff is entitled to its order for possession subject to the entitlement of the first named defendant to his beneficial interest solely arising from the deposit paid as reflected with the terms of the April 2008 contract. To the extent that is necessary the first relief sought by the defendants within their counterclaim can be amended to reflect the terms of this order.
106. I will hear the parties as to any further orders including any order for costs as required.
Industrial Development Authority v. Moran
[1978] IR 159
Appeal from the High Court
On the 23rd October, 1965, Cork Shoe Company Ltd. issued a debenture to the Bank of Ireland to secure the repayment of present and future advances. The Cork Shoe Company Ltd. was the registered owner of the lands described in folio 43689 of the register of freeholders for the county of Cork. On the 12th May, 1975, the bank appointed Mr. Michael Gribben, in accordance with the terms of the debenture, to be receiver of the assets of the company. On the 25th July, 1976, Mr. Gribben contracted, as such receiver, to sell part of the company’s registered lands to the applicant for £130,000. By conveyance dated the 8th October, 1976, and expressed to be made between Cork Shoe Co. Ltd. of the first part, Michael Gribben of the second part and the applicant of the third part, the parties of the first and second parts purported to convey the lands therein described to the applicant in fee simple. The testimonium and attestation of the conveyance were in the following form:
“IN WITNESS whereof the common seal of the company has been hereunto affixed by direction of the receiver, as such receiver, pursuant to the powers vested in him as aforesaid and the receiver has signed his name and affixed his seal and the common seal of the purchaser has been hereunto affixed the day and year first herein written.
The Common Seal of CORK SHOE COMPANY LIMITED was affixed hereto by the direction of Michael Gribben.
John Glackin, solicitor,69/71 St. Stephen’s Green,
(L.S)
Dublin 2.
Michael Gribben.
SIGNED SEALED AND DELIVERED by the said Michael Gribben in the presence of:
(L.S.)
John Glackin, solicitor,69/71 St. Stephen’s Green,
Michael Gribben
Dublin 2.”
O’Higgins C.J.
29th November 1978
I have read the judgment which Mr. Justice Kenny is about to deliver and I agree with it.
Kenny J.
Cork Shoe Company Ltd. was incorporated in the State in May, 1947. The regulations in Table A in the first schedule to the Companies (Consolidation) Act, 1908, including article 71 (with some exceptions which are not relevant to this case) applied to the company. The company subsequently acquired the lands in folio 43689 of the register of freeholders for the county of Cork, on which there were a number of factories.
On the 23rd October, 1965, the company gave a debenture under its seal to the Bank of Ireland to secure all moneys advanced to the company which were to be repayable on demand. The company charged its undertaking and all its property with repayment of the sum due and also, as a specific charge,the lands in folio 43689. The debenture was registered as a burden on the folio.
This debenture was issued subject to and with the benefit of the conditions which were endorsed on it and which were to be deemed part of it. Conditions 10 and 14 are so important that I have to set them out:
10. “At any time after the principal moneys hereby secured become payable, the registered holder of this debenture may appoint by writing any person to be a receiver and manager of the property charged by this debenture . . . and any receiver and manager so appointed shall have power . . . (3) To sell or concur in selling, let or concur in letting any of the property charged by this debenture, and to carry any such sale into effect by deed in the name and on behalf of the company, or otherwise, to convey the same to the purchaser . . . .
14. The company hereby irrevocably appoints any receiver or receivers appointed as aforesaid the attorney or attorneys of the company for the company and in its name and on its behalf and as its act and deed to execute, seal and deliver and otherwise perfect any deed assurance agreement instrument or act which may be required or may be deemed proper for any of the purposes aforesaid.”
On the 24th July, 1973, the company adopted new articles of association which provided that the regulations in Table A in the first schedule to the Act of 1908 and in Table A in the first schedule to the Companies Act, 1963, should not apply to the company. The only relevant regulation is article 128 which reads:
“The seal shall be used only by the authority of the directors or of a committee of directors authorised by the directors in that behalf, and every instrument to which the seal shall be affixed shall be signed by a director and shall be countersigned by the secretary or by a second director or by some other person appointed by the directors for the purpose.”
In 1975 there was a substantial sum of money due by the company to the bank, and on the 12th May, 1975, the bank appointed Mr. Michael Gribben as receiver and manager of the company. He agreed to sell part of the lands in the folio to the Industrial Development Authority, who became the purchasers.
On the 8th October, 1976, a deed of transfer was executed; it was expressed to be made between the company of the first part, Michael Gribben of the second part and the purchasers of the third part. It recited that under the powers given by the conditions endorsed on the debenture of the 23rd October, 1965, Mr. Gribben had agreed with the purchasers to sell the lands to which the transfer related. The deed then witnessed that the company, the registered owner, acting by the receiver did thereby convey, and that Mr. Gribben as receiver in exercise of the powers given to him by the conditions endorsed on the debenture transferred, the lands described in the deed to the purchasers in fee simple. The testimonium to this deed reads: The common seal of Cork Shoe Company Limited was affixed hereto by the direction of Michael Gribben” and the seal of the company appeared opposite this. Immediately underneath this there appeared the words:”Signed, sealed and delivered by the said Michael Gribben in the presence of . . .” The deed was then executed by Michael Gribben in his own name, and the witness to the execution by Mr. Gribben signed his name.
When the deed was presented to the Registrar of Titles, he had some doubt about its validity and he referred the matter to the High Court under s. 19, sub-s. 2, of the Registration of Title Act, 1964. Mr. Justice Butler held that the seal of the company had been irregularly affixed and that the company had no power to appoint an attorney; the judge declared that the deed of the 8th October, 1976, was ineffectual to transfer to the purchasers the property described in that deed. The purchasers have appealed to this Court.
I think that the judge was correct on the first point concerning the use of the seal but that he was incorrect on the second point. In my view, the deed of the 8th October, 1976, was effective to transfer to the purchasers all the estate and interest of the company in the part of the lands in the folio to which the deed related.
When a receiver is appointed over the assets of a company, the articles of association continue in force and bind him. A receiver, as receiver, has no authority to use the seal of the company. Article 128 required that the seal should be used only by the authority of the directors, and that every instrument to which the seal was affixed should be signed by a director and should be countersigned by the secretary or by a second director. In this case the directors did not authorise the use of the seal and none of them signed the deed of the 8th October, 1976. Accordingly, the first part of the testimonium was without any effect.
The judge reached the conclusion that “a company has no power to act by attorney to execute deeds within the State” as an inference from s. 40 of the Companies Act, 1963, which reads:
“(1) A company may, by writing under its common seal, empower any person, either generally or in respect of any specified matters, as its attorney, to execute deeds on its behalf in any place outside the State.
(2) A deed signed by such attorney on behalf of the company and under his seal shall bind the company and have the same effect as if it were under its common seal.”
A somewhat similar provision appeared in s. 78 of the Act of 1908 and in s. 55 of the Companies Act, 1862. The inference which the judge drew from s. 40 of the Act of 1963 was incorrect. A company has power to act by attorney to execute deeds within the State and s. 40 of the Act of 1963 is intended to give a company the power to act by attorney outside the State. Some doubt existed whether a company had power to do this and so s. 55 of the Act of 1862 was enacted and was carried forward in the consolidating Acts of 1908 and 1963.
In volume 1 of Palmer’s Company Precedents, 17th edition (1956) the author at p. 950 deals with powers of attorney: “Powers of attorney are frequently required in connection with companies. Prima facie any company can appoint an attorney to act on its behalf, for the attorney is an agent, and, as a company can only act by agents, it has an implied power to appoint such agents.” The authority cited for this proposition is Ferguson v. Wilson 5 . The author continues: “Members of the public dealing with an agent having apparent authority to act on its behalf are in general entitled to assume that he had such authority unless it appears from the company’s registered documents that he had not the authority in question . . . . Whether, however, in any particular case the directors of a company have power to execute a power of attorney on the company’s behalf depends on the article. The general rule is delegatus non potest delegare. But directors are generally invested with wide general powers, and in virtue of such powers they are usually in a position to grant a power of attorney; otherwise the sanction of a general meeting must be obtained.”
The debenture was given in 1965 and so the validity of the appointment must be judged, not by the provisions of the new articles of association adopted in July, 1973, but by the articles in force in 1965. This point was not adverted to in the argument in this Court or before Mr. Justice Butler.
“The business of the company shall be managed by the directors, who may pay all expenses incurred in getting up and registering the company, and may exercise all such powers of the company as are not, by the Companies (Consolidation) Act, 1908, or any statutory modification thereof for the time being in force, or by these articles, required to be exercised by the company in general meeting, subject nevertheless to any regulation of these articles, to the provisions of the said Act, and to such regulations, being not inconsistent with the aforesaid regulations or provisions, as may be prescribed by the company in general meeting.”
The articles of this company in force in 1965 did not require that a power of attorney could be given only by the company in general meeting and there was nothing in the Act of 1908 which required this. It is also relevant that a form of debenture with a clause exactly similar to clause 10 of the conditions in this case appears at p. 277 in the third volume of Palmer’s Company Precedents, which relates to debentures: 12th ed.1920. I take that edition because it was the last one before the English property legislation of 1925 and was edited by Mr. Alfred Topham, a well-known expert on company law. It is inconceivable to me that Mr. Topham would have included such a clause if a company had no power to appoint an attorney to execute deeds on its behalf.
As Mr. Gribben executed the deed of transfer in his own name, the provisions of s. 46, sub-s. 1, of the Conveyancing Act, 1881, make the deed of transfer fully effective. The sub-section reads:
“The donee of a power of attorney may, if he thinks fit, execute or do any assurance, instrument, or thing in and with his own name and signature and his own seal, where sealing is required, by the authority of the donor of the power; and every assurance, instrument, and thing so executed and done shall be as effectual in law, to all intents, as if it had been executed or done by the donee of the power in the name and with the signature and seal of the donor thereof.”
Accordingly, the deed of transfer of the 8th October, 1976, was effectual to transfer the lands described in it to the purchasers, and the order of the 1st May, 1978, should be set aside. This Court should declare that the deed dated the 8th October, 1976, was effective to transfer to the purchasers the property therein described as being transferred; and the Registrar of Titles should be directed to register its effect on the folio.
While the deed of transfer in this case is effective because of s. 46 of the Conveyancing Act, 1881, I wish to point out that the power given to the receiver by clause 10 is “to carry any such sale into effect by deed in the name and on behalf of the company.” When a receiver is selling under such a clause, the more usual and better practice is for him to execute the deed of transfer by writing the name of the company and underneath this to write words that indicate that the name of the company has been written by the receiver as attorney of the company under the power of attorney given by the debenture. In addition, he should execute the deed in his own name. In that way he has the best of both worlds. The writing of the name of the company by the authority of the company given when it executed the debenture brings the case within the words of the debenture itself, and execution by the attorney personally gives the advantage of s. 46 of the Conveyancing Act, 1881.
Parke J.
I have read the judgment delivered by Mr. Justice Kenny and I agree with it.
Hogan -v- Deloitte & ors; Kavanagh -v- Hogan & anor
[2017] IEHC 673 (10 November 2017)
JUDGMENT of the Hon. Ms. Justice Stewart delivered on 10th day of November, 2017.
1. There are two sets of proceedings currently before the Court, which have given rise to two notices of motion related to properties in Thurles, County Tipperary. Mr. Hogan resides with his family in the first of these properties, which is located in Athnid More. Mr. Walsh resides in the second property under a tenancy agreement operating between him and Mr. Hogan. In the first matter, the plaintiff, Mr. Hogan, issued a notice of motion dated 10th May, 2016, in which he seeks interlocutory relief preventing the defendants from trespassing on or taking unlawful possession of both properties. In the second matter, the receiver, Mr. Kavanagh, issued a notice of motion dated 12th May, 2016, in which he seeks interlocutory relief necessary in order to carry out his functions as receiver over the second property.
Affidavits sworn in the First Set of Proceedings
2. On 9th May, 2016, Mr. Hogan swore an affidavit in which he sets out the following background facts. Following his mother’s death in 2002, Mr. Hogan acquired the fee simple in his parents’ family home, subject to a life interest for his father. This is the property in which Mr. Walsh now resides and to which the second set of proceedings relate. Mr. Hogan’s father was in debt brought about by the cost of Mr. Hogan’s mother’s end-of-life care, so Mr. Hogan took a mortgage out on the second property in 2005 to assist in relieving that debt. During the recent economic downturn, Mr. Hogan encountered financial difficulties and was in regular contact with his mortgagee throughout this time. Over the course of these contacts, he was informed that Shoreline Residential Limited (“Shoreline”) and, subsequently, Pepper Asset Servicing (PAS) were taking over his account. Mr. Hogan responded to object to this and to make clear that he did not consent to the transfer of his account to an entity he characterised as a vulture fund that is unregulated in this jurisdiction. In May, 2015, Mr. Kavanagh was appointed by Shoreline to act as receiver for the mortgaged property.
3. Mr. Hogan challenges Shoreline’s locus standi and privity to contract in this matter and requests proof of the validity of Mr. Kavanagh’s appointment. He then summarises an interaction between his family and a representative of KTech Security that allegedly occurred at the first property, in which the Hogan family reside. He concludes by alleging that Shoreline have breached the Registration of Title and Deeds Act 2006 by incorrectly entering a charge over the second property.
4. On 1st June, 2016, Mr. Kavanagh swore a replying affidavit in which he begins by setting out the role of the various parties in these proceedings. He then adopts the contents of his affidavit sworn in the second set of proceedings, which are set out below. Mr Kavanagh sets out his understanding of the events that occurred when the representative of KTech Security attended the first property and he rejects the harmful effects of this incident alleged by Mr. Hogan. For further details, he refers to the affidavit sworn by the representative of KTech Secuirty. Mr. Kavanagh notes Mr. Hogan’s failure to offer an undertaking in damages and questions his ability to pay any undertaking that he may offer in the future. He avers that damages would be an adequate remedy if Mr. Hogan were successful at the full hearing, as this is a residential investment property from which rent is being collected. As for the balance of convenience, Mr. Kavanagh avers that the status quo (the orderly continuation of the receivership) should be maintained.
5. On 1st June, 2016, John Paul Moloney swore an affidavit in which he sets out his version of events on the day he attended the first property as a representative of KTech Security. He avers that he attended the property for the purposes of serving paperwork and denies entirely the version of events put forward by the Hogans. The Hogans set out their version of events in Mr. Hogan’s various affidavits and in the affidavits sworn by his wife, Jacqueline Hogan, on 16th June, 2016. On 4th July, 2016, Mr. Moloney swore a replying affidavit to Mrs. Hogan’s affidavit, in which he more specifically denies her version of events.
6. On 16th June, 2016, Mr. Hogan swore an affidavit in which he challenges personal and subject matter jurisdiction in this matter. The contents of this affidavit are broadly similar, if not identical in some respects, to the affidavit of the same date sworn by Mr. Hogan in the second proceedings. Mr. Hogan repeats his contentions regarding Shoreline’s lack of standing as a proper credit institution under the Credit Reporting Act 2013. PAS’s attempts to characterise Mr. Hogan as their customer and themselves as adjudicators of this dispute are also denied. Mr. Hogan also avers that he has not been granted access to the original copies of various documents related to these proceedings and requests same.
7. On 4th July, 2016, Mr. Kavanagh swore a second affidavit, in which he expresses confusion regarding the jurisdictional issues to be established, as the High Court enjoys full and original jurisdiction in the matters arising from this case. Furthermore, he questions why Mr. Hogan would institute proceedings of his own in a venue that he alleges lacks jurisdiction. Regarding Mr. Hogan’s consent to the transfer of his account, Mr. Kavanagh refers to the terms of the mortgage that Mr. Hogan signed, which expressly provide for the transfer of the mortgage to any party, regulated or otherwise. Mr. Kavanagh avers that he is unaware of any claim by PAS to act as adjudicators in this matter, nor is he aware of any term that would prevent Shoreline from employing PAS as their agent. Mr. Kavanagh avers that his undertaking has not been challenged on any factual basis and denies that he is under any obligation to provide the bond demanded by Mr. Hogan. Mr. Kavanagh also avers that none of the events alleged by Mrs. Hogan would have any bearing on his entitlement to act as receiver, regardless of their accuracy.
8. On the 14th July, 2016, Mr. Hogan swore a supplemental affidavit in which he challenges Mr. Moloney’s, KTech Security’s and Deloitte’s qualifications, licencing and entitlements to act as they have, both on the date that Mr. Moloney visited the first property and throughout the currency of these proceedings. He also exhibits documentation that he alleges proves that IBRC were aware and did consent to the creation of a tenancy agreement over the second property. Mr. Hogan challenges Mr. Kavanagh’s reliance on the terms of the mortgage as a basis for transfer, as the transfer of the mortgage to an unregulated entity has clear negative implications for a regulated mortgage contract, which is the contract that Mr. Hogan signed. Mr. Hogan avers that his statements regarding jurisdiction should be understood in the context of his allegedly unrebutted arguments regarding Mr. Kavanagh’s invalid appointment and lack of standing in court (issues that do not apply to Mr. Hogan).
9. On 11th July, 2016, Anne Pounds swore an affidavit setting out the manner and basis on which she is assisting the Hogans in dealing with these proceedings. In this affidavit, she sets out her belief that this matter should be referred to the Financial Services Ombudsman for further review.
10. On 22nd November, 2016, Mr. Hogan swore an affidavit in which he repeats his assertion that IBRC were aware of Mr. Walsh’s tenancy and avers that IBRC received payments of the rent accrued under that tenancy. He exhibits correspondence to evidence these averments. Thus, he alleges that Shoreline is estopped from reneging on an agreement that their interest in the mortgage was subject to when they purchased it, both in terms of the tenancy and alleged arrears arrangements between himself and IBRC. He avers that Shoreline have breached his statutory consumer protections by failing to engage with him in the manner required under the Consumer Protection Code 2015. He then sets out a history of complaints made by him in respect of his loan(s). He refers to various specific complaints made regarding the transfer of his account to an unregulated entity and the consumer complaints procedure, or alleged lack thereof, in place with PAS. He also avers that it would be inappropriate for a receiver to take possession of the property while he has a complaint outstanding with the Financial Services Ombudsman regarding his consumer rights.
11. On 28th November, 2016, Jeffrey Johnston swore an affidavit as a director of Shoreline. He avers that the individual who executed the deed of appointment for Mr. Kavanagh did hold the requisite power of attorney to do so. Mr. Johnston avers that IBRC’s awareness of the purported tenancy agreement is insufficient to create a legal relationship between Mr. Walsh and IBRC. But, even if such a relationship did exist, Mr. Johnston avers that he does not understand how this would assist the plaintiff in securing an injunction against the receiver. Mr. Johnston avers that he can find no evidence that IBRC received payments from Mr. Walsh. He also questions the allegation that Shoreline has failed to honour arrears agreements with Mr. Hogan in circumstances where no specifics have been set out and all previous reliefs offered to Mr. Hogan expired in August, 2014. The allegations of failure to engage and establish an alternative repayment schedule are wholly denied, as Mr. Johnston avers that the Hogans were properly assessed and denied alternative repayments due to their clear inability to repay the loan on a sustainable basis. Mr. Johnston confirms that the Financial Services Ombudsman is the proper forum for Mr. Hogan’s complaints. But he also highlights that the Ombudsman’s involvement has no impact on a receiver’s power to take possession of the property and it contradicts Mr. Hogan’s insistence that Shoreline is unregulated.
Affidavits sworn in the Second Set of Proceedings
12. On 17th May, 2016, Mr. Kavanagh swore an affidavit setting out the following background facts. Mr. Kavanagh was appointed by Shoreline. Irish Nationwide Building Society (INBS) advanced €150,000 to Mr. Hogan, under a facility letter dated 4th April, 2005, for a residential investment property. On 12th September, 2005, an indenture of mortgage was created over that property to serve as security for that loan facility. Mr. Hogan’s father soon took up residence in that property but he passed away in 2011. A Transfer Order was made pursuant to s. 34 of the Credit Institutions (Stabilisation) Act 2010, which transferred all of INBS’s assets and liabilities to Anglo Irish Bank Corporation, now IBRC. On 6th June, 2014, IBRC transferred the rights and interests in the above facility to Shoreline. On 30th March, 2015, Shoreline’s solicitors contacted Mr. Hogan seeking immediate repayment of the monies, with arrears, and advising him that failure to repay could result in the appointment of a receiver. Following on from that failure, Mr. Kavanagh was appointed under a deed of appointment dated 16th June, 2015.
13. Mr. Kavanagh then chronicles a series of interactions between the parties, involving varying degrees of hostility, the cumulative effect of which (intentional or otherwise) was to prevent Mr. Kavanagh from dealing with the property. These interactions include the issuance of the first set of proceedings and the discovery of Mr. Walsh as a tenant in the property. Mr. Kavanagh avers that this tenancy is invalid because consent to its creation was not sought from any of the parties holding the position of mortgagee at the relevant time, as required under the terms of the charge. He avers that damages will not be an adequate remedy in lieu of interlocutory relief because he is completely incapable of carrying out the receivership in a timely and effective manner and the losses stemming from that incapability cannot be recovered from litigants of such questionable financial strength as Mr. Hogan and Mr. Walsh. Regarding the balance of convenience, Mr. Kavanagh avers that the status quo (the orderly continuation of the receivership) should be maintained. Mr. Kavanagh then concludes by offering the usual undertaking as to damages. Errors were made regarding the documents exhibited to this affidavit but these were remedied by Mr. Kavanagh’s supplemental affidavit of 4th July, 2016.
14. On 16th June, 2016, Mr. Hogan swore an affidavit in which he avers that there are outstanding issues regarding personal and subject matter jurisdiction, as Mr. Kavanagh has failed to establish jurisdiction in the first set of proceedings. He relies on O. 19, r. 13 of the Rules of the Superior Courts that a fact not denied is taken to be admitted, particularly in regard to various parties’ failure to make submissions and rebut the specifics of his affidavits. He avers that there is no verified claim and that Mr. Kavanagh lacks locus standi in this matter. He avers that Shoreline and PAS are in violation of court orders, directions and undertakings by failing to file a responding and defending affidavit in the first set of proceedings. He avers that, if Shoreline fail to establish jurisdiction in the first set of proceedings, either by failing to set it out or by failing to deny lack of jurisdiction for the purposes of O. 19, then their claim in these proceedings also fails. He also challenges the sufficiency of Mr. Kavanagh’s undertaking as to damages, demanding a €1 million bond undertaking in its stead with relevant proofs that such funds are available. During the hearing, the Court indicated its view that this was an unusual submission to make in circumstances where the plaintiff had all but refused to make the usual undertaking as to damages in his own affidavits. In response, the plaintiff submitted that he would give the undertaking and suggested placing the rent from the second property in escrow until the determination of the proceedings. Mr. Hogan avers that that the deed appointing Mr. Kavanagh is invalid because it is not sealed by a regularised and licensed credit institution, as allegedly required by s. 64(2)(b)(ii) of the Land and Conveyancing Law Reform Act 2009, and is not properly executed. He avers that he entered into a contract with a regularised & licensed credit institution and Shoreline’s lack of status in this regard materially affects standing under the contract. He also challenges how the charge could have been transferred from a regulated to an unregulated entity without his knowledge or consent, to the detriment of his consumer rights. Mr. Hogan further suggests that the manner of transfer in this case is in breach of Laffoy J.’s decision in Kavanagh v. McLaughlin [2015] IESC 27.
15. On 4th July, 2016, Caroline Shanahan swore an affidavit on behalf of Mr. Kavanagh in support of an application deeming service good on Mr. Walsh and in support of an Order for substituted service for all other documents related to this matter. Those orders were made on 4th July, 2016.
16. On 14th July, 2016, Mr. Walsh swore an affidavit in which he expressed confusion as to why a second set of proceedings have been issued and why he is party to proceedings that have nothing to do with him, as he has a valid tenancy with the owner of the property in question. It is his understanding that the details of his tenancy were shared with INBS and IBRC. Mr. Walsh then summarises his interactions with the various parties and the circumstances under which he began paying rent to Mr. Madden, an agent for Mr. Kavanagh, for a brief time before ceasing payment and resuming the payment of rent to Mr. Hogan.
Legal Submissions
– The Plaintiff/Mr. Hogan
17. The plaintiff submits that there are a number of serious questions to be tried in this matter. The first of these is whether para. 16.1(a) of the mortgage, which is the paragraph relied on by the mortgagee to transfer their interests to a third party, constitutes an unfair term under the Council Directive 93/33/EEC of 5th April, 1993 on Unfair Terms in Consumer Contracts O.J. L 95/29 21/4/1993. The plaintiff makes this argument within the context of his submission that he comes within the definition of a consumer, as set out in s. 2 of the Consumer Credit Act 1995. Barrett J.’s decision in Ulster Bank v. Healy [2014] IEHC 96 is relied on as a statement on how this section is to be interpreted. The plaintiff submits that the background facts of this case should be borne in mind when considering whether or not he is a consumer. These facts would include that 1) rent is being collected purely for the purposes of paying off the loan and not for the plaintiff’s personal profit, 2) the second property, while not his family home, is his childhood home and 3) the loans were drawn down for the predominant purpose of discharging debts stemming from his mother’s end-of-life care, while also fortifying some quality of life for his elderly father, and not for the Hogans’ commercial benefit. If the receiver were to attempt to sidestep the issue of unfair terms by relying on s. 12 of the Irish Bank Resolution Corporation Act 2013 as the method of transfer, the plaintiff submits that s. 12 is an unconstitutional interference with his property rights. The plaintiff makes other challenges to the deeds of transfer and appointment, including that the deed of power of attorney exhibited post-dates the execution of the deed of transfer. It is also alleged that Mr. Hennessy (who purported to exercise the power of attorney) and Mr. Johnston have breached s. 142 of the Companies Act 2014 by holding an excessive number of directorships.
18. The plaintiff further submits that he had an arrears arrangement with IBRC whereby he would service the loan through rental payments. It is submitted that IBRC acquiesced to this arrangement and that Shoreline is thereby bound by it, either under the terms of the deed of transfer or subject to the equities. The plaintiff submits that a promissory estoppel has arisen in this matter, as defined by Keane J. (as he then was) in Truck and Machinery Sales Ltd. v. Marubeni Komatsu Ltd [1996] 1 I.R. 12 and Laffoy J. in The Barge Inn Ltd v. Quinn Hospitality Ireland Operations 3 Ltd [2013] IEHC 387.
19. The plaintiff relies on s. 8 of the Land and Conveyancing Law Reform Act 2009 in submitting that this loan is governed by that Act and not by the Conveyancing Act 1881. He submits that the loan is classified as a housing loan for the purposes of the 2009 Act, as defined in s. 2(ba)(d) of the Consumer Credit Act 1995 (as amended by the Central Bank and Financial Services Authority Act 2004). It is submitted that this classification is relevant because the receiver has therefore breached s. 97 of the Act and his proceedings are fundamentally flawed. This argument is also predicated on the submission that Mr. Hogan is a consumer. The receiver stated in oral submissions that s. 97 has no bearing on these proceedings because it relates to situations where a mortgagee (i.e. Shoreline) is seeking possession, rather than situations where a receiver is seeking possession, as is the case here
20. With regard to the receiver’s submissions that the mortgagee is not bound by Mr. Walsh’s lease because they did not consent to it, plaintiff relies on s. 112 of the 2009 Act, which states that the mortgagee cannot unreasonably withhold its consent to the creation of a lease over the land while the mortgagor is in possession. The plaintiff submits that the bank’s refusal to consent to the lease is unreasonable, as the level of rent charged is on par with the market rate and there is no evidence of a potential lessee that would pay more. The receiver submits that s. 112 has been over-ridden by the terms of the contract between the parties, which expressly require the mortgagee’s consent to be sought to create such a lease.
21. With respect to the second set of proceedings, the plaintiff submits that it would be inappropriate to grant the reliefs sought by the receiver in circumstances where there are a number of factual disputes outstanding from his complaints, most significantly his complaints to the Financial Services Ombudsman and the Data Protection Commissioner. Reliance is placed on Kinsella & Ors v. Wallace [2013] IEHC 112 in making this argument.
22. The plaintiff submits that damages would not be an adequate remedy because the property in question is his parents’ family home, which renders his considerations and interests more than merely financial. Conversely, the plaintiff submits that damages would clearly be an adequate remedy for any losses suffered by the defendants because their loss, in interest or otherwise, is quantifiable and based on a liquidated sum. The rent collected would also be placed into escrow until the determination of the proceedings. The plaintiff also submitted that there is no evidence before the Court that specifies exactly what loss the receiver believes he will not be able to recover upon the determination of the proceedings.
23. The plaintiff submits that the least risk of injustice lies with the grant of the reliefs sought by him, therefore tipping the balance of convenience in his favour.
24. Mr. Walsh was granted the opportunity to make submissions to the Court. To that end, he made submissions regarding his personal circumstances and the conduct of the receiver & his agents. He submitted that he is party to a valid and registered tenancy agreement. While he made some rental payments to the receiver, he submits that he resumed paying rent to Mr. Hogan when it became apparent to him that the receiver had no intention of honouring the tenancy agreement.
– The Receiver’s Submissions
25. The receiver submits that the plaintiff’s bona fides in bringing these proceedings has been undermined. If Mr. Hogan were correct in his submission that the loan was invalidly transferred to Shoreline, it is submitted that the debt remains due and owing to IBRC and there is no evidence before the Court that the plaintiff has made any effort to repay said debt to IBRC.
26. Regarding the submission that Mr. Hogan is a consumer, the receiver challenges this assertion on three grounds: 1) The facility letter refers to the security as a residential investment property, 2) the manner in which a third party (Mr. Hogan’s father) applied the monies forwarded under the loan has no impact in determining the loan’s purpose, as taken down by Mr. Hogan (who took down the loan and has treated the property on an investment basis) and, 3) the Healy decision has been departed from in other High Court cases, namely O’Regan J.’s decision in McCambridge v. Anglo Irish Bank Corp. Ltd. [2016] IEHC 327. The receiver submits that the plaintiff is not a consumer and, therefore, all arguments related to consumer legislation, protection and caselaw have no bearing on this matter.
27. Even if Mr. Hogan were classified as a consumer, the receiver maintains that para. 16.1(a) of the mortgage remains valid. He submits that there is no relevance to be found in the fact that the plaintiff did not specifically consent to the transfer of the mortgage from IBRC to Shoreline, as there is no term in statute, the mortgage or the facility letter that precluded IBRC from selling the mortgage to an unregulated entity. On the contrary, it is submitted that alienation of interest has been statutorily provided for under the Supreme Court of Judicature Act (Ireland) 1877 and the Irish Bank Resolution Corporation Act 2013. Regarding this new and unpleaded submission that the 2013 Act is unconstitutional, the receiver notes that the Attorney General has not been made a party to these proceedings or been put on notice that the constitutionality of a piece of legislation is being challenged.
28. It is submitted that the plaintiff’s case rests on there being an implied term in the mortgage that the financial instrument could only be transferred to a credit institution licensed under the Central Bank Act 1971. The receiver submits that such an implied term directly clashes with para. 16.1(a) of the mortgage and the contents of the facility letter. Regarding the plaintiff’s reliance on the Consumer Protection Code, the receiver refers the Court to Birmingham J.’s decision in Zurich Bank v. McConnon [2011] IEHC 75. The receiver notes that, while the plaintiff repeatedly refers to a change in the operation of the contract by virtue of an unregulated entity assuming the position of mortgagee, he has failed to specify how his protections and rights would operate differently if Shoreline were a regulated entity. The receiver also highlights that, under the terms of the Consumer Protection (Regulation of Credit Servicing Firms) Act 2015, unregulated entities must employ an authorised credit servicing firm to service their loans, so as to maintain consumer protections. It is submitted that Shoreline has met this legal obligation by engaging the services of PAS, who are regulated by the Central Bank under s. 28(3) of the Central Bank Act 1997 (as amended). In response, the plaintiff submits that the offending behaviour in this case (the transfer of the mortgage to Shoreline) occurred before the 2015 Act came into effect. He also submits that the operation of the Act and the remedying effect of PAS’s involvement were never communicated to him. In oral submissions, it was stated that this lack of disclosure is central to the plaintiff’s case.
29. The receiver draws the Court’s attention to an unapproved copy of McKechnie J.’s decision in Launceston Property Finance Ltd. v. Burke, which was delivered on 15th March, 2017, and specifically states that PAS is a retail credit firm duly regulated by the Central Bank that fully remedies any concerns regarding the 2015 Act and the loan transfer from a regulated to an unregulated entity. In any event, the receiver submits that this matter has been referred to the Financial Services Ombudsman and, in the absence of a diagnosed failure to comply with regulatory requirements, this referral has no effect on the appointment of the receiver or the reliefs sought by him.
30. Regarding the plaintiff’s submission that the deed of appointment is defective for lack of execution under seal, the receiver highlights s. 24(1) of the Conveynacing Act 1881, which states that appointment may occur by writing under the hand of the mortgagee. The receiver relies on Cregan J.’s definition of writing under hand, as set out in McCleary v. McPhillips [2015] IEHC 591 and submits that the facts of this case clearly meet that definition, as the deed was executed by a director of Shoreline.
31. Regarding the position of Mr. Walsh, the receiver refers to Clause 11(L) of the mortgage, which requires prior written consent before any lease or tenancy over the property comes into being. The receiver notes that no evidence has been put before the Court to suggest that a mortgagee consented to, or was even aware of, the creation of the tenancy dated 1st April, 2015 (as opposed to the 2012 tenancy exhibited to Mr. Hogan’s affidavits). On that basis, the receiver relies on Dunne J.’s decision in Fennell & ACC Bank v. N17 Electrics Ltd [2012] IEHC 228 and Peart J.’s decision in Murphy v. Hooton [2014] IEHC 266. The receiver submits that Mr. Walsh has continually refused to make rent payments to the receiver and no agent of the mortgagee has ever consented to or accepted the tenancy. Thus, it is submitted that Clause 11(L) of the mortgage remains valid. The plaintiff submits that, under the N17 Electrics case, the lease is still binding on him, even if it is not binding on the bank or Shoreline. It is submitted that, as an agent of Mr. Hogan, the receiver is also bound by the lease. In response, the receiver highlights that the first-named plaintiff in N17 Electrics was a receiver, thereby proving that the tripartite relationship between receiver, mortgagor and mortgagee does not operate in the manner suggested by the plaintiff.
32. The receiver submits that the incident between Mrs. Hogan and Mr. Moloney has no relevance to the matter that the Court must determine. Keane J.’s decision in McCarthy v. Murphy [2016] IEHC 391 is relied on in this regard.
33. With regard to the reliefs that Mr. Hogan and Mr. Kavanagh seek against each other, Mr. Kavanagh submits that the orders sought are prohibitory in nature and therefore the classic Campus Oil test applies. With regard to the reliefs sought against Mr. Walsh, Mr. Kavanagh concedes that it could be argued that those orders are mandatory in nature, as evidenced by the Court of Appeal’s decision in Governor and Company of the Bank of Ireland v. O’Donnell [2015] IECA 73. This concession is made on the grounds that the receiver is effectively requiring Mr. Walsh to vacate the property.
34. In addressing the reliefs sought by Mr. Hogan for the second property, which is occupied by Mr. Walsh, the receiver submits that they must be denied on foot of Mr. Hogan’s failure to make an undertaking in damages and his lack of a fair and arguable case. The receiver takes exception to any attempt by the plaintiff to make the undertaking in damages before the Court, as he is hopelessly insolvent and there would be no reality to such an undertaking. It is submitted that the placing of rent in escrow is also not a viable solution because the amount of rent being collected is dwarfed in comparison to the amount of damages that will accrue. With regard to the reliefs sought by Mr. Hogan over the first property, his family home, the receiver submits that these reliefs are quia timet in nature. This is allegedly so because the relief is sought solely in light of the incident with Mr. Moloney, an incident which is emphatically denied on affidavit. It is submitted that there is no evidence of repeated incidents and no evidence indicating a strong probability of harm occurring in the future. In those circumstances, it is submitted that the plaintiff has failed to meet the test for quia timet relief, as set out by Henchy J. in C&A Modes v. C&A (Waterford) Ltd [1976] IR 198. Even if he had met that standard, it is submitted that damages would be an adequate remedy for any loss suffered.
35. With regard to the reliefs sought by the receiver, it is submitted that arguable and strong grounds for an injunction have been made out, damages would be an adequate remedy and a substantive undertaking in damages has been given.
Decision
36. It seems to me that a large part of the plaintiff’s case rests on the submission that he acted as a consumer, as defined by s. 2 of the Consumer Credit Act 1995, during his interactions with the mortgagee, so the Court will address this submission first. In submitting that he is a consumer, the plaintiff relies on Barrett J.’s decision in Healy. In submitting that the plaintiff is not a consumer, the receiver relies on O’Regan J.’s decision in McCambridge, which was delivered after Healy and heavily favours a more traditional interpretation of Kelly J.’s (as he then was) decision in AIB v. Higgins [2010] IEHC 219. Both of these cases rely on Higgins, so it seems to me that the crux of this argument regarding a fair bona fide issue to be tried rests in the interpretation and application of the Higgins decision to the facts at hand. In Higgins, Kelly J. delivered an extensive judgment that considers the matter in great detail. He reviews the 1995 Act and the EU Directive that gave rise to it, as well the CJEU’s decision in Benincasa v. Dentalkit (C-269-95) 1997 I-03767. In my view, all of these factors can be reduced down to the following quote from p. 28 of the Higgins judgment, which should be considered in full:-
“The European Court of Justice clearly envisaged that the concept of the consumer was confined to a person acting in a private capacity and not engaged in trade or professional activities. The self same person can be regarded as a consumer in relation to certain transactions and as an economic operator in relation to others. Only contracts concluded for the purpose of satisfying an individual’s needs in terms of private consumption are protected by the Directive. There is nothing in the Act suggesting that the legislature here sought to go further than the Directive, still less to confine the interpretation of the term “business” in the definition of “consumer” to a single business activity.”
I would adopt Kelly P.’s review and assessment of the CJEU caselaw, as well as his and O’Regan J.’s position as to how the definition of a consumer is to be interpreted and applied. Although neither party relied upon or referred to it, this Court has read the decision of Baker J. in Stapleford Finance Ltd. v. Lavelle [2016] IEHC 385. That judgment was delivered in the context of an application to defend the entry of summary judgment and to allow the matter to proceed to a plenary hearing. Baker J. acceded to the application on the basis that the defendant had an arguable case that he was a consumer within the meaning of the Consumer Credit Act 1995. That case can be readily distinguished from the facts of the present case and, in my view, does not impact on the view that the Court has to arrive at in respect of this case. Therefore, the Court will now determine whether a fair bona fide question to be tried has been established within the rubric of the interpretation of Higgins outlined above.
37. I am of the view that the plaintiff has failed to satisfy even the low threshold of a fair bona fide question to be tried regarding his status as a consumer. By his own admission, the monies were not drawn down for the satisfaction of his own needs in terms of private consumption. They were drawn down and described as an investment loan. The plaintiff alleges he used some of the monies to provide for his elderly father. Following on from his father’s death, the plaintiff rented out the secured property and has collected rent from it ever since. At no point were the loaned monies or the secured property ever used for private consumption, and so there can be no question that the plaintiff is a consumer. While the plaintiff made various submissions regarding his personal circumstances, the following quote from para. 16 of the Dentalkit decision must also be borne in mind:-
“It follows from the foregoing that, in order to determine whether a person has the capacity of a consumer, a concept which must be strictly construed, reference must be made to the position of the person concerned in a particular contract, having regard to the nature and aim of that contract, and not to the subjective situation of the person concerned.”
It is clear from the contract that it relates to a residential investment property. That factor carries far more weight than Mr. Hogan’s subjective situation. There is no fair bona fide question to be tried that Mr. Hogan is a consumer
38. With regard to the argument that s. 12 of the IBRC Act 2013 is unconstitutional, these proceedings are not properly constituted to advance such an argument. It has not been properly pleaded and the precise manner in which s. 12 would be an unconstitutional breach of property rights has not been set out. Therefore, I am of the view that there is no fair bona fide question to be tried.
39. The plaintiff has repeatedly referred to the issue of transfer from a regulated to an unregulated entity. The Launceston decision has unquestionably set this dispute at naught. PAS is a regulated credit institution that meets the requirements of the 2015 Act. The plaintiff has complained that Shoreline and PAS failed to appraise of him of the ameliorating effect of PAS’s involvement. It is the plaintiff’s responsibility to appraise himself of his legal position. Indeed, based on the contents of the affidavits put before the Court, it would appear that the plaintiff is quite capable of taking the necessary steps to ascertain the status of various entities involved in these proceedings. Therefore, there is no fair bona fide question under this heading either.
40. With regard to the challenges made to the deed of appointment, John Hennessy, a director of Shoreline, executed the deed. Jeffrey Johnston, Shoreline’s only other director, has clearly set out on affidavit that Mr. Hennessy could bind the company and has not indicated at any point that he was opposed to the appointment of the receiver. The Court has been provided with no substantial reason as to why the deed of appointment would not be valid. Having reviewed all the material put before the Court in both of these matters, I am not convinced that there is any fair bona fide question to be tried regarding the validity of the deeds of transfer or appointment.
41. With regard to the plaintiff’s arrears arrangement and estoppel arguments, the existence of a fair bona fide question to be tried is predicated on there being some piece of evidence to substantiate his claim that one of the mortgagees promised/agreed to accept the rental payments as full service of the loan. No such evidence has been put before the Court. While the plaintiff does refer to correspondence in which IBRC acknowledges receipt of Mr. Walsh’s tenancy agreement, that same correspondence also requests further information from the plaintiff before a full review could occur that would formulate alternative repayment options. The results of that review have not been exhibited. No evidence has been put before the Court to suggest that any of the mortgagees proposed an alternative arrears arrangement or in any way indicated that it would accept the €400 rental payment in lieu of the €769.56 monthly instalment due under the facility letter. In the absence of such evidence, it cannot be said that there is a fair bona fide question to be tried on either of these issues.
42. With regard to Mr. Walsh’s tenancy, a new agreement was created in April, 2015 and there is no evidence to suggest that Shoreline’s consent was sought and/or granted to the creation of that new tenancy. The plaintiff has submitted that consent was unreasonably withheld, in contravention of s. 112 of the 2009 Act, and that the tenancy is therefore binding on Shoreline in any event. Setting aside for a moment that the terms of the mortgage require consent to be granted prior to the creation of the tenancy, the plaintiff’s construction of s. 112 is entirely misconceived. Firstly, s. 112(5) states that the power to lease under this section applies only to mortgages created after the section came into force. Secondly, if the plaintiff had sought consent and come to the conclusion that it was withheld unreasonably, the onus rested on him to secure a court order affirming that position, rather than setting out that belief in unrelated proceedings such as these. Thirdly, the practical impact of his argument is that a mortgagor can, in some circumstances, unilaterally create a lease under s. 112, with the result of frustrating a receivership. None of these positions can be seriously contended. As for the receiver, the N17 Electrics has made clear that the tripartite agency relationship between mortgagor, mortgagee and receiver does not render the tenancy binding on the receiver. Therefore, I am of the view that there is no fair bona fide question to be tried regarding the tenancy agreement between Mr. Hogan and Mr. Walsh.
43. As should be apparent from the above, I am of the view that the plaintiff has failed, in his arguments regarding the second property, to meet the low threshold of a fair bona fide question to be tried. Given that the incident between Mr. Moloney and Mr. Hogan was singular in nature, is entirely disputed on affidavit and is highly unlikely to be repeated, I am also of the view that the reliefs sought over the first property should not be granted. Thus, the interlocutory reliefs sought by the plaintiff in the first set of proceedings must be refused. However, even if I had found otherwise, I would nevertheless still have refused to grant the reliefs sought on foot of the improper manner in which the plaintiff has gone about addressing his undertaking as to damages. The undertaking as to damages is an onerous burden and a crucial ingredient in the grant of any interlocutory relief. Despite making repeated challenges to the receiver’s undertaking, the plaintiff all but refused to make the proper undertaking himself on affidavit. This alone is good reason to reject the reliefs sought.
44. Turning now to the second set of proceedings, Shoreline has been validly assigned the mortgagee’s interest in this loan. Following on from the letter of demand dated 30th March, 2015, the plaintiff failed to repay the debt and a receiver was duly appointed. Since then, the plaintiff has repeatedly refused to facilitate the proper administration of the receivership. Mr. Hogan and Mr. Walsh have failed to set out in any way how the tenancy agreement dated 1st April, 2015, or indeed any prior agreement, would be binding on any party to these proceedings other than themselves, thus rendering Mr. Walsh little more than a trespasser from the receiver’s perspective. In short, the Court is satisfied that there is a sufficiently strong case to warrant the grant of interlocutory relief against Mr. Walsh and Mr. Hogan, regardless of its mandatory or prohibitory nature.
45. The Court is also satisfied that damages would not be an adequate remedy in this matter, for the simple reason that neither Mr. Hogan nor Mr. Walsh would be able to afford to pay them. In fact, continued interference with the receivership will exacerbate the amount of damages, while the grant of an injunction would reduce damages significantly. As regards Mr. Walsh, it has long been the case in this jurisdiction that damages are not an adequate remedy for trespass. While the Court is aware that this is not an absolute rule and that recent authorities advocate for a fact-based approach, I am of the view that no facts or circumstances arise with regard to Mr. Walsh that would render damages an adequate remedy.
46. Conversely, damages would be an adequate remedy for any loss suffered by the plaintiff and Mr. Walsh. The most probable loss suffered by Mr. Walsh would be in the form of increased rent under the tenancy agreement he will likely enter into once he has vacated the second property. Those losses are easily calculable. As for Mr. Hogan, this is a residential investment property and the losses that flow from its sale are definable and can be monetarily compensated. Mr. Hogan has submitted that the Court should find otherwise due to the fact that the second property is his childhood home. No authority has been put before the Court to support the refusal of interlocutory relief on those grounds. An individual’s family home holds a special place in Irish law. The family home of Mr. Hogan is the first property, where he resides with his wife and children, and not the second property, where he resided during his childhood years.
47. Regarding the balance of convenience, the plaintiff has submitted that it would be inappropriate to grant relief while a complaint is pending before the Financial Services Ombudsman. In making this argument, reliance is placed on Laffoy J.’s decision in Kinsella. This is a complex and difficult decision to apply, particularly given the differing facts and the careful restraint shown by Laffoy J. in reaching her findings. The Court would have required far more detailed and convincing submissions than it received in order to apply it to these facts in the manner contended for by the plaintiff. In the absence of that analysis, I am of the view that the Kinsella decision is inextricably bound up in its own facts and that it should not be applied to the matter currently before the Court.
48. Independent of the Court receiving sufficient submissions on that point, its ability to assess the FSO argument has also been hindered by the plaintiff’s failure to comprehensively set out the arguments and material put before the FSO. As it is, Mr. Hogan averred in his affidavit of 22nd November, 2016, that the complaint related to his consumer rights. For the reasons set out above, the Court has concluded, based on the material and arguments put before it, that there is no reality to the submission that Mr. Hogan was a consumer for the purposes of this loan. Therefore, the Court sees no reason to refuse to grant highly warranted relief on foot of a complaint that appears, based on what little material has been put before the Court, to be baseless. I accept the receiver’s submission that the balance is best served by maintaining the status quo and that the status quo is the orderly administration of the receivership. I am satisfied that a proper undertaking as to damages has been made by the receiver on affidavit and that the plaintiff’s challenges to this undertaking are not sufficient to find otherwise.
49. For the reasons set out above, I refuse the reliefs sought in the first set of proceedings and grant the reliefs sought in the second set of proceedings.