Receiver Appointment
Cases
McCann -v- Halpin & anor
[2016] IESC 11
Supreme Court Laffoy J.
“Judgment and order of the High Court
16. In his judgment, the trial judge succinctly outlined the submissions made on behalf of the Appellants in the High Court on the point in issue on this appeal as follows (at para. 17):
“The [Appellants] have rested their arguments firmly upon the contention that the Receiver was not appointed in conformity with the letters of demand, as he was appointed at 4pm, which they contend is not ‘close of business’. Ross Maguire SC submits that there can be no question but that the doors of IBRC remain open beyond 4pm. They do not contend that if the bank had waited another hour or even an hour and a half the money could have been repaid. It is contended that since no event of default was committed by the [Appellants] until after the expiration of the deadline, namely until after ‘close of business’ the bank was not entitled to appoint the receiver and his appointment is therefore invalid. It is submitted in other words that the demand made is faulty and of no lawful effect because the bank failed to comply with the terms of the demand i.e. wait until close of business before taking any enforcement step.”
The trial judge also recorded that the Appellants submitted that a court should be vigilant to ensure that there is scrupulous compliance with legal requirements for the appointment of a receiver, given the serious consequences for any company by such appointment, citing the decision of the High Court (Gilligan J.) in The Merrow Limited v. Bank of Scotland Plc [2013] IEHC 130.
28. At the core of the assertions made in paragraphs (a) to (c) in para. 27 above is the contention that it was not necessary for IBRC to await any default in repayment of the monies demanded by the Demand Letter, but rather the legal entitlement to appoint a receiver under Clause 9A of the 1998 Mortgage arose as and when the sums became payable and the security was enforceable, which, it was contended arose on the service of the Demand Letter without anything further having to occur.
29. The relevance of what is stated in paragraph (d) of the summary in para. 27 above was elaborated on by counsel for the Receiver by reference to a line of authorities of the courts of England and Wales in which the so-called “mechanics of payment test” has been applied as to when a receiver may be appointed following a demand for payment where the secured monies are contractually repayable on demand. In particular, counsel for the Receiver relied on the decision of the Chancery Division of the English High Court in Sheppard & Cooper Limited v. TSB Bank Plc [1996] 2 All ER 654. In that case, the plaintiff company was liable under a debenture to pay or discharge its indebtedness to the bank in whose favour the debenture was given on demand and the debenture further provided that the bank might appoint administrative receivers of the charged assets at any time after all or any of the indebtedness became immediately payable. On the facts, a period of approximately one hour passed between a written demand requiring repayment of the plaintiff company’s indebtedness and the appointment of administrative receivers. In his judgment Blackburne J. explained what he referred to as the so-called mechanics of payment test by reference to the following passage from the judgment of Walton J. in Bank of Baroda v. Panessar [1986] 3 All ER 751 at p. 759 – 760:
“Money payable ‘on demand’ is repayable immediately upon demand being made . . . Nevertheless, it is physically impossible in most cases for a person to keep the money required to discharge the debt about his person. He may in a simple case keep it in a box under his bed; it may be at the bank or with a bailee. The debtor is therefore not in default in making the payment demanded unless and until he has had a reasonable opportunity of implementing whatever reasonable mechanics of payment he may need to employ to discharge the debt. Of course, this is limited to the time necessary for the mechanics of payment. It does not extend to any time to raise the money if it is not there to be paid.”
30. Blackburne J. elaborated on the last sentence in that passage later in his judgment, where he stated (at p. 660):
“. . . the court must in all circumstances allow a minimum period to elapse before the debtor’s default can be established. The requirement that sufficient time be permitted to elapse to enable the debtor to effect the mechanics of payment assumes that that is the period needed if the debtor has the necessary moneys available. If, however, he has made it clear to the creditor that the necessary moneys are not available, then, provided a proper demand has been made, I cannot see that the creditor need allow any time to elapse before being at liberty to treat the debtor as in default.”
Discussion and conclusions
33. The approach adopted by the trial judge in first addressing the meaning of the phrase “by close of business” in the seventh paragraph of the Demand Letter and in considering whether the prerequisite stipulated in that paragraph as to non-receipt by IBRC of the payment demanded had been satisfied by the time stipulated, so as to give rise to the entitlement of IBRC to enforce its security, in my view, was a logical approach to adopt. If that prerequisite had been satisfied, irrespective of the legal or equitable implications, if any, arising from what was stipulated in the seventh paragraph, the case made by the Appellants that the Receiver was not validly appointed would fall asunder and, accordingly, it would not be necessary to reach any conclusion on the argument advanced on behalf of the Receiver that IBRC was entitled to appoint the Receiver after the demand for payment was made and before the close of business on 17th February, 2012. As has been recorded earlier, the trial judge concluded that the Receiver had been validly appointed but did so without having to consider the argument advanced on behalf of the Receiver that IBRC was entitled to appoint the Receiver at any time after the demand was made and before 4pm on 17th February, 2012.
34. Adopting the same logical approach, the first question which this Court has to consider is whether the trial judge was correct in finding, in the context of the Demand Letter, that the expression “by close of business on 17 February 2012” in the seventh paragraph meant by 4pm on that day. In my view, he was correct and the reasoning underlying his conclusion wholly supports it.
35. On the hearing of the appeal, counsel for the Appellants could not identify any statutory provision (for example, any provision of the Interpretation Act 2005) or any authority which would be of assistance in the proper interpretation of the phrase “by close of business”. Moreover, as the trial judge stated, the phrase does not come within the category of “terms of art”, which were described in the enlightening observations of Diplock L.J. in Sydall v. Castings Limited [1966] 3 All ER 770 (at p. 774) as constituent words and phrases which “are more precise in their meaning than they are in the language of Shakespeare or of any of the passengers on the Clapham omnibus”, being part of an English language evolved by lawyers whose profession it is to draft and construe documents which are intended to give rise to legally enforceable rights and duties. That being the case, the phrase must be given its ordinary meaning, but what its ordinary meaning is must be interpreted in the particular context in which it is used, as the trial judge stated.
36. The context in which the phrase “by close of business” is used is that the seventh paragraph of the Demand Letter, in the case of both Elektron and Crossplan, is preceded by a demand by IBRC for payment by the addressees, Elektron and Crossplan, forthwith of very substantial sums of money, in the case of Crossplan, sums aggregating in excess of €25m. Those demands are succeeded by specific directions as to how payment of those very substantial sums of money could be effected – by electronic transfer to a specific account of IBRC, or by “delivery” to IBRC at a specific address. The reference in the seventh paragraph to the payment not being “received” by close of business must be interpreted by reference to the nature of the demand for payment and the manner in which payment could be made to IBRC. That the object of the demand is that IBRC will receive by electronic transfer or by “delivery” of a bank draft in the case of each company a substantial sum of money “by close of business”, must lead to the interpretation of the phrase “by close of business” as meaning the end of the business banking day, as the trial judge found. The reality is that beyond the end of the banking business day, the objective could not be achieved, in that, for example, there would be no way of delivering a bank draft to IBRC, as the doors would be closed to bank customers.
37. The end of the banking business day is the point in time when the relevant bank ceases to do banking business with its customers. As the trial judge found, in the case of IBRC, the end of banking business occurred at 4pm on Friday, 17th February, 2012. That is what any customer of IBRC would have understood to be the meaning of “close of business” used in a document, such as its use in the seventh paragraph of the Demand Letter. Moreover, in the light of what happened at the meeting on the morning of 17th February, 2012, as outlined by Ms. Kelly, it cannot be doubted that it must have been the understanding of the Appellants that “close of business” meant 4pm on that day.
38. As regards the Appellants’ alternative argument, the starting point is that the phrase in the seventh paragraph of the Demand Letter under consideration is properly interpreted as meaning by 4pm on 17th February, 2012. Applying its ordinary meaning to the preposition “by”, it indicates that 4pm is the deadline for receipt of the payment demanded. In accordance with the wording of the seventh paragraph, when that deadline was reached, IBRC was entitled to enforce its security. In particular, the Appellants’ argument that, when the deadline was reached at 4pm, IBRC had to wait for some period of time after 4pm to exercise its power to enforce the security does not stand up to scrutiny. If IBRC was in a position to move to make the appointment once the deadline was reached, applying the ordinary meaning of “by” 4pm, it must have been entitled to do so when the deadline was reached and the prerequisite of non-receipt by IBRC of the payment demanded was satisfied. Apart from that, one might ask why should IBRC have to wait a minute, as distinct, from, say, a nanosecond, which I understand means one thousand millionth of a second, before exercising its power? That rather facetious question does not have to be answered because once the deadline is reached and the prerequisite is satisfied by non-receipt by IBRC of the payment demanded, the power to enforce the security is exercisable.
39. No ambiguity, either internally within the seventh paragraph of the Demand Letter or between that paragraph and the remainder of the Demand Letter has been pointed to on behalf of the Appellants. There is no such ambiguity and, therefore, the contra proferentem rule of construction has no application.
40. Accordingly, the Appellants’ submission that the Receiver was not validly appointed must be rejected on both bases on which it was argued. In summary, the trial judge was correct in interpreting “by close of business” as meaning by 4pm. The proper interpretation of the preposition “by” in the phrase is that it indicates the deadline for receipt by IBRC of the payment demanded. The deadline occurred at 4pm, whereupon IBRC was entitled to enforce its security.
41. On the basis of the foregoing conclusions, as happened in the High Court, it has not been necessary to address the argument made on behalf of IBRC that it was entitled to appoint a receiver after the demand for payment was made and before the close of business on 17th February, 2012. While the submissions made on behalf of the Receiver have been outlined, no view is expressed as to the correctness or otherwise of any of the arguments advanced on behalf of the Receiver as to the effect or otherwise of the seventh paragraph of the Demand Letter. In particular, no view is expressed as to the application of the so-called “mechanics of payment test” to the circumstances which prevailed in relation to the banker/customer relationship of IBRC, on the one hand, and Elektron and Crossplan, on the other hand, between 15th February, 2012 and 4pm on 17th February, 2012. However, I feel constrained to observe that, if this Court had to consider that matter, it is difficult to see how the Court could ignore the seventh paragraph of the Demand Letter.
42. It follows from the conclusions outlined, that the Receiver was validly appointed receiver of the assets of Elektron and the assets of Crossplan on 17th February, 2012.
Order
O’Flynn & Anor -v- Carbon Finance Ltd & Ors
[2014] IEHC 458
Irvine J.
“Lack of Time to Meet Demands
122. The plaintiffs contend that there are two legitimate but differing schools of thought as to how the word “forthwith” should be construed in the context of a loan which is repayable on demand. The first is what is referred to in the relevant judgments as the mechanics of payment test. This is a very stringent test and the one that has been universally adopted by the English Courts in recent times. This test allows only such time as is reasonable in all of the circumstances to enable the debtor contact his bank and make the necessary arrangements for the sum in question to be transferred to the account of the creditor. The alternative test is what is described as the reasonable time or reasonable time in the circumstances test which has, according to the plaintiffs been applied in other jurisdictions. Applying that test the plaintiffs maintain that in determining what is a reasonable time the Court can take into account matters such as whether the debtor had any warning of a borrowers intended action and perhaps the time necessary to arrange for alternative finance to be put in place.
123. Notwithstanding an obiter statement by Charleton J. in National Asset Loan Management Limited v. Barden [2013] IEHC 32, to the effect that it might be possible for a borrower, who was trading in a satisfactory manner, to argue for an entitlement to reasonable notice of any contemplated demand for repayment of a commercial loan, the plaintiffs did not seek to argue that the demands for repayment of the personal loans could potentially be found to be invalid merely because of a lack of any prior notice of Carbon’s intention to call for their repayment. It was however submitted that the lack of any prior notice was something that the Court would arguably be entitled to take into account in determining whether the time allowed for payment was sufficient if the reasonable time test were applied.
125. There is some divergent case law on the question of how much time must pass following a demand by a creditor, where money is payable on demand, before the debtor who fails to make payment can be said to be in default. However, one principle seems to be well established and about which there is no dispute and that is that if the borrowers have made known to the lender that they are unable to pay the monies outstanding, then it is not necessary for the lender to allow any time to elapse after demand before seeking to enforce their security. As Blackburne J. stated in Sheppard & Cooper Limited v. TSB Bank Plc [1996] 2 All E.R. 654 at 660:-
“The requirement that sufficient time be permitted to elapse to enable the debtor to effect the mechanics of payment assumes that that is the period needed if the debtor has the necessary moneys available. If, however, he has made it clear to the creditors that the necessary moneys are not available, then, provided a proper demand has been made, I cannot see that the creditor need allow any time to elapse before being at liberty to treat the debtor as in default.”
126. This approach was adopted by McGovern J. in Allied Irish Bank Plc & Anor v. Moran [2012] IEHC 323, where at para. 23 of his judgment he adopted the observations of Harmon J. on the interlocutory application in Sheppard & Cooper when he stated:-
“The question of notice becomes irrelevant in circumstances where the defendants are unable to pay the sums due. The law does nothing in vain and it would be pointless, in the circumstances of this case, to require further steps to be taken by the second named plaintiff before it can recover its debt where the claim would inevitably be brought again and the defendants would, on their own admission, have no answer to it.”
128. The plaintiffs have found some small support for their contention that they may reasonably argue for the application of the reasonable time test by reference to the obiter decision of Charleton J. in National Asset Loan Management Limited v. Barden [2013] IEHC 32, where at para. 13 of his judgment he stated as follows:-
“Were it to be the case that the bank jumped ahead of the business situation contemplated to be a success and demanded repayment notwithstanding that sales were progressing in a reasonable fashion it is possible that another argument might succeed. It might also be that a borrower would be entitled to reasonable notice of the change in the attitude of the bank and reasonable time to arrange another facility.”
129. The proposition advanced by the plaintiffs that a borrower served with the demand for payment forthwith can be afforded some latitude beyond the time required to meet the mechanics of payment test does not, I believe, get any support from the decision of McGovern J. in Allied Irish Banks Plc & AIB Mortgage Bank v. Moran. In that case, the learned trial judge was dealing with loans which required the lenders to give prior notice to the borrowers of any default under the agreement and a time to remedy that default prior to making a demand for repayment. While the learned trial judge did indeed say that “in the absence of a fixed time, the notice should be reasonable”, I read that statement as being one requiring the lender to provide the borrower with a reasonable time to remedy the default prior to the demand as opposed to a requirement that the lender afford the borrower additional time to meet a demand for payment.
130. While the plaintiffs rely upon the decision of Hogan J. in Re Belohn Limited [2013] IEHC 157 to support their submission that they have a reasonable argument to make that the Court should apply the reasonable time test, I feel this decision does not really advance their position. That judgment relates to an application to discharge an order appointing an interim examiner to Belohn. In the course of his judgment, Hogan J. referred to the manner in which Bank of Scotland had called in the personal loan of a Mr. Foley who was a director of Merrow, the sole shareholder of Belohn. Regarding the demand for payment of slightly over €1 million which was made by letter handed to Mr. Foley at 4:15pm and in respect of which it demanded repayment by 5pm the same day, Hogan J. stated as follows:-
“Second, the time allowed for payment was quite impossibly and quite unrealistically short. Even if Mr. Foley’s bank had actually been open at the time he received the letter, it would have represented an heroic feet of efficiency for Mr. Foley and his own bank to have ensured that the money was actually received in a particular account by the Bank of Scotland by 5pm, as anyone who has ever stood in a bank queue or tried to effect even the simplest banking transaction such as transferring money from one account to another would immediately understand. Of course, depending on the circumstances on the contractual terms governing the loan agreements, a demand letter may reasonably request payment within a matter of hours during the course of a banking day. But the time permitted for repayment must nonetheless be reasonable and realistic and in this case it was neither.”
131. I do not believe this passage can be used to suggest that Hogan J. did not believe that mechanics of payment test was the one to be applied in the case of a borrower seeking to call in a loan facility that was repayable on demand particularly in circumstances where he expressed himself satisfied that it might be reasonable for a lender to demand payment within hours during the course of a banking day depending on the contractual terms. All that he was explaining was that at 4.15pm on a Friday, it would be simply impossible, in a practical sense, for anyone to make a transfer within 45 minutes given that it was outside normal banking hours, a timeframe which would not meet the mechanics of payment test.
132. In the plaintiffs’ written submissions when referring to a number of judgments significant emphasis was placed on words such as “reasonable” and “reasonable in the circumstances of the case” by referencing them in bold type. However, when the quotes concerned are read in the context of the overall decisions from which they are taken, it is clear that the Court in each instance was not departing from the mechanics of payment test but merely looking at what was reasonable in the circumstances of that test. An example of this is to be seen in the decision of Blackburne J. in Sheppard & Cooper Limited v. TSB Bank Plc where at 659, in considering the submissions of counsel, he states as follows:-
“In my view, the question how much time must elapse after demand before a debtor can be said to be in default is essentially a practical one. As Goff J. observed in the Crypts case [1973] 2 All E.R. 606 at 616, [1973] 1 WLR 994 at 955:-
‘the cases show [where money is payable on demand] all the creditor has to do is to give the debtor time to get it from some convenient place, not to negotiate a deal which he hopes will produce the money.’
What that time is must, in my view, depend on the circumstances of the case. If the sum demanded is of an amount which the debtor, if he has it, will be likely to have in a bank account – which will be the position in 99 cases out 100 – the time permitted must be reasonable in all the circumstances to enable the debtor to contact his bank and make the necessary arrangements for the sum in question to be transferred from his bank to the creditor. If the demand is made out of banking hours, the period of time is likely to be longer – involving waiting until banks reopen – than if the demand is made during banking hours.”
To make his position crystal clear he then advises:-
“In so stating, I do not consider that I am abandoning the mechanics of payment test in favour of some wider and less practical approach.”
133. Insofar as the plaintiffs rely upon the decision in Bunbury Foods PTY Limited v. National Bank of Australia Limited [1984] HCA 10; (1984) 153 CLR 491, it is clear on reading that decision that the Court was in fact endorsing the mechanics of payment test rather than departing from it in favour of the more subjective test for which the plaintiffs contend, as appears from para. 28 of the Court’s judgment where it was stated as follows:-
“However, it is now a well established principle of law that a debtor required to pay a debt payable on demand must be allowed a reasonable time to meet the demand. Even in a case where a deed provided that the debt was payable ‘immediately upon demand thereof in writing’ it was held that the provision must be given a reasonable construction so that the debtor had a reasonable time to get the money from some convenient place (Toms v. Wilson [1862] 4 B&S 442, at pp. 453 – 455) [1863 EngR 991; (122 E.R. 524, at p. 529]. This does not mean that the notice calling up the debt is invalid unless it requires payment ‘within a reasonable time’. It means no more than that the debtor must be allowed a reasonable opportunity to pay before it can be said that he has failed to comply with the demand. A notice requiring payment forthwith will be regarded as allowing the debtor a reasonable time within which to comply. Until a reasonable time in the sense discussed has elapsed the creditor cannot enforce his security.”
The reference in this decision to the time required by the debtor “to get the money from some convenient place” again endorses the applicability of the mechanics of payment test.
134. Likewise in Parras Holdings PTY Limited & Ors v. Bank of Australia [1998] FCA 682, contrary to what was asserted on the plaintiffs’ behalf, the Court did not conclude that a reasonable time for payment in the context of a demand for payment with immediate effect was considered to be fourteen days. In that case, the letter of demand under consideration by the Federal Court of Australia on its face allowed the borrower 14 days for repayment. Accordingly, the decision is no authority for the proposition that anything other than the mechanics of payment test is the one to be applied where monies are repayable on demand. Indeed, in upholding the validity of the demand notice, the Court endorsed the mechanics of payment test that had been applied in Cripps (R.A.) & Son Limited v. Wickenden [1973] 1 WLR 944 and Bank of Baroda v. Panessar [1987] 1 Ch. 335, both decisions which were subsequently approved of in Sheppard & Cooper.
135. From these authorities it is easy to see why the mechanics of payment test has proved itself so attractive to the Courts and why there is an almost complete dearth of authority to support an alternative test. This is probably because the mechanics of payment test involves the application of relatively objective criteria. Applying this test, a borrower can without too much difficulty determine when it is likely to be safe to proceed to enforce its security. This cannot be said of the reasonable time test which involves a great deal of subjectivity and is one that the Courts have considered imprecise and undesirable in the commercial context in which it usually arises.
136. Taking into account all that was submitted to the Court by way of written and oral submission regardless of the obiter pronouncement of Charleton J. in Barden, I am not satisfied that the plaintiffs may reasonably argue for a test other than the mechanics of payment test. Accordingly, the question I must now answer is, whether, applying that test, the plaintiffs may reasonably argue at the trial of the action that the letters of demand are unlawful and the consequential appointment of the receivers invalid.
McCleary -v- McPhillips & ors
[2015] IEHC 591
Cregan J.
“125. The central issue in this case is, and always has been, whether the receiver was validly appointed under the deed of mortgage/charge. That central issue has been made more complicated in this case because the first receiver, Mr. Tennant, was discharged and a second receiver, Mr. McCleary, was appointed on 17th January, 2014.
Therefore the central issues in these proceedings are:
1. The validity of the deed of appointment of Mr. Tennant as first receiver
2. The validity of the deed of discharge of Mr. Stephen Tennant as receiver on 17th January, 2014
3. The validity of the appointment of Mr. McCleary as receiver on 17th January, 2014.
126. Moreover, the central issue in the challenge to the validity of the appointment of the receiver is whether the receiver was appointed in accordance with the deed of mortgage/charge entered into between ACC Bank and the borrower Mr. McPhillips.
127. The relevant clause of the deed of mortgage/charge dealing with the appointment of receiver is clause 10 which provides as follows:
“10. The Bank at any time or times after the execution of these presents may without any further consent from or notice to the Borrower or any other person or persons
a. (1) By writing under its hand appoint such person as it thinks fit to be the receiver of the income of the mortgaged premises or any part thereof or of the rent and profits of the mortgaged premises or any part thereof similarly to remove any such receiver and to appoint another in his place and to require any such receiver to insure the mortgaged premises or any part thereof in such manner as the Bank shall from time to time direct. The receiver so appointed shall be deemed to be the agent of the borrower and may carry on the business of the borrower in or on the mortgaged premises and manage the same and pay and receive debts due to or from the borrower in respect thereof.
(Emphasis added).
128. Paragraph 11 of the deed of charge/mortgage provides as follows:
“The Bank may at any time after entering into possession of the mortgaged premises or any part thereof or receipt of the rents and profits of any part thereof or appointing a receiver of the mortgaged premises or over the rents and profits or any part thereof relinquish such possession or remove such receiver on giving notice to the borrower.” (Emphasis added).
129. It is clear therefore from para. 10 that the exact terms of the deed of charge/mortgage entered into between the borrower and the Bank provide that the Bank may appoint such person as it thinks fit to be the receiver by writing under its hand. The deed of mortgage/charge does not provide that the appointment of the receiver by the Bank should be under seal. It could have done so but it does not in fact do so.
Review of case law on Bank’s obligation to appoint receivers in accordance with Debentures
130. In the Merrow Ltd v. Bank of Scotland Plc & Anor [2013] IEHC 130 Gilligan J. considered the legal principles in relation to a Bank’s obligation to appoint receivers in accordance with debentures and engaged in an extensive review of the authorities in the common law world. In that case, the company had loan facilities with Bank of Scotland and the balance due on the loans amounted to a sum of approximately €4 million. The Bank had a charge over the premises of the company and the Bank appointed a receiver on 10th October, 2012. The company challenged the receiver’s appointment as being invalid. At para. 28 and following of his judgment Gilligan J. stated as follows:
“28. Bank’s obligation to appoint in accordance with Debentures.
The Bank purported to appoint the Receiver without reference to the court and pursuant to its contractual rights under the 1981 and 2008 Debentures and it is clear that the Receiver’s authority is derived from those contracts. In R Jaffe Ltd. (in liquidation) v. Jaffe (No.2) (1932) NZLR 195 Smith J. considered the law in this area and held:
“The receiver and manager here to be appointed is to be appointed without the aid of the Court. He is to be appointed according to the terms of the contract between the parties. In my opinion, the position is governed by the terms of the contract. Palmer, in his Company Precedents, speaking of a receiver appointed without the aid of the Court, says: “The receiver derives his appointment and authority from the parties themselves in pursuance of the powers of the contract. This is the point to be attended to.”
In Kerr & Hunter on Receivers and Administrators it is also said with reference to a receiver appointed out of court by the debenture-holders of a company that “the position and powers of such receivers are derived from and depend upon the contract between the parties expressed in the authorising instrument”.
29. Since a receiver’s authority is derived from the instrument under which he is appointed, an appointment is not valid unless it is made in accordance with the terms of that instrument. This principle has been recognised by the leading commentators in this area and accepted and applied by the courts throughout the common law world.
30. Courtney, in The Law of Private Companies (3rd Ed.) has observed that:
“[t]he validity of the appointment of a receiver is dependent upon compliance with the terms contained in the debenture and the capacity of the company and authority of its officers to create the debenture ab initio.”
31. Lynch-Fannon Corporate Insolvency and Rescue (2nd ed.) has noted that “[t]he penalty for non-compliance with the formalities for the appointment of the receiver is that such appointment is void”. She has also observed that non-compliance with formalities of appointment amounts to an abuse of process.
32. In The Law of Company Insolvency (2008), Forde has commented that “[t]here is no prescribed form for appointing an out-of-court receiver. Formalities set out in the security instrument must be scrupulously followed; if they are deviated from to any appreciable extent the appointment will be a nullity and the so-called receiver will be a trespasser on the company’s property”.
33. In The Law of Administrators and Receivers of Companies (2007), Lightman & Moss have noted that “[a] receiver must be appointed in accordance with the terms of the debenture.” Finally, in The Law Relating to Receivers, Managers and Administrators (4th Ed.) Picarda has observed that:-
“There is no set statutory form for the appointment of a receiver and manager out of court. On the other hand any formalities laid down by the relevant debentures or trust deed must be followed. If the debenture requires the appointment to be made in writing or under hand an oral appointment is not sufficient. Again, if the appointment is required to be by deed that formality must be observed”.
44. Penalty for non-compliance with Debenture.
It is clear from the foregoing that a receiver who is not appointed in accordance with the terms of the debenture is not validly appointed. In addition, an invalidly appointed receiver may be a trespasser on Company property.
45. Rationale for strict compliance with Debenture
The applicant submits that there are good reasons why the Bank ought to be held to the terms of the Debenture. While basic fairness implies that the Bank should be obliged to comply with the terms it chose to impose upon itself, several policy considerations were also identified by Smith J. in R Jaffe Ltd. (in liquidation) v. Joffe (No.2):
“The importance of the strict observance of these requirements is shown, I think, by other considerations. A receiver is not an officer of the Court, but, if he is duly appointed, his title is superior to that of a person interfering with the assets under his control, and the Court will then grant an injunction…. If a receiver were unable to prove his title according to the terms of his contract, then I doubt whether he would be entitled to an injunction. Furthermore, while the company is a going concern, a receiver, if the conditions of the debenture so provide, may be the agent of the company, and the company will then be responsible for his contracts. This is particularly important if the debenture-holder has power to appoint not merely a receiver, but a receiver and manager. Under such circumstances the company must be entitled to insist I think, upon the fulfilment of the terms of appointment as a condition of its liability”.
Summary of principles from above case law
131. It appears therefore, that the following is a summary of the applicable principles in relation to this matter:
1. The receiver’s authority to act is derived from the contracts, or mortgages, or deeds of charge, entered into between the Bank and the borrower.
2. The receiver is to be appointed according to the terms of the contract between the parties.
3. Because a receiver’s authority is derived from the instrument under which he is appointed, an appointment is not valid unless it is made in accordance with the terms of that instrument.
4. The consequence of non– compliance with the formalities for the appointment of a receiver, in accordance with the terms of the instrument, is that the appointment is void.
5. If the instrument provides that the appointment is required to be by deed, or under seal, that formality must be observed.
6. If the instrument requires that the appointment is to be made in writing under hand, that formality must also be observed.
7. An invalidly appointed receiver may be a trespasser on company property.
8. Considerations of basic fairness and contractual interpretation mean that the Bank should be obliged to comply with the terms it chooses to impose in the instrument involved.
“By writing under its hand”
132. It is clear therefore, that where the appointment of a receiver is challenged, the receiver and/or the Bank must establish that the receiver has been appointed in exact compliance with the terms of the mortgage or charge. In this case, it must establish that the receiver has been appointed by the Bank in writing under its hand.
Invalid appointments
160. In this case the deed of appointment of Stephen Tennant signed on 4th February, 2013 was signed by Rosa Montgomery. She is not the Chief Executive or Secretary or Law Agent of the Bank. Ms. Montgomery had authority to witness the affixing of the seal but did not have authority to sign on behalf of the Bank for documents which are required to be in writing under the Bank’s hand. In those circumstances, I must conclude that this deed of appointment of Mr. Tennant as receiver was invalid.
161. The deed of discharge of Mr. Tennant dated 17th January, 2014 was signed by Loretta McAuley. Ms. McAuley is also not the Chief Executive or Secretary or the Law Agent of the Bank. Therefore this deed of discharge is invalid.
162. Likewise the deed of appointment of Mr. McCleary as receiver dated 17th January, 2014 was signed by Loretta McAuley. Again Ms. McAuley is not the Chief Executive or Secretary or the Law Agent of the Bank. Therefore, this deed of appointment of Mr. McCleary was not signed under hand on behalf of the Bank by any person duly authorised to do so. In those circumstances I must conclude that this deed of appointment is also invalid.”
McGuinness & Anor v Ulster Bank Ltd
[2019] IESC 20 (28 March 2019)
Composition of Court:
MacMenamin J., Dunne J., Finlay Geoghegan J.
Judgment by:
Finlay Geoghegan J.
Status:
Approved
Result:
Appeal dismissed
THE SUPREME COURT
[Appeal No: 2014/286]
Judgment of Ms. Justice Finlay Geoghegan delivered on the 28th day of March, 2019.
1. This appeal concerns the validity of the appointment of a Mr. David O’Connor as receiver (“the Receiver”) over property charged by the plaintiffs and others to the defendant (“the Bank”) by deed of mortgage and charge of 14 August 2006 (“the Deed of Charge”).
2. In the High Court, Hogan J. determined that the Receiver was validly appointed, for the reasons set out in a judgment delivered on 27 May 2014: [2014] IEHC 281. He made a declaration to that effect in an order of 3 June 2014. It is from that order and judgment that the plaintiffs appealed. The appeal was transferred to the Court of Appeal pursuant to Article 64 of the Constitution in October 2014 and has recently reverted to this Court.
3. The plaintiffs appeared in person. The submissions at the hearing were made by Mr. McGuinness, the first named plaintiff, and Mr. Mulligan adopted the same. As appears from the issues considered below, the appeal raised quite technical legal issues and Mr. McGuinness, as a litigant in person, addressed these with considerable skill.
4. The issue before the High Court, and again before this Court, arises from the following facts which are not in dispute. Clause 9.1 of the Deed of Charge, made between the plaintiffs and others and the Bank, provided:-
“At any time after the Chargor so requests or the security hereby constituted becomes enforceable, the Bank may from time to time appoint under seal or under the hand of a duly authorised officer of the Bank any person or persons to be receiver and manager or receivers and managers…. of the Secured Assets”
5. By 27 January 2012, the security created by the Deed of Charge had become enforceable and by a deed of that date between the Bank and Mr. O’Connor (“the Deed of Appointment”), the Bank appointed him to be receiver and manager over the charged property. The Deed of Appointment was signed by a Mr. Michael McNaughton beside the following words as an attestation clause:
“SIGNED AND DELIVERED BY MICHAEL MCNAUGHTON for and on behalf of and as the deed of ULSTER BANK IRELAND LIMITED under Power of Attorney dated 13th April 2011 which has not been revoked, in the presence of Steven Williams.”
Mr. Williams also signed, giving his occupation as bank official and his address as Ulster Bank, Georges Quay, Dublin 2. No seal was affixed to the document.
6. By a deed of power of attorney made on 13 April 2011 (“the Power of Attorney”) the Bank had appointed Mr. McNaughton and other named people to be “our Attorneys and we give and grant full powers, warrant and authority to our Attorneys for us and in our name and on our behalf to sign or otherwise execute and deliver the following documents, videlicet “. The documents identified in the Power of Attorney include at para. 4, “such… deeds of appointment… as may be required in connection with… receiverships…”. The Power of Attorney was executed by affixing the common seal of the Bank in the presence of two authorised signatories who signed the document. There is no challenge to the validity of the Power of Attorney.
7. The contention of the plaintiffs is that the appointment of the Receiver has not been made in accordance with Clause 9.1 of the Deed of Charge. They submit that Clause 9.1 permits the appointment by the Bank to be made by a document either signed by an authorised officer of the Bank or executed under seal. They contend that Mr. McNaughton did not sign as an authorised officer of the Bank. They also contend that the Deed of Appointment was not executed under seal. They rely upon the decision of Gilligan J. in Re Belohn Limited (No.1) [2013] IEHC 130, [2013] 2 I.L.R.M. 388 to submit that as the appointment of the Receiver does not comply with the contractual requirement, it is fatal to the validity of the appointment.
8. The plaintiffs also contend that as the Deed of Appointment is made by the Bank, which is a company registered in the State, in accordance with s. 64(2)(b)(ii) of the Land and Conveyancing Law Reform Act 2009 (“the 2009 Act”), to be a deed, it must be executed under the seal of the Bank in accordance with its Articles of Association.
9. The Bank accepts that the appointment of the Receiver must be in accordance with Clause 9.1 of the Deed of Charge. Whilst attention was drawn to Clause 9.2, counsel on its behalf stated that it was not relying on Clause 9.2 of the Deed of Charge. The Bank does not contend that it established that Mr. McNaughton executed the Deed of Appointment as a “duly authorised officer of the Bank”. The Bank contends that, in accordance with the Power of Attorney, s. 17 of the Powers of Attorney Act 1996 (“the 1996 Act”) and s. 64(2)(b)(i) and s. 64(3) of the 2009 Act, the signature of Mr. McNaughton as the donee of the power of attorney on the Deed of Appointment constitutes valid execution of it as the deed of the Bank, and hence it has effect as if it were a document executed under seal.
10. To consider those opposing submissions, it is necessary to set out the relevant statutory provisions.
11. Section 17(1) of the 1996 Act provides that:-
“(1) The donee of a power of attorney may—
(a) execute any instrument with his or her own signature and, where sealing is required, with his or her own seal, and
(b) do any other thing in his or her own name,
by the authority of the donor of the power; and any instrument executed or thing done in that manner shall be as effective as if executed or done by the donee with the signature and seal, or, as the case may be, in the name, of the donor of the power.”
12. Section 3 of the 2009 Act defines a deed as having “the meaning given to it by section 64(2)”;
13. Section 64 of the 2009 Act provides:
“64. – (1) Any rule of law which requires –
(a) a seal for the valid execution of a deed by an individual, or
(b) authority to deliver a deed to be given by deed,
is abolished.
(2) An instrument executed after the commencement of this Chapter is a deed if it is –
(a) described at its head by words such as “Assignment”, “Conveyancing”, “Charge”, “Deed”, “Indenture”, “Lease”, “Mortgage”, “Surrender” or other heading appropriate to the deed in question, or it is otherwise made clear on its face that it is intended by the person making it, or the parties to it, to be a deed, by expressing it to be executed or signed as a deed,
(b) executed in the following manner:
(i) if made by an individual –
(I) it is signed by the individual in the presence of a witness who attests the signature, or
(II) it is signed by a person at the individual’s direction given in the presence of a witness who attests the signature; or
(III) the individual’s signature is acknowledged by him or her in the presence of a witness who attests the signature;
(ii) if made by a company registered in the State, it is executed under the seal of the company in accordance with its Articles of Association;
(iii) if made by a body corporate registered in the State other than a company, it is executed in accordance with the legal requirements governing execution of deeds by such a body corporate;
(iv) if made by a foreign body corporate, it is executed in accordance with the legal requirements governing execution of the instrument in question by such a body corporate in the jurisdiction where it is incorporated,
and
(c) delivered as a deed by the person executing it or by a person authorised to do so on that person’s behalf.
(3) Any deed executed under this section has effect as if it were a document executed under seal.
(4) A deed, whenever created, has the effect of an indenture although not indented or expressed to be an indenture.”
Discussion and Decision
14. The core of the dispute between Mr. McGuinness and the Bank is whether the Deed of Appointment, which is the deed of the Bank, is considered to have been “made” by the Bank or by Mr. McNaughton, who is an individual for the purposes of s. 64(2)(b) of the 2009 Act.
15. The importance of this arises in the following manner. If it is to be considered as a deed made by the Bank then, in accordance with s. 64(2)(b)(ii), it must be executed under the seal of the Bank in accordance with its Articles of Association in order to be a deed executed under s. 64 and, pursuant to s. 64(3), to have effect “as if it were a document executed under seal”.
16. If, on the other hand, as contended by the Bank, the Deed of Appointment was “made” by Mr. McNaughton pursuant to the Power of Attorney and hence, by an individual, then his witnessed signature is sufficient execution under the section in accordance with s. 64(2)(b)(i)(I) and hence it has effect “as if it were a document executed under seal”, in accordance with s. 64(3).
17. To resolve this core dispute, it is necessary to consider the structure of s. 64(2) of the 2009 Act. It is a subsection directed to determining when a document may be considered to be a deed and take effect as if it were a document executed under seal. It provides that the document is to be a deed where it complies with sub-paras. (a), (b) and (c). The requirement of para. (a) is directed to the form of the document such that it makes clear “on its face that it is intended by the person making it or the parties to it to be a deed by expressing it to be executed or signed as a deed”. It is not in dispute that the Deed of Appointment meets this requirement. However, it appears to me important in construing the disputed requirement in para. (b), that para. (a) identifies as two potentially separate persons, the person making the document and the parties to the document. It therefore envisages that for the purposes of the section, a deed may be “made” by a person who is not a party to the deed.
18. Paragraph (c) of s. 64(2) requires the document to be delivered as a deed either by the person executing it or by a person authorised to do so on that person’s behalf. It is not in dispute that Mr. McNaughton executed the Deed of Appointment and delivered it as a deed.
19. Returning then to para. (b) of s. 64(2), it specifies how the document must be executed, in order to meet the requirements of s. 64(2) to be a deed. It identifies different requirements where the document is “made” by an individual and by companies and other bodies corporate. The question is to whom the Oireachtas is referring by using the word “made” in subss. 64(2)(b)(i), (ii) and (iii)? In relation to the execution of a document, the only potential persons appear to be either the party whose deed it is or, where that party does not execute the document, the person who on that party’s behalf executes the document.
20. The starting point of any construction of an Act of the Oireachtas is of course a consideration of the plain meaning of the words used: Howard v. Commissioners of Public Works [1994] 1 I.R. 101. However, the construction must also be, as was put by the Supreme Court per McGuinness J. in Fuller v. Minister for Agriculture [2005] 1 IR 529 at p. 548, “in the contextual light of the surrounding provisions of the statute”. It is also presumed that words are not used in a statute without a meaning and, accordingly, effect must be given, if possible, to all the words used: Goulding Chemicals Ltd. v. Bolger [1977] I.R. 211, O’Higgins C.J. at p. 223. The Court, in construing the provision, must have regard to the use of different words, here “executed” and “made”, which may indicate an intention of a different meaning.
21. Section 64(2)(b) of the 2009 Act is directed to the execution of the document in question and must be considered in the context of s. 64(2) and the entirety of section 64 of the 2009 Act. As already pointed out, s.64(2)(a) has differentiated between the person making the document and the parties to it. There will, of course, only be a potential difference between a party and the person making the document where the party does not execute the document. This may most commonly arise where, as here, a party to the document has authorised another person by a power of attorney to execute documents on its behalf. In the context of this subsection directed to the execution of documents, notwithstanding the use of the word “made” and also the word “executed” in the same subsection, I have concluded that that the words “made by” used in s. 64(2)(b) are intended to refer to the person who executes the document. It specifies how that person must execute the document if it is to be considered a deed. Also, the making of a document requires an active step and it is not considered “made” until executed. Thus, whilst the Oireachtas has used the different word “made” rather than “executed”, the context in which the word “made” is used is such that it means the person who is actively making the document in the sense of executing the document, rather than a party to the document who is not executing the document.
22. Hence, I have concluded that where, as here, the Bank has lawfully appointed an individual, Mr. McNaughton, to execute documents, including a deed of appointment of a receiver on its behalf, then as the person who executes the document, he is the person who makes the document for the purposes of s. 64(2)(b) of the 2009 Act. On the undisputed facts of this appeal, Mr. McNaughton held a valid power of attorney which authorised him in the name of the Bank and on its behalf to execute and deliver inter alia deeds of appointment in connection with receiverships.
23. As Mr. McNaughton was the person executing the deed to which the Bank was a party on its behalf, he was the person making the deed within the meaning of s. 64(2)(b)(i) and since he is an individual, his signature in the presence of a witness who attested his signature was a sufficient compliance with s. 64(2)(b)(i)(I). It follows from that conclusion (and compliance with sub-ss.64(2)(a) and (c)) that the Deed of Appointment is a deed within the meaning of s. 64 of the 2009 Act. Further, that it is executed in accordance with s. 64(2) and hence, pursuant to s. 64(3), it “has effect as if it were a document executed under seal”. Consequently, that the Deed of Appointment complied with Clause 9.1 of the Deed of Charge and is a valid appointment.
24. Whilst counsel for the Bank also relied upon s. 17 of the 1996 Act, it is not necessary to consider its impact on the matters in dispute by reason of the conclusion which I have reached on the meaning of s. 64(2)(b) of the 2009 Act.
Conclusion
25. My conclusion, for the reasons set out in this judgment, is that the Deed of Appointment by which the Bank appointed Mr. O’Connor as receiver, which was signed but not sealed by Mr. McNaughton pursuant to the Power of Attorney and whose signature was witnessed, was a document made by Mr McNaughton, an individual, within the meaning of s. 64(2)(b) of the Land and Conveyancing Law Reform Act 2009 and a deed within the meaning of s. 64 which takes effect as if it were a document under seal pursuant to s. 64(3) of the 2009 Act. Hence, the Bank validly appointed Mr. O’Connor as receiver in compliance with the requirements of Clause 9.1 of the Deed of Charge. It follows that the appeal must be dismissed.
The Merrow Ltd -v- Bank of Scotland Plc & Anor
[2013] IEHC 130
Mr. Justice Gilligan
“The Appointment of the Receiver not being under Seal
26. Because the appointment of the receiver was not under seal in accordance with Clause 7 of the 1981 debenture, it is contended on the applicant’s behalf that the appointment of the second named respondent as receiver pursuant to the two debentures is void.
28. Bank’s obligation to appoint in accordance with Debentures.
The Bank purported to appoint the Receiver without reference to the court and pursuant to its contractual rights under the 1981 and 2008 Debentures and it is clear that the Receiver’s authority is derived from those contracts. In R Jaffe Ltd. (in liquidation) v. Jaffe (No.2) (1932) NZLR 195 Smith J. considered the law in this area and held:
“The receiver and manager here to be appointed is to be appointed without the aid of the Court. He is to be appointed according to the terms of the contract between the parties. In my opinion, the position is governed by the terms of the contract. Palmer, in his Company Precedents, speaking of a receiver appointed without the aid of the Court, says: “The receiver derives his appointment and authority from the parties themselves in pursuance of the powers of the contract. This is the point to be attended to.”
In Kerr & Hunter on Receivers and Administrators it is also said with reference to a receiver appointed out of court by the debenture-holders of a company that “the position and powers of such receivers are derived from and depend upon the contract between the parties expressed in the authorising instrument”.
29. Since a receiver’s authority is derived from the instrument under which he is appointed, an appointment is not valid unless it is made in accordance with the terms of that instrument. This principle has been recognised by the leading commentators in this area and accepted and applied by the courts throughout the common law world.
30. Courtney, in The Law of Private Companies (3rd Ed.) has observed that:
“[t]he validity of the appointment of a receiver is dependent upon compliance with the terms contained in the debenture and the capacity of the company and authority of its officers to create the debenture ab initio.”
31. Lynch-Fannon Corporate Insolvency and Rescue (2nd ed.) has noted that “[t]he penalty for non-compliance with the formalities for the appointment of the receiver is that such appointment is void”. She has also observed that non-compliance with formalities of appointment amounts to an abuse of process.
32. In The Law of Company Insolvency (2008), Forde has commented that “[t]here is no prescribed form for appointing an out-of-court receiver. Formalities set out in the security instrument must be scrupulously followed; if they are deviated from to any appreciable extent the appointment will be a nullity and the so-called receiver will be a trespasser on the company’s property”.
33. In The Law of Administrators and Receivers of Companies (2007), Lightman & Moss have noted that “[a] receiver must be appointed in accordance with the terms of the debenture.” Finally, in The Law Relating to Receivers, Managers and Administrators (4th Ed.) Picarda has observed that:-
“There is no set statutory form for the appointment of a receiver and manager out of court. On the other hand any formalities laid down by the relevant debentures or trust deed must be followed. If the debenture requires the appointment to be made in writing or under hand an oral appointment is not sufficient. Again, if the appointment is required to be by deed that formality must be observed”.
44. Penalty for non-compliance with Debenture.
It is clear from the foregoing that a receiver who is not appointed in accordance with the terms of the debenture is not validly appointed. In addition, an invalidly appointed receiver may be a trespasser on Company property. In Wrights Hardware v Evans [1988] 13 A.C.L.R.631 Franklyn J. held that:
“…2. The existence of a power in the debenture holder to appoint in a particular manner will not relieve a de facto receiver from liability for trespass if the appropriate appointment procedure is not strictly observed: Harold Meggitt Ltd v Discount and Finance Ltd (1938) 56 WN (NSW) 23; Blanchard, supra, para 402; Donovan, supra, pp 19-20…”
45. Rationale for strict compliance with Debenture
The applicant submits that there are good reasons why the Bank ought to be held to the terms of the Debenture. While basic fairness implies that the Bank should be obliged to comply with the terms it chose to impose upon itself, several policy considerations were also identified by Smith J. in R Jaffe Ltd. (in liquidation) v. Joffe (No.2):
“The importance of the strict observance of these requirements is shown, 1 think, by other considerations. A receiver is not an officer of the Court, but, if he is duly appointed, his title is superior to that of a person interfering with the assets under his control, and the Court will then grant an injunction: Polmerl6. If a receiver were unable to prove his title according to the terms of his contract, then I doubt whether he would be entitled to an injunction. Furthermore, while the company is a going concern, a receiver, if the conditions of the debenture so provide, may be the agent of the company, and the company will then be responsible for his contracts. This is particularly important if the debenture-holder has power to appoint not merely a receiver, but a receiver and manager. Under such circumstances the company must be entitled to insist 1 think, upon the fulfilment of the terms of appointment as a condition of its liability”.
46. In Windsor Refrigerator Co. Ltd. v. Branch Nominees Ltd Donovan L.J. noted the far reaching effects of a receiver’s appointment and emphasised that precision was required in this context:
“As to the second question, the argument is that the receiver was appointed the moment the document was signed, and so before the debt became payable. I agree that in a context where precision is not required, one might speak of the document loosely as appointing a receiver. But in this context precision is required. What the debenture holder wants to do is to levy equitable execution, and for that purpose to have some person in being clothed with the necessary authority to take possession of the company’s property, to carry on its business, to act in its name, and pay the debt, and the company has to submit to the exercise of these powers by the person having such authority…”.
47. Even if no policy considerations applied, the Applicant submits that the Company would still be entitled, as a matter of principle, to insist that the Receiver be appointed in accordance with the Debentures. Support for this submission may be found in R (on the application of Mercury Tax Group Ltd) v. Revenue and Customs Commissioners [2008] EWHC 2721 where Underhill J. saw nothing wrong with holding parties to strict formal requirements when it came to the execution of certain agreements.
48. There, the respondents had successfully argued that there was a reasonable suspicion that a serious tax fraud had occurred and had obtained warrants under s. 20C (1) of the Taxes Management Act 1970, to enter a number of premises associated with the claimants and its clients to search for documents. The claimant sought judicial review of the decision to grant the warrants.
49. The claimant operated a tax avoidance scheme under which clients had to sign documents intended to be deeds. Its practice was to ask clients to sign incomplete drafts of the documents and when the final versions came into being, to detach the signature pages from the previous versions and attach them to the final versions. The defendants believed that this practice impugned the validity of the documents giving rise to a suspicion that a tax fraud had occurred. The claimants argued that there was nothing wrong with the practice provided that the alterations to the documents were authorised by the relevant party. Underhill J. noted the reason why the respondents were entitled to rely upon “formal” flaws in the deeds:-
“…I see nothing wrong in applying a strict test of formality to the validity of the agreements with which we are concerned in this case. Their entire raison d’etre is to create–and demonstrably to create–a series of formal legal relationships: if they do not do that, they do nothing.””
Farrell & anor -v- Petrosyan & ors
[2016] IEHC 522 (02 March 2016)
Judgment
EX TEMPORE JUDGMENT of Mr. Justice Tony O’Connor delivered on the 2nd day of March, 2016
Background
1. This is a judgment arising from the issue of two sets of proceedings. Mrs. Carmel McLoughlin, as will be explained later, is the only participating claimant in the claim against ACC Loan Management (“ACC”), and the only effective respondent/defendant in the proceedings issued by Messrs. Farrell and Kelly, the Receivers.
2. Mrs. McLoughlin was accompanied by her son and daughter for the hearing of these applications. The law is well established that in the absence of legal representation by either solicitor and/or counsel, only a lay litigant may make submissions on the lay litigant’s behalf. In exceptional circumstances the Court may ask or allow a “McKenzie Friend” to assist in communications between the Court and the lay litigant.
3. The Court expects legal representatives who are on the other side of contested applications involving lay litigants to summarise the applications and to open all relevant pleadings, affidavits and exhibits while helping the Court to focus on the issues between the parties. Suffice it to say that following the initial outline of the issues yesterday morning by Senior Counsel for the Receivers, I asked Mrs. McLoughlin whether she wanted herself or her son to reply to discrete questions from me about the actual questions to be decided.
The issues
4. The parties agreed that the following issues outlined by counsel for the Receivers were the subject of the claims in both sets of proceedings:
a. Whether the Receivers could act in the proceedings in view of their Deeds of Appointment from ACC Loan Management Limited (ACC);
b. Whether the name change of ACC Bank plc to ACC Loan Management Limited provided in some way, or effected in some way the operation of the charges pursuant to which the Receivers were appointed;
c. Whether the sense of grievance felt by Mrs. McLoughlin over the outcome of talks with a Mr. Archbold of ACC in 1997, and given the ventilation of that sense of grievance in proceedings started in 2001, and which were compromised in 2010, had an invalidating effect on the entitlement of ACC to the properties which are the subject of the two sets of proceedings before the Court. For clarity purposes, the relevant properties are 56 Mary Street and 32-36 Wolfe Tone Street in Dublin.
d. Whether there is some frailty or misconduct which requires the Court to set aside the terms of settlement signed by Mr. Jamie McLoughlin for Mrs. McLoughlin with Messrs. O’Sullivan and Murphy to give up vacant possession of 56 Mary Street that led to an order for the Sheriff issued by this Court on 2nd November, 2015.
5. Following the opening of affidavits and exhibits and a summary of the relevant law by counsel for the Receivers, I asked Mr. Jamie McLoughlin whether he had any interest in the relevant properties. The Court repeats its appreciation of Mr. McLoughlin’s candour when he acknowledged that he did not have any legal interest in the relevant properties. In those circumstances I asked Mrs. McLoughlin to make whatever submissions which occurred to her then.
Mrs. McLoughlin
6. The following is a summary of Mrs. McLoughlin’s points which I will eventually address:
1. ACC reneged on its representations to convert all the loans to herself and her late husband into a 20-year loan that would still be in existence, and which ought to deny ACC the effect of its charges and the appointment of the Receivers.
2. She was ignorant of the terms of settlement dated 6th May, 2010, signed by her then solicitor, who was also her solicitor for her role in respect of the interests of the estate of her late husband.
3. Her perceived breach of duty on the part of ACC in connection with offering and reneging on the loan terms and encouraging her to do business with the MOS partnership for the development of the relevant properties.
4. The effects of the economic collapse exacerbated the consequences of the perceived breaches of duty which, according to Mrs. McLoughlin, included her separation from her late husband and the early death of her husband in 2007. Furthermore, Mrs. McLoughlin referred to her inability to exercise a buy-back option to purchase in the absence of the loan facilities,.
Determination
7. The following is the Court’s determination. The alleged breaches of duty and failure to honour commitments on the part of ACC were ventilated in proceedings commenced by Mrs. McLoughlin and her late husband in 2001 under record number 2001/1243P. Those proceedings were compromised in terms of settlement dated 6th May 2010. In that regard Mrs. McLoughlin is now not able to relitigate those issues and there is a long line of common law authority to support the legal proposition which requires the Court to make this determination.
8. In regard to the serious allegation made by Mr. Jamie McLoughlin in his affidavit sworn as late as 23rd January, 2016, about the lack of authority of a solicitor to sign the terms of settlement dated 6th May, 2010, the Court observes the following:
a. Mr. Jamie McLoughlin belatedly makes this assertion;
b. It is nearly six years since the terms of settlement were executed and the professional reputation and integrity of the solicitor involved has been challenged in a most unorthodox and extremely delayed manner;
c. No action was brought to set aside those terms which formed part of an order made by this Court arising from those terms.
d. The judgment of Kelly J. in Harrahill v. Kane [2009] IEHC 322 succinctly sets out the position on pages 20 to 22 concerning the ostensible authority of solicitors and counsel which can be relied upon by opposing solicitors and counsel. It is noteworthy that the late thought to use former solicitors as a scapegoat arose in that case also.
9. In short, it is not open to Mrs. McLoughlin to rely on her son’s apparent self-serving assertion and submission in his affidavit. Mrs. McLoughlin has failed to establish a serious issue to be tried in this regard and even if there is some prospect of such an issue arising, damages would be an adequate remedy. The Court emphasises that it strongly deprecates suggestions of professional misconduct which have never been put to professionals themselves. This Court has a constitutional obligation to vindicate the good names of all citizens and the right to fair procedures.
10. These rights should be known to Mr. Jamie McLoughlin and perhaps his mother given their clear ability to prepare affidavits and deal with the requirements of the legal process.
11. The Court fails to understand any issue which can be made in these proceedings about the settlement signed by Mr. Jamie McLoughlin with the MOS Partnership, who are not involved in these proceedings.
12. Mrs. McLoughlin, in her quest to wrestle back the relevant properties, has seized upon the findings of Cregan J. in McCleary v. McPhillips [2015] IEHC 591 delivered on 31st July, 2015, that deeds of appointment by ACC of receivers in that case were invalid by reason of the failure to have authorised signatories on the Deeds of Appointment. That judgment is under appeal. However, if this Court accepted that there is some omission on the part of ACC in these proceedings to have authorised the signatories to the deeds which appointed the Receivers here, that has been remedied by the resolution of the Board of ACC on 19th August, 2015. That resolution ratified the appointment of receivers which may have been invalidated by reason of any interpretation of the judgment delivered by Cregan J. in the McCleary case.
13. Clarke J. in Kavanagh v. Bank of Scotland delivered on 19th, March 2015, at paragraph 8.2, endorsed the view of Birmingham J. which stressed that the Bank there knew that an individual was acting as its agent and within its scope of authority. Applying that reasoning to the point sought to be advanced by Mrs. McLoughlin, I can see no issue arising for determination at a later stage in these proceedings about the validity of the appointment of the Receivers now.
14. The point about the change of name of ACC has no merit. A chargor or a chargee can change its name. Mrs. McLoughlin could have changed her name by deed poll and that would not have deprived her of the rights to seek representation in the estate of her husband.
15. The Companies Acts permit companies to change their names and their liability status and that is what has happened here. Mrs. McLoughlin does not even have a prima facie case to make if she wishes to pursue these proceedings on this particular point.
16. In view of all the above, the Court finds that there is no serious issue to be tried in relation to the claim made by Mrs. McLoughlin or in the defence to the claim for possession by the Receivers. If Mrs. McLoughlin, following further consideration of this judgment and other matters, thinks that there is some issue which may require to be tried, her remedy lies in damages which is effectively a bar to an interlocutory injunction, which is being sought here against the Receivers now.
17. Moreover, the only non-monetary prejudice which is advanced as purportedly persuasive in the interlocutory injunction application by Mrs. McLoughlin is the alleged effect of the actions of the Receivers on third parties who have not participated in these proceedings.
18. Mr. Anton Petrosyan has been served with these proceedings with copy documents and correspondence which have alerted him to the application before the Court by the Receivers. He has made no attempt to corroborate or support Mrs. McLoughlin’s stance about the effects on occupiers of parts of the relevant premises.
19. Lastly, this Court is prompted to urge Mr. Jamie McLoughlin, in particular, and the Receivers to recognise the fire safety concerns for those accessing what appears to be a residential part of the relevant premises on the first floor. The Court is further persuaded to grant the injunction sought by the Receivers in order to secure compliance with the recommendations of the Fire Officer, which may emerge from the letter from the Receivers’ solicitors to him dated 27th January, 2016.
20. It remains open to Mrs. McLoughlin to prosecute her claim for damages but the Court urges caution in that regard because of its finding earlier in this judgment about the absence of any clear serious issue to be tried.
21. In short, the Court refuses the relief sought in the Notice of Motion issued by Mrs. McLoughlin and her son filed in the Central Office on 25th January, 2016, and will grant the injunctions in the terms of paragraph 1 to 3 of the Notice of Motion issued on behalf of the Receivers on 28th January, 2016, with the Court noting the undertaking as to damages given by the Receivers in the affidavits filed.
Wingview Ltd t/a The Elphin Public House -v- Ennis Property Finance DAC
[2017] IEHC 674 (10 November 2017)
Judgment of Mr Justice Robert Haughton delivered this 10th day of November 2017
1. In this application the plaintiff seeks an interlocutory injunction prohibiting the defendant from appointing a receiver over premises known as the Elphin Public House (“the premises”), which includes a site (“the Site”) at the rear of the premises.
2. The background facts are, at least for the purposes of this application, largely uncontested. Anglo Irish Bank Corporation plc, pursuant to a Facility Letter dated 12 May, 2009, made certain facilities available to the plaintiff, secured by a mortgage of the premises, a general floating charge and personal guarantees. The defendant acquired all the facilities and related security and guarantees in 2015.
3. The plaintiff was in default of its obligations under the facilities. A Deed of Settlement dated 25 November, 2016, (“the Settlement”) was entered into between the plaintiff and defendant. The plaintiff acknowledged that it was indebted to the defendant as of 24 November, 2016, in the sum of €2,527,354.06. The plaintiff agreed to make the following “Settlement Payment”: –
• €100,000 on or before 25 November, 2016
• €400,000 on or before 31 December, 2016
• €1 million on or before 31 March, 2017.
“31 March 2017 or such later date as the Lender in its sole discretion may notify to the Debtor” was defined as the “Long Stop Date”. The Settlement then provided: –
“2.3.3 Following receipt by the Lender of the Settlement Payment:
(i) the lender shall execute and deliver the Deed of Release together with releases of all personal guarantees (including without limitation the personal suretyships of Leo and Marie Fitzgerald) given in connection with the Debtor’s Obligations; and
(ii) recourse to the Debtor in respect of [the balance of indebtedness] shall be deemed to be limited to the Site only. In this regard, the Lender agrees that… its sole recourse to the Debtor in respect of [the balance of indebtedness] shall be limited to the Site and to the proceeds of sale or other realisation thereof… So that the Lender shall not be entitled to issue proceedings against the Debtor or any surety for judgment for any sum under the Debtor’s Obligations or [the balance of indebtedness] save to the extent necessary to enable the realisation of by any receiver and/or the Lender of the Site”.
Other provisions of the Settlement will be referred to later in this judgement.
4. The plaintiff made the first two payments. In order to fund the third payment of €1 million the plaintiff sought funding, and on 14 March, 2017, obtained a loan offer from AIB of €800,000 to which it was intended to add €200,000 of shareholder monies. AIB also offered an overdraft facility of €30,000 “to fund working capital requirements”. One of the “Conditions Precedent” to drawdown was the following: –
“3.1.16 Settlement Agreement: evidence, to the satisfaction of the Bank from Ennis Property Finance DAC and that the settlement of EUR 1,500,000 plus the transfer of the [Site]… Is in full and final settlement of all amounts due by the Borrower to Ennis Property Finance DAC”.
5. It is apparent from emails that are exhibited that in February/March 2017 the plaintiff’s solicitors Kane Tuohy (Mr Hand) were endeavouring to satisfy the defendant’s agent Mr McIntyre of “Pepper Group” in relation to various matters connected with a planning application in respect of the Site. On 16 March, 2017, Mr Hand informed Mr McIntyre that the AIB facility letter had been signed. Thereafter it is clear that efforts were being made by the plaintiff’s solicitors to satisfy the drawdown requirements. It appears from an email from Mr Hand to Mr McIntyre on 27 March, 2017, that AIB had new and somewhat complex requirements in relation to the treatment of the Site that went beyond a simple transfer to the defendant. In the email Mr Hand ends by asking “… Perhaps you could consider very urgently and let us know ASAP that this is in order.” On 31 March, 2017, at 17:22 the plaintiff’s solicitors sent by email a letter to Mr McIntyre noting that the €1 million was due to be paid on that day and bringing to his attention the drawdown requirements of clause 3.1.16. The author, Mr Hugh Kane, then stated: –
“Unfortunately, despite the absence of an obvious legal reason, AIB is insisting on the transfer of the site to Ennis or some other legal entity (i.e. a non—Ennis entity).
Pursuant to the terms of the Settlement [Under clause 10.2 the plaintiff agreed to invite the defendant to appoint a receiver “to facilitate the development, management, sale and realisation of the Site.”] , our client has consented to the [appointment] of the Receiver, which appointment our client thought would have been effected by now, but even if it had, it is not clear that AIB would deem the clause satisfied.
Within the time permitted, our client will not be able to secure an alternative facility from AIB. Therefore, while we do not believe that there is a legal issue for insisting on the interpretation which AIB is putting on the clause, as AIB is unwilling to accept our client’s position, we would like to arrange a meeting with you to find a practical solution to the issue.
You will appreciate that our client has worked well with Pepper over the last several months to seek to ensure planning permission is likely. As you may be aware, planning permission is due imminently, and perhaps would have issued before now but the reply to the request for further information was slightly delayed to take into account all the parties’ inputs.
With a planning decision imminent, it may introduce additional matters to discuss.
In any event, our client is keen that we meet as quickly to discuss how best to address these issues in order to secure the release of €1 million from AIB to satisfy our client’s liability to the secured charge holder.
You might revert with the suggested time and date, at your earliest convenience.”
6. By email of 3 April, 2017, headed “without prejudice” Mr McIntyre wrote to the plaintiff’s solicitors noting non-compliance with clause 3.2 of the Settlement “being a failure to make the payment of €1,000,000 by 31 March 2017 as required by that clause.” The email continued: –
“As a result of the Non-Compliance, a Settlement Default has occurred, the provisions of clause 3.3 of the Settlement Agreement apply and you are obliged (as provided in the final paragraph of clause 3.2 of the Settlement Agreement) to continue to make monthly payments under the Finance Documents.
Notwithstanding that no action has been taken by us in respect of the Non-Compliance or any resulting Settlement Default, neither that matter nor the passing of time, nor any other inaction, nor any action, statement or discussion by or on our part is to be construed as constituting a waiver of, or as prejudicing, any of our rights under the Settlement Agreement and the Finance Documents (including, without limitation, the right to demand repayment in full of the Debtor’s Obligations and the appointment of a receiver and enforcement of any security created by the debenture), all of which rights, and all remedies in respect of which, are hereby expressly reserved.” [Emphasis added].
This is repeated in an open letter dated 10 April 2017 sent by email by Mr McIntyre “for and on behalf of Ennis Property Finance Limited”.
7. On 11 April, 2017, AIB issued a revised loan offer which no longer required a transfer of the site to the defendant. Clause 3.1.16 then read: –
“3.1.16 Settlement Confirmation: Evidence to the satisfaction of the Bank from Ennis Property Finance DAC (“Ennis”) confirming that on receipt of payment of €1,500,000… (i) Ennis will execute a full date of release in respect of all assets mortgaged and charged by the Borrower to Ennis (save for a fixed charge over the [Site]) and (ii) Ennis has no recourse to the Borrower and/or the directors of the Borrower save that limited to the Site”.
8. By email dated 12 April 2017 Mr Hand brought this to the attention of Mr McIntyre, indicating that Pepper would only be required (1) to confirm that their fixed charge security (only) remained in relation to the Site with the general floating charge of the defendant being released in its entirety, and (2) “letter/satisfactory confirmation from Pepper on closing that on completion, they are limited to site only and nonrecourse to client and other assets.” By a further email on 13 April 2017 Mr Hand confirmed that the new facility letter had been issued and signed and stated:
“I shall revert as soon as possible next week with the timeframe for completion.
You have mentioned that the loan holder expects a 10% penalty must be paid on completion pursuant to the settlement agreement. We would suggest that it is best that we complete though payment of the €1 million to be paid under the settlement agreement and that the penalty you refer to be addressed after completion of the €1 million payment by our client.”
9. From this it is apparent that the defendant was now requiring, in addition to the €1 million, payment in accordance with clause 3.3 of the Settlement which provides: –
“3.3 If the Settlement Payment is not made in full by the Long Stop Date (the “Outstanding Payment”) an amount equivalent to 10% of the Outstanding Payment (the “Increased Payment”) shall be added to the Outstanding Payment and such aggregate amount shall become the amount owing and due to the Lender (the “Due Amount”). Due Amount shall be increased by the Increased Payment (which shall be calculated by reference to the Due Amount) for each month or part thereof following the Long Stop Date in which the Settlement Payment, as increased by the provisions of this clause, remains unpaid. The Lender may in its sole discretion waive the application of this clause 3.3.”
The effect of this clause, if valid, was that in addition to the €1 million, an additional payment of €100,000 would be due for the first month (April) and thereafter compound interest on the due amount would continue to accrue at 10% per month.
10. In further communications on 25 April, 2017, 2 May, 2017 and 10 May, 2017, the plaintiff requested confirmation from the defendant/Pepper to enable drawdown. In communications of 28 April, 2017, 5 May, 2017, and 6 June, 2017, the defendant continued to rely on clause 3.3 and require the payment of interest. Thus in his email of 5 May, 2017, Mr McIntyre confirmed that the defendant was “not willing to waive the penalties which have since increased since 30 April and now stand at €1.21m i.e. 10% on €1.1m”. This led to impasse, and under threat by the defendant of the appointment of a receiver over the premises, the plaintiff issued these proceedings by plenary summons dated 2 June, 2017.
11. By Order of Gilligan J. granted ex parte 18 July, 2017, the plaintiff obtained an interim injunction restraining the appointment of a receiver. Following that, the parties entered into an Interim Agreement on 24 July, 2017, under which the defendant consented to the interim injunction remaining in place pending the hearing of this application with various terms designed to maintain the status quo, giving the defendant visibility over the continuing management and operation of the plaintiff’s business in the premises, providing for consent and to admission of this case to the Commercial Court, and providing timelines for the exchange of affidavits, legal submissions and pleadings.
12. The plaintiffs plead in their Statement of Claim delivered on 30 June, 2017, that clause 3.3 of the Settlement is a penalty clause and therefore void and unenforceable. At paragraph 25 of its Defence, delivered on 29 September, 2017, the defendant waives the application of clause 3.3 without prejudice to the defendant’s rights under any other clause in the Settlement and without prejudice to a denial of invalidity.
The principles to be applied
13. There is no real dispute as to the general test that the court should apply in considering whether to grant an interlocutory injunction. As established by the Supreme Court in Campus Oil v the Minister for Industry and Energy (No.2) [1983] I.R. 88, the plaintiff is required to demonstrate: –
1) that there is a serious issue to be tried;
2) that damages would be an inadequate remedy for the conduct or activity which is to be prohibited; and
3) that the balance of convenience favours the granting of an injunction.
This has been refined and in Okunade v Minister for Justice [2012] 3 I.R. 88, 180 Clarke J., as he then was, stated:
“• The party seeking the injunction must show that there is a fair or bona fide or serious question to be tried.
• If that be established, the court must then consider two aspects of the adequacy of damages. First, the court must consider whether, if it does not grant an injunction at the interlocutory stage, a plaintiff who succeeds at the trial of the substantive action will be adequately compensated by an award of damages for any loss suffered between the hearing of the interlocutory injunction and the trial of the action. If the plaintiff would be adequately compensated by damages the interlocutory injunction should be refused subject to the proviso that it appears likely that the relevant defendant would be able to discharge any damages likely to arise.
• If damages would not be an adequate remedy for the plaintiff, then the court must consider whether, if it does grant an injunction at the interlocutory stage, a plaintiff’s undertaking as to damages will adequately compensate the defendant, should the latter be successful at the trial of the action, in respect of any loss suffered by him due to the injunction being enforced pending the trial. If the defendant would be adequately compensated by damages, then the injunction will normally be granted. This last matter is also subject to the proviso that the plaintiff would be in a position to meet the undertaking as to damages in the event that it is called on.
• If damages would not adequately compensate either party, then the court must consider where the balance of convenience lies.
• If all other matters are equally balanced the court should attempt to preserve the status quo.”
14. I accept that the test normally utilises “fair question to be tried” rather than a “serious one” because it is not necessary for the plaintiff to establish that his case is very strong – see Macken J. in Lonergan v Salter Townsend [1999] IEHC 2015. I also accept the statement of law as outlined by Laffoy J. in Crossplan Investments Ltd v McCann and Others [2013] IEHC 205, when she stated that “[it] is generally recognised that the threshold for compliance with the ‘a fair bona fide question’ test is a low threshold”. This must be so, because if, on the basis of the evidence adduced on affidavit in support of the claim for an interlocutory injunction the court finds no fair or bona fide question for trial, it follows that if that is the only evidence that will be adduced at trial the case is bound to fail. To that extent there is a correlation between the test for establishing a fair question to be tried, and the test for dismissal of an action on its merits under the inherent jurisdiction of the court.15. This is relevant because the plaintiff’s case for asserting a fair issue to be tried rests primarily on consideration/construction of the Settlement. In Salthill Properties Ltd v Royal Bank of Scotland plc [2009] IEHC 207 an application was brought to dismiss proceedings under the inherent jurisdiction of the court. Clarke J. stated: –
“3.9 So far as the general question of whether proceedings are, on their merits, bound to fail it seems to me that it is necessary to address the question which arose for debate between the parties as to the approach which the court should take to the evidence as presented on an application to dismiss such as that with which I am involved. It has often been noted that an application to dismiss as being bound to fail may be of particular relevance to cases involving the existence or construction of documents. For example, in claims based on written agreements it may be possible for a party to persuade the court that no reasonable construction of the document concerned could give rise to a claim on the part of the plaintiff, even if all of the facts alleged by the plaintiff were established. Likewise, a defendant in a specific performance action may be able to persuade the court that the only document put forward as being a note or memorandum to satisfy the Statute of Frauds, could not possibly meet the established criteria for such a document. More difficult issues are likely to arise in an application to dismiss when there is at least some potential for material factual dispute between the parties capable of resolution only on oral evidence. At this end of the spectrum, it is difficult to envisage circumstances where an application to dismiss as bound to fail could succeed. In between are a range of cases which may be supported to a greater or lesser extent by documentation.
3.10 However, it is important to emphasise the different role which documents may play in proceedings. In cases, such as examples which I have given earlier, involving contracts and the like, the document itself may govern the legal relations between the parties so that the court can consider the terms of the document on its face and may be able to come to a clear view as to the legal consequences flowing from the parties having governed their relations by the document concerned.”
The making and execution of the Settlement are not in dispute and its terms will therefore be considered by the court. Insofar as any other facts are in dispute the plaintiff’s case must be taken at its height, and the court therefore accepts those facts and the pleas arising therefrom as asserted by the plaintiff for the purposes of this application.
Fair issue to be tried
16. The plaintiff makes two contentions, that are rolled up in one plea. It is pleaded at paragraph 9 of the Statement of Claim –
“9. It was an implied term, and/or it was the effect of the proper interpretation, of the Deed of Settlement, that Ennis by itself, through its agents, would provide all necessary confirmations and perform all necessary actions as might reasonably be requested by the Plaintiff as will permit the drawdown of funds from the Plaintiff’s bankers.”
The plaintiff’s central contention is that it was ready, willing and able to make the €1 million final payment subject only to the defendant providing certain written confirmation to AIB, and that the defendant was obliged, (a) on the true construction of the Settlement against the matrix of fact in which it was concluded, and/or (b) on the basis of the pleaded implied term, to provide such confirmation. The plaintiff alleges that the defendant was in breach of the Settlement in failing to provide the confirmations, and in failing to accept the payment of €1 million, and it is asserted that the defendant was not entitled to allege breach by the plaintiff or to make demand for payment under the original Finance Documents.
(a) Construction of the Settlement
17. In addressing this question the ordinary principles applicable to the construction of contracts apply to construing the Settlement. The court’s overriding task is to determine what the intention of the parties was having regard to the language used in the Settlement. These principles were reviewed in detail by the Supreme Court in Analog Devices BV v Zurich Insurance Company [2005] 1 IR 274, where Geoghegan J. quoted with approval the principles set out by Lord Hoffmann in Investors Compensation Scheme Limited v West Bromwich Building Society [1998] 1 WLR 896, at pp. 912 – 913:
“(1) Interpretation is the ascertainment of the meaning which the document would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract.
(2) The background was famously referred to by Lord Wilberforce as the ‘matrix of fact’ but this phrase is, if anything, an understated description of what the background may include. Subject to the requirement that it should have been reasonably available to the parties and to the exception to be next mentioned, it includes absolutely anything which would have affected the way in which the language of the document would have been understood by a reasonable man.
(3) The law excludes from the admissible background the previous negotiations of the parties and their declarations of subjective intent. They are admissible only in an action for rectification. The law makes this distinction for reasons of practical policy and, in this respect only, legal interpretation differs from the way we would interpret utterances in ordinary life. The boundaries of this exception are in some respects unclear. But this is not the occasion on which to explore them.
(4) The meaning which a document (or any other utterance) would convey to a reasonable man is not the same thing as the meaning of its words. The meaning of words is a matter of dictionaries and grammar; the meaning of the document is what the parties using those words against the relevant background would reasonably have been understood to mean. The background may not merely enable the reasonable man to choose between the possible meaning of words which are ambiguous but even (as occasionally happens in ordinary life) to conclude that the parties must for whatever reason, have used the wrong words or syntax; see Mannai Ltd. v Eagle Star Ass. Co. Ltd. [1997] AC 749.
(5) The ‘rule’ that words should be given their ‘natural and ordinary meaning’ reflects the commonsense proposition that we do not easily accept that people have made linguistic mistakes, particularly in formal documents. On the other hand, if one would nevertheless conclude from the background that something must have gone wrong with the language, the law does not require judges to attribute to the parties an intention which they plainly could not have had. Lord Diplock made this point more vigorously when he said in Antaios Compania S.A. v Salen A.B. [1985] A.C. 191, 201:
‘If detailed semantic and syntactical analysis of words in a commercial contract is going to lead to a conclusion that flouts business commonsense, it must be made to yield to business commonsense’.”
I further accept, as Fennelly J. stated, at p.353 in his judgment in Analog Devices, that this exercise of construction must be conducted objectively, and that subjective intentions, and negotiations leading to the conclusion of the Settlement have no part to play. Thus the consideration of the “matrix of fact” provides context or “background knowledge” for the benefit of the reasonable person addressing the construction of the contract, but cannot override the intentions of the parties as expressed in that contract, and does not mean that prior negotiations can override such expressed intentions.
18. On the construction argument the plaintiff contended that the defendants entitlement to make a demand for all amounts payable under the Finance Documents could arise only on default of payment of the €1 million, and that that default could not arise where the defendant declined to confirm that payment of the €1 million would give rise to a good discharge under the terms of the Settlement. In the words of Counsel, the entitlement to make demand could not ‘stand proud’ of the obligation of the defendant to acknowledge the fundamental purpose and effect of the €1 million payment. It was further contended on the facts that the provisions of the Settlement continued to apply after 31 March, 2017, because no proper demand was made before a point in time when the defendant was in default of its obligation to provide the written confirmation.
19. In response counsel for the defendant pointed out that the “matrix of fact” leading to the conclusion of the Settlement is that the Plaintiff was in default of the original loan facilities and did not dispute that it owed the defendant €2,527,354.06 – and that the plaintiff had not adduced any other evidence of background fact relevant to understanding or construing the Settlement.
20. Counsel then highlighted certain terms of the Settlement to support the contention that the plaintiff was default as of 31 March, 2017. “Debtor’s Obligations” are defined to mean all the outstanding obligations at the date of the agreement, in the sum of €2,527,354.06. The “Long Stop Date” is defined as 31 March, 2017. “Settlement Default” is defined to include the occurrence of inter alia –
“(a) any payment under this Deed not being made on its due date, subject to the Debtor having five (5) Business Days following the relevant due date to make the relevant payment;
(c) the Settlement Payment is not made by the Long Stop Date”.
In clause 2.1 the defendant acknowledged its indebtedness in the full amount, and in clause 2.2 confirmed that these amounts were due and owing under the Finance Documents, and undertook not to dispute the amount stated. Clause 2.3.1 set out the obligation to pay €1.5 million, and as we have seen, clause 2.3.3 sets out the defendant’s obligation to execute and deliver the Deed of Release and to limit recourse to the €1.5 million plus the Site. Clauses 2.5 so far as relevant then provides that:
“…if a Settlement Default occurs:
(a) the obligations on the part of the Lender in this Deed shall immediately cease and no longer be binding on the Lender…;
(b) all amounts payable under the Finance Documents shall become immediately payable by the Debtor;
(c) the Lender will have full recourse to all its rights under the Finance Documents…;
(d) the Lender shall be at liberty to take all legal action available under the Finance Documents and at law…”
Counsel therefore argued that there was no basis for a court to construe the Settlement as showing an arguable case, and that the full amount under the Finance Documents became immediately due after 31 March, 2017 as the plaintiff was not ready, able and willing to complete the Settlement on that date.
21. Having carefully considered the Settlement and the arguments raised I have reached the conclusion that while the defendant’s argument has some force it is also arguable, to the point of raising a fair question to be tried, that proper demand was required to terminate the plaintiff’s benefits under the Settlement. This construction is supported by clause 3.3 which seeks to impose interest on any part of the €1.5 million payable under the Settlement and outstanding “by the Long Stop Date”. That clause clearly contemplates the obligations contained in clause 2.3 of the Settlement continuing beyond 31 March, 2017. It follows that on non-payment of the balance of €1 million on or before 31 March, 2017, the defendant could opt to treat the Settlement as continuing such that the plaintiff could pay the balance of €1 million plus interest, or alternatively could opt for return to full payment by the plaintiff of all sums due under the original Finance Documents. On this construction a demand from the defendant making clear which option was being pursued, was required. Such a construction is also supported by clause 10.1 in which the plaintiff acknowledged that–
“10.1.1 it is in default of its obligations to the Lender under the Finance Documents and that the Lender is entitled to make demand for the immediate payment or discharge of all sums due to it pursuant to the terms of the Finance Documents; and
10.1.2 if such demand is not discharged, the Lender is entitled to appoint a receiver over the assets and undertaking of the Debtor in accordance with powers contained in the Debenture.”
Although in the event that happened the plaintiff consented to the appointment of a receiver over the Site, this does not alter the fact that clause 10.1 contemplates a demand in advance of such appointment. Clause 16 “Duration of Deed” also contemplates that the Settlement “shall continue indefinitely and remain in full force and effect from the date of this Deed unless and to the extent that it is superseded by the provisions of a further written agreement…”.
22. Accordingly, on this construction it is arguable the Settlement continued in being up to and beyond 12 April, 2017, when the plaintiff’s solicitors notified the defendant’s agents that it was in a position to complete and pay the €1 million if the written confirmation for AIB was forthcoming. Moreover, the defendant’s arguments do not address the point made on behalf of the plaintiff that furnishing the confirmations required by AIB is asking for no more than confirmation of the fundamental effect of the Settlement if fully implemented, and therefore the Settlement should be construed as encompassing such an obligation. In my view it is arguable that to decline to furnish such confirmation would be a wrongful derogation from the fundamental contractual commitment of the defendant in clause 2.3.3 of the Settlement.
23. Further in that the defendant sought penalty interest under clause 3.3 in correspondence or emails post-dating 31 March, 2017, e.g. on 10 April, 2017, it is arguable that the terms of the Settlement, insofar as they benefited the plaintiff, continued in being up to and beyond 12 April, 2017, (or that the defendant is estopped from claiming or pleading Settlement Default) and that the defendant had a continuing obligation to accept the €1 million proffered at that time and to furnish the confirmations sought pursuant to the revised AIB facility letter. An estoppel is pleaded in paragraph 24 of the Statement of Claim.
(b) Implied Term
24. The principles that should be applied in considering whether any such term as pleaded should be implied in the Settlement were not really in dispute, and were recently revisited in the judgment of Finlay Geoghegan J. in Flynn v Breccia [2017] IECA 74, in which the recent UK Supreme Court judgments in Marks & Spencer plc v BNP Paribas Securities Services [2016] AC 742 were considered. The court should proceed with caution and there is a presumption against importing terms into a contract in writing; the more detailed the contract the stronger is the presumption against implying a term. It is usually inferred based on the presumed common intention of the parties, but may derive from the nature of the contract itself. It must be reasonable and equitable. It must be necessary to give business efficacy to the agreement, so that no term will be implied if the contract is effective without it; alternatively, it should be so obvious that “it goes without saying”. It should be capable of clear expression. It should not contradict any express term of the contract. Counsel for the plaintiff did place some emphasis on the following passage from Lord Neuberger in Marks & Spencer, that was quoted with approval by Finlay Geoghegan J., where he stated at p.754:
“ First, in Equitable Life Assurance Society v Hyman [2002] 1 AC 408, 459 , Lord Steyn rightly observed that the implication of a term was “not critically dependent on proof of an actual intention of the parties” when negotiating the contract. If one approaches the question by reference to what the parties would have agreed, one is not strictly concerned with the hypothetical answer of the actual parties, but with that of notional, reasonable people in the position of the parties at the time at which they were contracting…”
25. Counsel also relied on a passage later in the same paragraph where Lord Neuberger made the following observation on “business efficacy”, at p.755:
“Sixthly, necessity for business efficacy involves a value judgement. It is rightly common ground on this appeal that the test is not one of “absolute necessity”, not least because the necessity is judged by reference to business efficacy. It may well be that a more helpful way of putting Lord Simon’s second requirement is, as suggested by Lord Sumption JSC, that a term can only be implied if, without the term, the contract would lack commercial or practical coherence.”
26. In ascertaining the presumed intention of the parties the plaintiff placed some reliance on the “matrix of facts” leading to the execution of the Settlement, but also relied on the Settlement and certain terms to suggest that the common intention and understanding of the parties was that the plaintiff would be borrowing/refinancing in order to make the payments contemplated by the Settlement. Counsel relied on the size of the admitted debt (€2.527 million), and the staged payments under the Settlement, culminating in the payment of €1 million, as indicating that the defendant must have known that the plaintiff did not have funding from its own resources and would have to refinance in order to complete the Settlement. In particular counsel pointed to –
(a) Clause 2.6 which provides:
“At the request of the Lender, the Debtor shall procure that any other person shall execute and do all such necessary documents, acts, power of attorney and things as may be required subsequent to the execution of this Deed by that party for the purposes of giving effect to the terms of this Deed, including without limitation procuring any payment required to be made to the Lender.”
Counsel argued that as the obligation to make payments was that of the plaintiff, that this could only be read as a reference to further documents or acts by a lending bank or other funding third party.
(b) Clause 3.3, the interest clause which has been quoted earlier. Counsel argued that if the defendant at the time the Settlement was entered into believed that the plaintiff was intending to fund it through its own resources it would not have had a provision allowing for interest after a Long Stop Date, but rather would have had a guillotine clause.
27. Counsel argued that this common intention and understanding was mirrored in correspondence in March 2017 in that Mr McIntyre received an email on 16 March, 2017, informing him that the plaintiff had signed a facility letter with AIB, and he expressed no surprise in his reply email which noted that “release can be executed and held pending receipt of cleared funds – obviously won’t be releasing this beforehand”. Whether such ex post facto evidence would be admissible at trial, and the weight that might be given to it, would be matters for a trial judge, but on this application it does afford some evidence to support the plaintiff’s assertion as to common intention.
28. On this basis counsel argued that as a matter of business efficacy or because it was “so obvious it goes without saying”, it was reasonable and equitable that there be an implied term that the defendant would provide “all necessary confirmations and perform all necessary actions might reasonably be requested by the plaintiff as will permit the drawdown of funds from the plaintiff’s bankers”. Counsel argued that for the defendant to decline to provide the confirmations required by AIB in its second facility offer would be to derogate from the fundamental terms of the Settlement, and that therefore it is necessary to imply such a term.
29. Although counsel for the defendant in written and oral submissions argued against the suggestion that the common intention of the parties envisaged refinancing through bank borrowing, or that the implication of such a term was necessary for the operation of the Settlement, I have come to the conclusion on the basis of the arguments outlined above that the plaintiff has raised a fair issue to be tried in respect of an implied term. In written submissions the defendant also points to clause 12 of the Settlement which imposes obligations on the plaintiff to provide further documents/assurances “as the Lender may reasonably request to give effect to the terms of this Deed…”. It was argued that as the Settlement does not impose any equivalent obligations upon the defendant expressio unius est exclusio alterius applies, and the proposed term cannot be implied. That argument presupposes that the suggested implied term is similar to or identical to clause 12, but that is not necessarily so, and on its face clause 12 goes further than the pleaded implied term. It seems to me that this is classically an argument that falls to be more fully considered by a court of trial.
30. The main thrust of the defendant’s oral argument was that the pleaded implied term lacks precision, asking rhetorically what does it mean, and what does the defendant have to execute or write? The wording is couched by reference to such “necessary” confirmations or actions “as might reasonably be requested by the plaintiff”, and arguably falls to be read in the context of confirmations or actions actually requested. In the present context it is plain that the meaning and effect of the term that the plaintiff seeks to imply is that the defendant had an obligation before completion to confirm that if the final payment of €1 million was made it would release the premises, with the exception of the Site, from all security held including the personal guarantees and the floating charge, and that its sole recourse in respect of the balance would be to the Site. This may be argued either way. Again in my view it is a matter for the trial court to decide whether the term which the plaintiff seeks to imply is too broad or lacking in precision, or indeed whether it can or should be reframed in a more limited or precise manner.
31. Another point relied on by the defendant in the submissions is clause 14 which states:–
“14. Entire Agreement
This Deed and the documents required as Conditions constitute the entire agreement between the parties to this Deed and supersedes and extinguishes all previous drafts, agreements, arrangements and understandings between them, whether written or oral, relating to the subject matter of this Deed SAVE THAT until such time as the Conditions are satisfied (in the absolute discretion of the Lender) the Debtor shall continue to meet those conditions contained in the Finance Documents as are required by the Lender.”
It was argued that this prevents the implication of the suggested term.
32. In response counsel for the plaintiff rely on Exxonmobil Sales and Supply Corp v Texaco [2004] 1 ALL ER 435 where a similar issue arose in a summary judgment application. Nigel Teare QC stated at p.441:
“[27] The entire agreement clause was also relied upon by Exxonmobil in seeking to defeat the argument that a term should be implied based upon business efficacy. I have not, on that account, rejected Texaco’s argument that a term should be implied on the grounds of business efficacy. It seems to me arguable that where it is necessary to imply a term in order to make the express terms work such an implied term may not be excluded by the entire agreement clause because it could be said that such a term is to be found in the document or documents forming part of the contract. The same cannot be said of an implied term based upon usage or custom.”
For the purposes of this interlocutory hearing, in my view this is sufficient to raise a serious question as to whether the entire agreement clause can defeat the implication of the proposed implied term.
33. Accordingly, even if the “low threshold” were not satisfied in respect of the construction issue raised by the plaintiff, I would be satisfied that the plaintiff has raised a fair question as to whether there should be implied into the Settlement a term such as that pleaded in Paragraph 9 of the Statement of Claim.
Breach of Settlement
34. The defendant also argued that the plaintiff cannot show a fair issue to be tried because the affidavits and correspondence do not disclose any breach of the Settlement even if it were to be construed, or to have a term applied, as asserted by the plaintiff. It is indeed clear that the plaintiff had not secured refinancing by 31 March, 2017, and that there is no evidence or even an allegation that the defendant was in breach of the Settlement on or before that date.
35. However, I am not satisfied that on the case that the plaintiff makes it is necessary for it to prove a breach as at 31 March, 2017. Rather the plaintiff makes the case that the Settlement continued in being, in the sense that the plaintiff could avail of its benefits, until a proper notification of default and demand for payment based on the original Financial Documents was made. The plaintiff’s case is that it received the second AIB loan offer on 11 April, 2017, which no longer required transfer of the Site to the defendant or any third party, and thereafter all that was required of the defendant was a letter of confirmation of release of security and guarantees. The plaintiff asserts that it was then ready, able and willing to complete. Insofar as the AIB loan was only for €800,000, Mr Leo Fitzgerald in his affidavit sworn on 15 September, 2017, states that the “sum of €200,000 was available by way of shareholders funding, and the sum was available for immediate drawdown in cleared funds in March 2017” (Paragraph 18). It is also clear that insofar as the facility letter of 11 April, 2017, included a requirement by AIB of an “equity contribution” of €700,000, this is made up of €500,000 already paid by the plaintiff to the defendant under the terms of the Settlement, and the further €200,000 being made available by way of shareholder funding. The plaintiff’s evidence is that its readiness and willingness to complete on this basis was communicated to Mr McIntyre by the email of 12 April, 2017.
36. Of significance to this argument may be the definition of Settlement Default which at (a) describes “any payment under this Deed not being made on its due date, subject to the Debtor having five (5) Business Days following the relevant due date to make the relevant payment.”
37. I am satisfied that it is at least arguable that the defendant did not declare default and make a demand for the balance due under the original Finance Documents until it sent a letter to the plaintiff on 6 June, 2017, or alternatively at some date after 12 April, 2017. Even if the emailed letter dated 10 April, 2017, from Mr. McIntyre is treated as notification of default/a demand, the Plaintiffs assert that within 5 business days they were ready, able and willing to complete the Settlement, and the defendant was in breach in failing to complete.
38. I am therefore of the view that the plaintiff has raised fair and bona fide issues to be determined at trial.
Adequacy of damages as a remedy
39. If an interlocutory injunction is not granted the defendant will appoint a receiver over the Elphin Public House “who will sell the property as a going concern and will continue to trade the premises in the meantime” (paragraph 74 of the affidavit of Mr McIntyre sworn on 18 August, 2017). The company will thus lose not only its business but also its interest in the property which it has enjoyed since 1996. Notwithstanding this, the defendant argues that if the plaintiff ultimately succeeds in these proceedings damages would be an adequate remedy, and are capable of quantification, and therefore the injunction should not be granted. Counsel relies on the decision of the Supreme Court in Curust Financial Services Ltd v Loewe-Lack-Werk [1994] 1 IR 450 where Finlay CJ. at page 468 stated –
“Difficulty, as distinct from complete impossibility, in the assessment of such damages should not, in my view, be a ground for characterising the awarding of damages as an inadequate remedy.”
I was also referred to another public house/receiver case, Camden Street Investments Ltd v Vanguard Property Finance Ltd [2013] IEHC 478 where Cross J. stated: –
“45. In this case, it is contended by the plaintiff that damages would be difficult if not impossible to calculate. I accept that it may be difficult for damages to be calculated but I do not believe that it would be in any sense impossible. The loss of the business is always a matter of some conjecture but is capable of adjudication after hearing accountancy or other evidence.… I find that the plaintiffs have not proved the case that they would become insolvent if the injunction was refused if they wished to maintain this action against the defendants. The plaintiffs clearly now have a new source of finance available to them in Mr A.”
40. In response counsel for the plaintiff relied on observations of Barrett J. in Bainne Alainn Limited and another v Glanbia Plc [2014] IEHC 482 where he suggested that there were three categories of application for interlocutory injunction that will typically present before the courts, the first being where damages are clearly the appropriate relief, the second in which they are not capable of quantification, and a third category:
“The third is where the alleged loss can conceivably be reduced to damages but where the quantification of these damages is not capable of reasonably precise estimate. In this last regard, nothing is impossible to an accountant or an actuary: if asked to quantify a loss he or she will do so but such estimates may and sometimes will be little more than informed guesswork. In other words one will reach a point where it is possible still to quantify the amount of damages but impossible to do so with any meaningful accuracy. It is this type of impossibility that the court understands Finlay CJ. to refer to when he speaks of “[d]ifficulty, as distinct from complete impossibility, in assessment of… damages”, i.e. damages that are completely impossible to calculate with such a degree of accuracy as to represent the probable loss that a person will suffer absent injunctive relief.”
41. I respectfully agree with Barrett J. This is not necessarily to disagree with Cross J. in Camden Street Investments Ltd, because each case must be decided on its own facts, and there were some notable features of that case that distinguish it from the present one. In particular, he observed that he did not believe that the plaintiffs “who are all corporate beings, or their principals who are all businessmen have in any real sense any emotional stake in maintaining the particular business of Flannery’s licence premises”. Having regard to 30 years involvement of the plaintiff and its principals in the Elphin Public House, that could not be said to apply to the present case. I also note that the second reason for refusing relief in that case was that Cross J. found that there was “significant failure to disclose material facts to the judge at the interim stage to such a degree as we justify the refusal of relief”.
42. I am of the view that if an injunction was refused, and the plaintiff were to succeed in its claim, quantification of its losses would require extensive estimation from accountants and other experts, and this would necessarily involve “informed guesswork” and it would be impossible to calculate them with such a degree of accuracy as to represent the probable loss.
The plaintiff’s undertaking as to damages
43. The defendant challenges the value of the undertaking as to damages proffered on behalf of the plaintiff. It does so on the basis of evidence in Mr McIntyre’s affidavit sworn on 18 August, 2017, where he points to the failure of the plaintiff to make the final payment of €1 million by 31 March, 2017, its failure to show its ability to comply with the AIB requirement of an equity contribution of €700,000, and its requirement of a €30,000 overdraft facility as evidenced by the AIB loan offers.
44. In my view in the context of the central and disputed issue in these proceedings, it is not open to the defendant to rely on non-payment of the €1 million by 31 March, 2017, in support of this challenge. In his replying affidavit sworn on 15 September, 2017, as we have already seen, Mr Fitzgerald fully explains how the €700,000 equity contribution is composed of €500,000 already paid, and €200,000 of shareholder money. These averments are not contested. Mr Fitzgerald also points to the fact that AIB suspended the plaintiff’s overdraft facility of €30,000 on the basis of a letter sent on behalf of the defendant by its solicitors to AIB on 19 July, 2017, asserting that the floating charge held by the defendant had crystallised – a matter that is clearly disputed. Notwithstanding that withdrawal, the plaintiff has continued to trade successfully from the premises. The defendant has also, with the consent of the plaintiff, appointed a receiver to the Site, and will have the benefit of the net proceeds of sale of the property the value of which has been estimated at €850,000. The defendant has also received the first two payments stipulated in the Settlement. Further if the plaintiff fails in its action, the defendant will probably be entitled to a judgement, and thereafter to enforce its security by sale of the premises as a going concern. No evidence has been adduced by the defendant or any other party as to the value of the premises as a going concern.
45. For these reasons I am not satisfied that the defendant has established a basis for challenging the plaintiff’s undertaking as to damages.
Balance of Convenience
46. Following the granting of the interim injunction hearing by Gilligan J. on 18 July, 2017, the parties entered into an “Interim Agreement” on 24 July, 2017. This provided for the continuation of the interim injunction until the hearing of this interlocutory application, but also set out a number of further undertakings on the plaintiff’s behalf on the basis that the plaintiff continues to operate the business from the premises in the meantime. The undertakings cover disclosure and transparency in relation to management accounts, the non-payment of dividends and directors loans pending further order, the safekeeping and inspection of the books and records of the company, provision for inspection by the defendant of the premises, the listing of stock and movable assets as of 3 August, 2017, control of cash and expenditure, the payment by the plaintiff of €5500 per month to the defendant’s agent, notification of transactions exceeding €3500, and an undertaking to procure the immediate return to the defendant’s solicitors of the title deeds to both the premises and the Site by a certain date (it appears that in the title deeds have been returned). On the defendant’s part the Agreement required the defendant’s solicitors to write to AIB in order to unfreeze the plaintiff’s bank accounts, and the defendants undertook not to interfere with the business subject to the plaintiff complying with its undertakings.
47. This very sensible agreement was clearly designed to maintain the status quo and protect the parties pending the hearing of this interlocutory hearing. The plaintiff has offered undertakings in similar terms to those set out in the Interim Agreement pending the trial of the action.
48. On this basis, and on the basis of the usual undertaking as to damages, I do not see any ground upon which the defendant can assert that it would be prejudiced by the grant of an interlocutory injunction, particularly as these proceedings have been admitted to the commercial court and there should not be an excessive delay before they go to trial.
49. By contrast if an injunction is refused a receiver will be appointed, the plaintiff’s management will be replaced, and the sale will take place of property in which the plaintiff has a proprietary interest. It is conceivable that in such circumstances trade/goodwill may be adversely affected and the value of the business diminished. My earlier observations in relation to the impossibility of accurate assessment of damages (without certain expert guesswork) were the plaintiff to succeed in its action are apposite here. I am satisfied that the balance of convenience favours the granting of an interlocutory injunction.
Conclusion
50. I will therefore grant an interlocutory injunction prohibiting the defendant from appointing, or purporting to appoint, any receiver over the premises known as the Elphin Pub, upon the plaintiff giving the usual undertaking as to damages and in addition continuing undertakings in the terms of clauses [1] – [9] inclusive of the Interim Agreement between the parties dated 24 July, 2017, to continue until the determination of the proceedings in the High Court, and on the basis of the defendants continuing its undertaking in that period in the terms of clause [12] of the Interim Agreement. For ease of reference I direct that a copy of the Interim Agreement be appended to my order.
Charleton & anor v Scriven
[2019] IESC 28 (08 May 2019)
Judgment of Mr. Justice Clarke, Chief Justice, delivered the 8th May, 2019
1. Introduction
1.1 At the core of this appeal is a technical issue about whether it is arguable that the plaintiffs/respondents (“the Receivers”) were not validly appointed on foot of a series of mortgages originally entered into between Bank of Scotland Plc (“the Bank”) and the defendant/appellant (“Mr. Scriven”).
1.2 The Bank purported to appoint the Receivers as joint receivers over eight separate residential properties which were the subject of the mortgage agreements concerned. Thereafter, following disputes about the collection of rent for the properties concerned, the Receivers brought an application seeking an interlocutory injunction from the High Court which, in substance, sought that they be allowed take over the properties which were the subject of the mortgages. As the properties had been let by Mr. Scriven, it may well be the case that in practice, the role of the Receivers was likely to be, at least initially, confined to the collection of rent.
1.3 The High Court granted the injunction sought (see the judgment of Keane J. – Charleton & anor. v. Scriven [2014] IEHC 415). Mr. Scriven appealed against that order to this Court. This appeal was one of those cases which were transferred to the Court of Appeal on the establishment of that Court but which have recently been returned to this Court as part of the attempt to assist the Court of Appeal with its backlog.
1.4 In essence, there are two issues of substance which arise on this appeal. The first concerns the standard to be applied in assessing the strength or otherwise of the case which the Receivers make. While it will be necessary to address this issue in more detail in due course, it is well settled that there are certain categories of injunction application which, at the interlocutory stage, require the plaintiff to establish a higher degree of likelihood of success than the “fair issue to be tried” standard applied in most interlocutory injunction applications. That issue is not decisive given that, irrespective of the standard to be applied, there is an issue as to whether the Receivers have met it. Obviously, however, it would be more difficult for the Receivers to meet the higher standard, if it is that which is properly to be applied.
1.5 So far as the strength of the Receivers’ case is concerned, it is necessary to consider the potential defences which might be open to Mr. Scriven for, in the particular circumstances of this case, an assessment of the strength of the Receivers’ case largely involves an assessment of the strength or otherwise of the defences which Mr. Scriven may be able to put up.
1.6 Mr. Scriven originally represented himself and had filed written submissions making a number of points of defence. However, by the time the case came to hearing, Mr. Scriven was represented and counsel who, while not abandoning any of the points made in the written submissions, quite properly concentrated on what was considered to be the strongest ground, that being the language used in the purported appointment of the Receivers. In substance, therefore, the question of the strength or otherwise of the Receivers’ case has to be assessed by reference to the basis on which it is argued on behalf of Mr. Scriven that the appointment of the Receivers was defective.
1.7 In order to understand those issues more fully, it is appropriate to turn first to the facts.
2. The Facts
2.1 In 2007, the Bank and Mr. Scriven had entered into two loan facility agreements on foot of which the Bank advanced more than €3.69m to Mr. Scriven. The loans advanced to Mr. Scriven were secured, at least in part, by charges over eight residential properties. Mr. Scriven accepted before the High Court that he had been in default in relation to those loans since 2009 and had not made any repayment on the loans since 2013.
2.2 On 26 May 2014, the Bank’s solicitors wrote to Mr. Scriven demanding immediate repayment of the sums owed by him under the loan facilities, and stated:-
“We also give you notice that, failing payment by you of the sums herein demanded forthwith, the Bank reserves the right without further notice to issue proceedings in the appropriate court or take such further action as it deems fit including the appointment of a receiver.”
2.3 On the 4th June 2014, the Receivers were appointed on foot of the deeds of charge as receivers over the eight charged properties.
2.4 Following their appointment, the Receivers engaged in correspondence with Mr. Scriven concerning their appointment as receivers over the eight charged properties. In the High Court, Keane J. summarised that correspondence as follows at paras. 11 and 12:-
“11. The plaintiffs initiated a correspondence with the defendant on the 5th June 2014, which prior to the issue of the motion at hand rested with the defendant’s letter of the 9th July 2014. In the course of that correspondence, the plaintiffs furnished the applicant with a copy of the deed appointing them in respect of each property and subsequently, at the defendant’s request, with a copy of the mortgage deed in relation to each. The plaintiffs requested the defendant to furnish them with details concerning the mortgaged properties to include copies of all leases, and details of the tenants and rental income in respect of each.
12. The defendant responded that he had been incorrectly notified of the appointment of the receivers and that he did not accept the validity of their appointment. The defendant has asserted that he is entitled to continue to exercise all of his rights as owner of each of the properties concerned, and that the receivers are not entitled to exercise any such rights, until -as the defendant puts it – he has validated their appointment. The defendant acknowledges that he has written to the tenants of each of the mortgaged properties to the effect that the receivers’ appointment is invalid and that the receivers are not, in consequence, entitled to collect rents or exercise any other rights in respect of any of those properties.”
2.5 On 2 July 2014, solicitors acting on behalf of the Receivers wrote to Mr. Scriven enclosing copies of the mortgage deeds in relation to each property, and stated:-
“Notwithstanding this we are instructed that you have persisted to make contact and correspond with the occupants of the Properties and have told the tenants that they are to pay the rents to you and not pay the rents to our clients. Please note that as and from their appointment our clients are the only persons legally entitled to deal with these properties. Our clients are the only parties entitled to receive the rent from the tenants of these properties.
Our clients explained to you that on their appointment they, as it were, stood in your shoes, in relation to dealing with the properties and that you ceased to have any legal entitlement of any nature to deal with the properties.
Accordingly we formally call on you to desist from any further interference or trespass and in particular to cease asking the tenants to pay rent to you.
If it comes to your clients notice that you have not ceased to interfere, proceedings including injunctive proceedings will immediately be issued against you without further notice and this letter will be produced to the Court in support of our application and further, our clients costs.”
2.6 The Receivers subsequently applied to the High Court seeking injunctive relief, which was granted on 22 August 2014. It will be necessary to return to the exact form of the relief sought and granted later in this judgment. However, given the focus in this case on the validity of the appointment of the Receivers, it is important first to set out the text of the relevant provisions both of the mortgage deeds and the appointment of the Receivers.
3. The Documentation
3.1 The same wording is used in each of the mortgage deeds. Clause 1 of each mortgage deed is the interpretation section. That section provides:-
“‘Receiver’ shall have the meaning ascribed to it in Clause 8.1”
3.2 Clause 8.1 of each deed provides in relevant part:-
“At any time after the power of sale has become exercisable whether or not the bank has entered into or taken possession of the Secured Assets or at any time after the Mortgagor so requests the Bank may from time to time appoint under seal or under hand of a duly authorised officer or employee of the Bank any person or persons to be receiver and manager or receivers and managers (herein called ‘Receiver’ which expression shall where the context so admits include the plural and any substituted receiver and manager or receivers and managers)…”
3.3 The appointment of the Receivers states as follows:-
“In pursuance of the powers contained in a Mortgage and Charge … made between Gerard Scriven and Bank of Scotland (Ireland) Limited, Bank of Scotland plc does HEREBY APPOINT LUKE CHARLETON AND MICHAEL COTTER of EY, EY Building, Harcourt Centre, Harcourt Street, Dublin 2 to be the RECEIVERS of the whole of the property and assets referred to, comprised in, mortgaged and charged by the Mortgage including the property described in the Schedule hereto, to enter upon and take possession of the same and in the manner specified in the Mortgage and such receivers shall have and be entitled to exercise the powers conferred on them by the Mortgage and by the law.” (Emphasis in original)
3.4 Again, the wording of the appointments, insofar as relevant to the issues arising on this appeal, is the same in each instance.
3.5 It will be seen, therefore, that the mortgage deeds provide for the appointment of a “receiver and manager”, while the appointment of the Receivers only refers to their appointment being as “receivers” rather than as “receivers and managers”. In essence, this is the principal point relied on by Mr. Scriven for suggesting that the appointment of the Receivers is invalid or, more correctly, that it is sufficiently arguable that the Receivers were invalidly appointed on that basis so as to render the Receivers’ case at this interlocutory stage such that it can properly be described as weak. Just how weak it would need to be in order for it to be inappropriate to grant an interlocutory injunction would, of course, depend on the proper standard to be applied. It seems appropriate, therefore, to turn first to the question of the standard to be applied.
4. The Standard to be Applied
4.1 The most detailed recent assessment by this Court of the criteria to be applied in relation to the grant or refusal of interlocutory injunctions is to be found in the judgment in Okunade v. Minister for Justice, Equality and Law Reform [2012] IESC 49, [2012] 3 IR 152. While it is the case that Okunade had a particular focus on the criteria to be applied in respect of interlocutory injunctions or similar orders in a public law context, it is also clear that much of the analysis in the judgment in that case applies equally to private law injunction proceedings. The overall approach of the judgment is to analyse the proper basis for the grant of interlocutory injunctions (or similar orders) at an overall level and then seek to apply those principles in the particular context of public law issues.
4.2 As was made clear in Okunade , the overall approach which a court must take is to act to minimise the risk of injustice. In my judgment in that case, I stated as follows at para. 9.5:-
“In both cases the problem stems from the fact that the court is being asked, on the basis of limited information and limited argument, to put in place a temporary regime pending trial in the full knowledge that the court does not know what the result of the trial will be. It seems to me that, recognising that a risk of injustice is an inevitability in those circumstances, the underlying principle must be that the court should put in place a regime which minimises the overall risk of injustice. It seems to me that the underlying principle remains the same whether the court is considering placing a stay on a measure or granting an injunction. Indeed, although it is unnecessary to go into detail for the purposes of this case, it seems to me that a like general principle underlies the approach of the court in many other types of cases where the same broad problem arises. In many situations it is necessary to decide what is to happen in the intervening period pending a trial or other determination (or indeed an appeal) when, by definition, it is not possible to decide what the ultimate outcome will be. All such cases involve the risk that, when the dust has settled, it will be seen that some person or body has suffered either by the intervention of the court or, equally, by its non intervention. However the only way to remove that risk of injustice would be by deciding the case, issue or appeal immediately. The whole problem is that that process takes time. In those circumstances I do not believe that the test as to whether the court should intervene pending trial depends on whether the temporary measure sought is described as a stay or as an injunction or, indeed, as any other form of order which might arise on the special circumstances of an individual case. The court must, in all cases, act so as to minimise the risk of injustice.”
4.3 It should also be noted that in my judgment in Okunade , I made the following comment concerning the test to be applied in relation to certain applications for interlocutory injunctions at para. 9.16:-
“…It is, therefore, hardly surprising that, in such cases, where the result of the interlocutory application will either completely, or significantly, decide the case, the courts have felt it necessary to impose a higher standard before an injunction can be granted (normally the Maha Lingam standard). That variation from the pure Campus Oil test can be seen as nonetheless still coming within the general principle of attempting to fashion an order which runs the least risk of injustice for if the grant or refusal of an interlocutory order will go a long way towards deciding the case then the risk of an injustice is even greater and the court requires a greater degree of assurance before intervening.”
4.4 The ” Maha Lingam standard” referred to in that passage is as set out by Fennelly J. in Maha Lingam v. Health Service Executive [2005] IESC 89, where he stated:-
“…[I]t is well established that the ordinary test of a fair case to be tried is not sufficient to meet the first leg of the test for the grant of an interlocutory injunction where the injunction sought is in effect mandatory. In such a case it is necessary for the applicant to show at least that he has a strong case that he is likely to succeed at the hearing of the action.”
4.5 There can be little doubt, therefore, that the strength of a plaintiff’s case can be required to be assessed against a higher standard in certain categories of case, precisely because the grant of an injunction in such cases, in circumstances where the plaintiff ultimately failed, would run a greater risk of more serious injustice. There is equally no doubt that the jurisprudence regards a mandatory injunction as coming within the category of case to which that higher standard applies.
4.6 However, there is also clear authority for the proposition that the assessment of whether an injunction can properly be said to be mandatory for those purposes is a matter of substance rather than one of form. Indeed, this is clear from the judgment of Fennelly J. in Maha Lingam, where he stated:-
“…[T]he implication of an application of the present sort is that in substance what the plaintiff/appellant is seeking is a mandatory interlocutory injunction and it is well established that the ordinary test of a fair case to be tried is not sufficient to meet the first leg of the test for the grant of an interlocutory injunction where the injunction sought is in effect mandatory.” (Emphasis added)
4.7 This substance over form approach can also be seen in, for example, my judgment in Bergin v. Galway Clinic Doughiska Ltd . [2007] IEHC 386, [2008] 2 IR 205 and the judgment of Irvine J. in Stoskus v. Goode Concrete Limited [2007] IEHC 432.
4.8 The reason why a higher standard is applied is not because of some technicality but because of the greater risk of injustice which I have sought to identify. But that greater risk is a function of the substance of the order sought and the consequences which it might have for an individual who became bound to obey the interlocutory injunction but ultimately succeeded. It is clear that, at least in general terms, requiring someone to do something which, it may ultimately transpire, they were not required to do may give rise to a greater risk of injustice than simply requiring someone to refrain from doing something which they may ultimately be found to be entitled to do. But that question is dependent on an analysis of the substance of the effect of the injunction if granted, rather than the language used in its terms. Against that backdrop, it is necessary to turn to the injunction sought and obtained on the facts of this case.
5. The Injunction Appealed Against
5.1 In the High Court, the Receivers sought and were granted injunctive relief in the following terms:-
“IT IS ORDERED pending the trial of this action
1. That the Defendant do forthwith deliver up to the Plaintiffs:
(a) physical possession of each of at the properties identified in the Schedule hereto (the “Mortgaged Properties”) that is unoccupied;
(b) possession of the entire of the Defendant’s right, title, benefit and interest in and to each of the Mortgaged Properties that is occupied;
(c) all keys, alarm codes and other security and access devices in the possession of the Defendant, his servants or agents in relation to the Mortgaged Properties; and
(d) all documents creating or recording any agreement for the letting of the Mortgaged Properties;
2. The Defendant whether by himself, his servants or agents be restrained from entering upon or otherwise attending at the Mortgaged Properties;
3. The Defendant, his servants or agents be restrained from preventing, impeding or obstructing the Plaintiffs, their servants and agents from entering into, taking possession of, getting in and collecting the Mortgaged Properties and any rents or other income payable in respect thereof;
4. The Defendant, his servants and agents be restrained from interfering with the functions and office of the Plaintiffs as joint receivers of the property to which they have been appointed by the eight deeds of appointment (each referring to a Mortgaged Property) made by Bank of Scotland plc on 4 June 2014 and accepted by the Plaintiffs on the same date.
5. The Plaintiffs be at liberty, directly or by their solicitors, to notify the making of the foregoing orders to the occupant of the mortgaged properties by telephone, email and/or post.”
5.2 In attempting to characterise an injunction in those terms, it is important to keep in mind that the position, at least at the time when the injunction was granted and, it would appear, up until the hearing before this Court, was that the relevant properties were let. It followed that the principal substance, whatever about the form, of what lay behind the injunction sought was that the Receivers would be entitled to collect the rent without any interference from Mr. Scriven.
5.3 It is clear from the facts referred to earlier that the event which precipitated the application for the interlocutory injunction in these proceedings in the first place was the attempt by Mr. Scriven to direct that the rents due from the various properties should be paid to him rather than to the Receivers. It is correct to state that some of the reliefs claimed, such as those requiring Mr. Scriven to hand over possession of the properties in question and other ancillary matters, might reasonably characterised as being more mandatory than prohibitory in character. For the purposes of the assessment of whether it is appropriate to grant or refuse interlocutory relief in this case, it seems to me that it is appropriate to characterise much of the relief sought, being those aspects of the relief which involved restraining Mr. Scriven from interfering with the collection with the rent by the Receivers, as being essentially prohibitory in nature, although it may well be appropriate to regard some of the relief claimed (albeit relief which seemed to be of little practical relevance in the context of the case) as being of a mandatory character.
5.4 Against that backdrop, it is necessary to assess the strength or otherwise of the case which the Receivers seek to make.
6. The Strength of the Receivers’ Case
6.1 As noted earlier, the essential point on which particular reliance was placed on behalf of Mr. Scriven was the argument that there is a difference between a “receiver and manager” and a “receiver”. On that basis, it is said that the appointment of the Receivers as simply “receivers” as opposed to as “receivers and managers” is arguably an invalid appointment such that it would be properly concluded that the Receivers did not have a sufficiently strong case to warrant the grant of an injunction which, it was argued, was essentially mandatory in nature.
6.2 Subsequent to the decision in this case, a similar argument came before the High Court in McCarthy v. Moroney & Anor [2018] IEHC 379. The trial judge in that case had to assess the strength or otherwise of an almost identical argument relating to identically worded documentation.
6.3 In his judgment in that case, McDonald J. considered the previous judgment of Gilligan J. in The Merrow Limited v Bank of Scotland [2013] IEHC 130, [2013] I.L.R.M. 388, which stressed the importance of observing any formalities provided for in a debenture or deed of mortgage when it comes to the appointment of a receiver. McDonald J. also referred to other authorities to the same effect.
6.4 On that basis, McDonald J. noted that the entitlement to appoint a receiver under deeds identical to those involved in this case requires that such a person be appointed as a “receiver and manager”. McDonald J. went on to assess the strength of the case which could be made for the validity of the appointment of the receiver in the circumstances before him, having regard to the fact that all formalities for the appointment of a receiver must be complied with and that the words used in the documentation appointing the receiver in that case referred, as here, to a “receiver” as opposed to a “receiver and manager”.
6.5 Ultimately, McDonald J. concluded that the receiver in the proceedings before him would “have an uphill struggle in persuading the Court at trial that he has been validly appointed”.
6.6 It is fair to say that McDonald J. appeared to have been concerned that this aspect of the matter was not argued as thoroughly as he might have liked. In that context, he said at para. 157:-
“I was not referred to any other authorities in this context other than the decision of Gilligan J. While the decision of Gilligan J. was dealt with extensively in the oral and written submissions by Mr. Moroney, the decision was not canvassed extensively in the submissions made on behalf of Mr. McCarthy. The oral submissions on behalf of Mr. McCarthy on this issue run from p. 103 to p. 105 of the transcript on Day 3.”
In the context of that passage, it should be noted that Mr. McCarthy was the receiver seeking an interlocutory injunction, such that the limited argument referred to by McDonald J. relates specifically to arguments on this point addressed by the receiver.
6.7 However, it seems to me that, in seeking to assess the strength of the Receivers’ case with the benefit of full argument in these proceedings, it is important to have regard to the fact that the mortgage deeds themselves defined the persons who were to be appointed as “receivers and managers” as the “receivers”. It is true that that definition was stated to be for the purposes of the mortgage deeds themselves. But it is at least arguable that the use of the term “receiver” in documents which are contemplated by the mortgage deeds themselves (being the documents whereby the Receivers were appointed) would carry that same definition. In other words, it is arguable that the appointment of the Receivers in the form in which it occurred in this case was, as a matter of construction of the documents concerned, an appointment as both receivers and managers, having regard to the way in which the term “receiver” was defined in the mortgage deeds themselves.
6.8 Insofar as the other principal issue which arises in this case is concerned, being the question of the strength of the case which the Receivers need to establish, it is important to note that in McCarthy , it was conceded by counsel for the receiver in that case that, while negatively worded, what was sought was an injunction which was in substance mandatory in nature, it being a requirement to hand over possession of the property the subject of the deed in that case to the receiver. There was thus no question for McDonald J. as to the standard to be applied. However, the situation is different here.
6.9 On the basis of the analysis carried out above, there clearly is, at a minimum, a fair issue to be tried between the parties as to whether the Receivers were properly appointed. Having regard to the fact that I have already sought to characterise that aspect of the relief which the Receivers sought, which concerned prohibiting Mr. Scriven from interfering with the orderly collection of rent from the properties, as being essentially prohibitory in character, it follows that, at least so far as that relief is concerned, it will be necessary to go on to consider the balance of convenience.
6.10 However, in my view the arguments concerning the validity of the appointment of the Receivers are sufficiently complex (for the reasons analysed by McDonald J. in McCarthy ) that it would be difficult to suggest that a sufficiently strong case could be made out to warrant the grant of an injunction which was essentially mandatory in character. I would, therefore, distinguish between the reliefs sought which simply seek to retain the position that the Receivers are entitled to collect the rent, on the one hand, from any relief which might be designed to allow the Receivers to move on to selling the property on the other.
6.11 So far as the balance of convenience is concerned, it seems to me that where all that is involved is the collection of rent, the balance favours those sums being paid to the Receivers and retained by them, pending the resolution of the proceedings. In those circumstances, Mr. Scriven is protected in the event that the Receivers ultimately lose the case because the monies can then be paid over to him. I would, in those circumstances, hold that an interlocutory injunction was appropriate, but only one which was sufficient to ensure that the monies were paid over to and retained by the Receivers pending the trial of the action. I propose that the parties be heard further on the precise form of any such order.
6.12 Indeed, I would go further and suggest that, having regard to the underlying principle of attempting to fashion an order which runs the least risk of injustice, there may very well be an important distinction to be made in receivership cases between situations where the receivers concerned simply intend to maintain the situation pending a trial and ones where the substance of the interlocutory order sought is one designed to, in practice, bring the proceedings to an end. There is considerable logic in the view that, for example, a receiver who wished to obtain possession of residential property or a family farm so that it could be sold would need to make out a strong arguable case for it to be appropriate, having regard to the greatest risk of injustice test, to allow such an order to be made. On the other hand, where the matters are essentially financial or where there are strong grounds for believing that a receiver is necessary to ensure that property is properly managed and maintained pending a trial, very different considerations may apply.
6.13 It is important to emphasise that these observations only arise in circumstances where there is an issue of any substance concerning the validity of the appointment and powers of receivers. Where no real case of any substance is made by a defendant which puts forward a credible basis for suggesting either that receivers were not validly appointed or that receivers, although validly appointed, are seeking to exercise powers which they do not have, then it will not matter whether any interlocutory injunctive relief which the relevant receivers seek can properly be characterised as respectively mandatory or prohibitory, for there will be a more than adequate basis for suggesting that a strong case has been made out. The potential for a distinction between relief which is essentially mandatory, on the one hand, and that which is prohibitory, on the other, arises where there is at least some significant defence put forward which the Court assesses might arguably provide a basis for suggesting that the receivers might fail at trial. In such circumstances, it will be necessary to assess the strength of the defence put up so as to, in turn, determine whether the receivers’ case can be characterised as sufficiently strong to warrant the grant of mandatory relief or whether it may only be possible to say that the receivers’ case gives rise to a fair issue to be tried, where only such part of the relief claimed as can properly be described as prohibitory should be granted.
6.14 However, it may also be important to have regard to the fact that it is appropriate for a court, in fashioning an appropriate order at an interlocutory stage, to attempt to put in place a regime pending trial which runs the least risk of injustice, having regard to the uncertainty as to what the ultimate result of the trial may be (again, see Okunade ). This may involve the Court looking at the practical situation on the ground and attempting to determine the course of action which minimises the risk of injustice. As already noted, on the facts of this case the reality is that, in the circumstances which had emerged by the time the interlocutory injunction was heard, the true practical nature of the relief sought was to ensure that the rents from the properties were paid to the Receivers rather than to Mr. Scriven. In that context, it is worth noting that it was suggested at the hearing of the appeal before this Court that, for various technical reasons, matters on the ground had not, despite the length of tine which had passed, moved on to a situation where sale was contemplated. That fact is a matter to which I will shortly return.
6.15 However, for the purposes of this judgment it is sufficient to state that the main practical relief claimed, being that which is designed to secure the payment of rent to the Receivers, was essentially prohibitory in character, in circumstances where there is at least a fair issue to be tried in favour of the proposition that the Receivers were validly appointed and where the balance of convenience would favour the rent continuing to be collected by them without interference by Mr. Scriven. Before concluding this judgment, I think it is appropriate to make one further observation.
7. An Observation
7.1 It is unfortunate that such a long time has elapsed since the grant of the interlocutory injunction in this case, without the substantive proceedings being brought on for hearing. Interlocutory injunctions should not be treated as a means of attempting, in practice, to obtain a summary judgment. They are designed to do what they say, that is, to hold the situation until there can be a full trial. While there will inevitably be some cases where the result of an interlocutory injunction may, in practical terms, bring the proceedings to an end, it remains the case that there is an obligation on any party which has obtained an interlocutory injunction not to rest on their laurels, but to bring the matter on for full hearing. If the defendant does not co-operate, then any appropriate procedural measures may be adopted, either to have the proceedings finally determined by default or to ensure that they come to trial in a timely way.
7.2 This Court does not have sufficient information to form a view as to where the fault lies for these proceedings not having been finally determined, although it is clear that with even reasonable diligence, this case could now be well finalised, as a result of which the question of whether or not there should be interlocutory orders pending a full hearing would have become irrelevant. However, in a case where it could be shown that a plaintiff who had obtained a beneficial interlocutory injunction had not moved with reasonable expedition thereafter to bring the matter on for trial, it may well be open to, and appropriate for, a court to consider whether that party should retain the benefit of what was clearly intended to be a temporary order for a prolonged period of time.
7.3 It is, of course, the case that this appeal has, regrettably and through no fault of the parties, taken a long time to come on for hearing. Be that as it may, it remains the case that, as noted earlier, the Receivers do not yet seem to be in an immediate position of requiring to sell the properties. Having regard to the fact that it would have been possible to have had a full trial of this matter well before now so that the question of the technical argument as to the validity of the appointment of the Receivers could have been finally resolved, it would, in any event, be inappropriate at this stage to make an order which would have the effect of allowing the relevant properties to be sold without a final determination of the legal issues which have arisen as to the validity of the appointment of the Receivers.
7.4 Finally, I would observe that the fact that there may be an appeal against the grant of an interlocutory injunction should not be regarded as a legitimate basis for the parties should not be regarded as a legitimate basis for the parties’ failure to progress the substantive proceedings to trial . The issues are separate issues. As this judgment demonstrates, a range of factors, such as the strength of the case and the balance of convenience, may come into play in considering whether to grant or refuse an interlocutory injunction and, indeed, if one be granted the terms thereof. But those issues are not necessarily relevant at a final trial which makes a determination on a permanent basis of the legal rights and obligations of the parties. Such a trial is the proper means for such final determination and parties should progress to it in a timely fashion, whether or not an interlocutory injunction has been sought and, if sought, whether or not there is an appeal against the result of the interlocutory hearing.
8. Conclusions
8.1 For the reasons set out in detail in this judgment, I have come to the view that it is appropriate to distinguish between those aspects of the interlocutory reliefs sought which concern the entitlement of the Receivers to have the rent on the properties which are the subject matter of these proceedings paid over to them without interference by Mr. Scriven, on the one hand, and some of the other reliefs claimed and granted by the High Court, on the other. It is clear that much of those ancillary reliefs were of little practical benefit in all the circumstances of this case, for all of the properties were rented out. In those circumstances, and in the absence of a move to sell the properties, the substance of the Receivers’ practical entitlement was to ensure that the rent was paid to them.
8.2 I have indicated the reasons why I think it is appropriate to characterise those aspects of the relief which preserve the payment of rent to the Receivers as being prohibitory rather than mandatory in character and, having regard to my finding that there is a fair case to be tried, I am satisfied to uphold the decision of the High Court to grant relief along those lines.
8.3 However, somewhat different considerations apply in respect of the additional relief claimed, partly because it is appropriate to characterise that relief as mandatory, and thus requiring a strong case to be established, and also because, in the circumstances now prevailing, it would not be appropriate to allow for orders which would have the effect of permitting these properties to be sold without a full trial.
8.4 In those circumstances, I would propose that counsel be heard further on the precise orders which should be confirmed by this Court, being those orders which are necessary to ensure that the rents are paid to the Receivers without interference by Mr. Scriven.
Nolan v Bank of Ireland
[2017] IEHC 471
EX TEMPORE JUDGMENT of Mr. Justice Twomey delivered on the 11th day of July, 2017.
1. This is an application for an interlocutory injunction against a receiver appointed by a bank over the plaintiff’s investment property on Clyde Road in Dublin 4. He borrowed money from the Bank on the security of this property and has failed to repay the sums due.
2. Counsel for the Bank submitted, and this was not contested by the plaintiff, that if and when the property is sold, the only question is how much of a shortfall there will be between the amount borrowed and the purchase price, since the loan is in considerable negative equity.
3. In his plenary summons the plaintiff claims that the receiver’s appointment is void and in these proceedings he seeks an interlocutory injunction preventing the receiver from, inter alia, disposing of the property.
4. In particular, the plaintiff claims that he entered an oral agreement to vary his repayments to the Bank in September 2015. However, this Court does not find that this claim is credible, since on the 23rd September, 2015, the Bank wrote to the plaintiff and expressly stated it was not going to offer the plaintiff an alternative repayment arrangement. If the plaintiff had, as he now suggests, a binding oral agreement, he would have responded to the Bank at this time to that effect. Similarly, when he received a letter of demand from the Bank on the 12th November, 2015, and also when he received a letter dated 26th November, 2015, notifying him of the imminent appointment of the receiver, he would have responded to the Bank to advise it of his binding oral agreement, if such an agreement existed.
5. It is clear to this Court that, in the circumstances where the plaintiff is seeking an interlocutory injunction, such an injunction should only be granted if there is a fair question to be tried, if damages are not an adequate remedy and if the balance of convenience favours the granting of the injunction.
6. In this respect, the plaintiff sought to have additional time to make submissions regarding the documentation produced to him over lunch time by the Bank regarding the execution under seal of the Deed of Appointment of the receiver, rather than under hand. However, it is relevant to note that these documents were only produced at a late stage by the Bank, because the first claim, by the plaintiff regarding the fact that the Deed of Appointment should have been made under hand, was made only two business days ago.
7. Rather than delay these proceedings by granting such an adjournment, this Court can assume for the purposes of this application that the plaintiff has raised a fair issue to be tried regarding the validity of the appointment of the receiver because of the execution of the Deed of Appointment under seal, rather than under hand.
8. In such a situation the plaintiff still has to satisfy the Court that damages are not an adequate remedy before it grants the interlocutory injunction.
9. In this respect, the property in issue is an investment property. While it is on an expensive road in Dublin, despite what the plaintiff claims, there is nothing else that is unique about the property.
10. In particular, he alleges that the receiver has failed in his duties by failing to let the property to an embassy at a much higher rent than is available when it is let out to domestic tenants. However, the plaintiff himself had the property for several years and did not rent it out to an embassy. Instead, the plaintiff divided the property up into four lettings.
11. In this regard, the plaintiff is in no different a position than the thousands of other buy-to-let investors who have borrowed funds from a bank and found themselves unable to repay the borrowings. The fact that his property is on an expensive road and might be let out to an embassy does not mean that damages are not an adequate remedy in the event of the plaintiff being successful at the plenary hearing.
12. It is clear to this Court that the plaintiff’s complaints against the Bank are all about money. Indeed, they include a curious complaint that the Bank should have increased the interest rate charged to him in 2008 at the height of the property crash and if it had done so, the plaintiff claims that he would have been forced to sell the property at that time and if he had done so at that time, he would have sold the property at a profit. It can be seen therefore that the essence of this part of his claim is a claim for damages.
13. In conclusion, it seems clear to this Court that if the plaintiff were to be successful in his plenary hearing and convince a future court that the receiver’s appointment was void, then damages would be an adequate remedy to compensate him for his loss and so this Court sees no basis for granting the injunction sought by the plaintiff.
Murphy v Launceston Property Finance Ltd
[2017] IEHC 65
Judgment of Ms. Justice Kennedy delivered on the 10th day of February, 2016
1. The proceedings commenced by way of plenary summons dated 26th August, 2016 in which the plaintiffs seek a number of declaratory and injunctive reliefs. On the 5th October, 2016 the plaintiffs made an ex parte application to the High Court (O’Connor J.) seeking certain interim orders. Interim relief was granted to the plaintiffs restraining the second named defendant from taking possession of or otherwise taking steps on foot of a deed of appointment in respect of properties, the subject matter of these proceedings.
2. On 17th October, 2016, it was ordered, inter alia, that the proceedings be entered in the Commercial list and an undertaking was given by the plaintiffs through their counsel in open court:-
“That their servants or agents, will hold all rents and income generated by the secured properties in escrow pending the determination of the proceedings or until further order”.
The matter came before this Court for hearing on 3rd February, 2017 wherein the plaintiffs seek an interlocutory injunction pending the determination of these proceedings. This judgment is given following the hearing of the application for an interlocutory injunction.
Background
3. The first to fifth named plaintiffs are members of, and trade as, The Firstwood Partnership which was created in May, 2000 for the purpose of investing in and managing property and specifically to acquire the property the subject matter of these proceedings, being a multi-storey car park complex including office and retail units in Dublin 2.
4. In order to finance the purchase of the Property, monies were advanced by Anglo Irish Bank Corporation plc (“Anglo”) to the partnership by Facility Letter dated 27th April, 2000, and a brief amendment letter issued in 2007. A Deed of Mortgage, Charge and Assignment was executed by the Partnership dated the 28th April 2000, (“the 2000 mortgage”). The original facility was amended and restated by facility letter dated the 15th September 2008 and a Deed of Mortgage, Charge and Assignment was executed dated the 24th September 2008 with the 2000 Mortgage remaining. An amortisation schedule was attached to the original facility and the 2008 facility.
5. The first named defendant purchased the rights of Irish Bank Resolution Corporation Limited (“IBRC”) as successor to Anglo under the partnership’s facility and attendant mortgages in and around March, 2014, the transfer taking effect on 23rd May, 2014.
6. On 20th May, 2016, the first named defendant wrote to the plaintiffs’ agents (Glenrock Capital Ltd.) requiring that the plaintiffs pay all rent received from the property to the first named defendant pursuant to clause 13.1 of the 2008 facility. In that letter the first named defendant stated that a failure to remit the rent constituted an event of default as provided pursuant to clause 17.3 of the 2008 facility. The plaintiff was afforded 28 business days to do so otherwise the first named defendant stated that it would appoint a receiver over the property. By letter dated 27th September, 2016, the first named defendant issued a demand for full repayment in the sum of €6,702,497.31.
7. A receiver; the second named defendant, was subsequently appointed on 30th September, 2016 by Deed of Appointment.
The Issues
8. The plaintiffs contend as follows:
(1) The agreements, when properly constructed shows that the true contractual obligation is to repay the debt in accordance with the amortisation schedule.
(2) That having regard to the course of dealing between the parties for the purposes of the 2008 facility and the security being 2000 and 2008 mortgages, the repayment of the facility in accordance with the amortisation schedule constitutes full compliance.
(3) Further and/or in the alternative and arising from the course of dealing between the parties the plaintiffs claim that the first named defendant is estopped from claiming that the 2008 facility is in default and consequently is estopped from appointing the second named defendant as receiver in circumstances where the plaintiffs are in full compliance with the amortisation schedule.
9. In support of its case, the plaintiffs rely upon communications between the plaintiffs and Anglo and its successors. This material is exhibited in the first affidavit of Ronan O’Byrne. The plaintiffs contend that on foot of these communications, it is clear that no representation was made to the partnership by Anglo or its successors that there was any failure to comply with the terms of the 2008 facility or that the loan was in default or that Anglo was reserving its rights in respect of the terms of the 2008 facility or seeking to rely on any non-waiver provisions in either the 2008 facility, the 2000 mortgage or the 2008 mortgage.
10. The plaintiff further relied upon two affidavits sworn by two former employees of Anglo, Mr. Murray who was employed by Anglo from 1988 until 2007 and Mr. Dowling who was employed by Anglo from 2004 to 2014. Both Mr. Murray and Mr. Dowling aver that Anglo would not have considered the 2008 facility to be in default.
11. In summary, the defendants submit that the first defendant has invoked a contractual entitlement requiring the plaintiffs to remit the rent from the secured properties in order for it to be applied towards their indebtedness. The defendants argue that a proper construction of the security documents only permits the conclusion that the plaintiffs are in default of the loan agreements. Further, that the course of dealing between the parties does not affect the defendants’ entitlement to rely upon the wording of the security documents and that the plaintiffs’ estoppel argument fails. The defendants say that the elements of estoppel; a representation, reliance and detriment are absent. They contend that a prior course of dealing cannot deprive the four written contracts; those being, the original facility, the 2000 mortgage, the 2008 facility and the 2008 mortgage of their plain and ordinary meaning. Further, that the plaintiffs have produced no evidence of an amendment of the terms; that there is no evidence to support an estoppel or a waiver and finally that the contracts expressly state that any failure to exercise a right does not operate as a waiver.
12. The defendants say that whilst the 2008 facility and 2008 mortgage largely mirror the original facility and the 2000 mortgage, that the 2008 mortgage goes further than the 2000 mortgage in that it specifically assigns the rental income from the property to Anglo. The defendants also contend that the amortisation schedule was a minimum requirement, notwithstanding that the word minimum is not reflected in the security documentation.
13. It should be noted for the purpose of this hearing that the following appears not to be in dispute:-
(i) The lending expires in 2020;
(ii) The loan is in good health;
(iii) The accepted valuation of the secure property as of November, 2014 is in the region of €13.55 million;
(iv) The outstanding debt is in the region of €6.7 million.
14. It was also accepted by the defendants during the course of submissions that the plaintiffs did not pay rent to Anglo and that Anglo acquiesced to that course of action.
15. The defendants contend that the affidavits from Mr. Murray and Mr. Dowling are inadmissible. I do not intend to determine this issue at this stage.
The Clauses
16. The various contractual provisions relied upon were opened to me and I do not intend to set them out at this juncture with the exception of the following clauses:-
(i) Clause 12.4 of the 2008 facility which provides that:
“the Borrower shall procure that all rents payable in respect of the Occupational Leases of the Property shall be paid directly by the Occupational Lessees to the Bank to be applied by the Bank in meeting the obligations of the Borrowers in accordance with para. 13.1 hereof”.
(ii) Clause 17.1 of the 2008 facility:-
“the Borrowers fail to make repayments of principal in respect of the Facilities so as to reduce the outstanding balance in accordance with the Amortisation Schedule contained in the Schedule hereto or otherwise fail to repay all or any part of the principle in respect of the Facilities within seven Business Days of the due date”.
The 2000 and the 2008 Facility each incorporate an Amortisation Schedule.
17. The plaintiffs submit as follows:
(i) That there is a fair question to be tried.
(ii) That damages are an inadequate remedy if t0he injunction is not granted and the plaintiffs ultimately succeed at trial.
(iii) That damages are an adequate remedy for the defendant should an injunction be granted and the defendants ultimately succeed at trial.
(iv) If the court is of the view that damages would not fully compensate either party the balance of convenience lies in granting the injunction and maintaining the status quo which has existed for circa the past sixteen years.
The legal principles
18. It is common case that the principles in respect of interlocutory injunctions are governed by the Supreme Court decision in Campus Oil Limited and Ors. v. Minister for Industry and Ors. (no.2) [1983] I.R. 88. These principles can be summarised as follows. The party seeking an injunction must show that there is a fair question to be tried, if so the court must then proceed to consider the adequacy of damages, if damages would not fully compensate either party, the court may then proceed to consider the balance of convenience and if all matters are equally balanced, the court should attempt to preserve the status quo.
19. An interlocutory injunction is granted to preserve the status quo pending a full determination of the issues in dispute. As such, it is temporary in nature and it is not a determination of the merits of the proceedings. The court must consider each step of the cumulative test as set out in Campus Oil and will only reach the point of assessment as to where the balance of convenience lies if the applicant has satisfied the court that damages would not be an adequate remedy. In approaching the issue as to the balance of convenience, this must be approached on the basis of attempting to achieve a solution which minimises the risk of injustice. Finally, the defendants have raised the issue of non disclosure and it is the case that if the duty of disclosure is not observed by an applicant in an application for interim relief, a court may then proceed to exercise its discretion to discharge the ex parte order and may refuse the plaintiff any further reliefs.
A fair question to be tried
20. I have already briefly summarised the plaintiffs’ and the defendants’ position on this application. Firstly, as stated above, the plaintiffs assert that having regard to the course of dealing between the parties, repayment of the facility in accordance with the amortisation schedule constitutes full compliance with their obligations. In support of this argument the plaintiffs seek to rely on a series of communications between the plaintiffs and the parties, which the plaintiffs contend indicate an acceptance of the aforementioned situation. I do not intend to detail the correspondence at this juncture. It has been accepted by the defendants that no rental income was paid to Anglo or IBRC and that Anglo acquiesced to this course of conduct. The plaintiffs further rely on the affidavits of Mr. Murray and Mr. Dowling who aver that Anglo would not have considered the 2008 facility to be in default.
21. The defendants maintain that the contracts must be strictly construed and for the plaintiffs’ argument to succeed certain clauses must in effect be ignored. Further, that it is not permissible for the plaintiffs to construe the 2008 facility by reference to the subsequent behaviour of the parties. The submission on behalf of the plaintiffs however, is that the various clauses are entirely subject to the course of dealing between the parties since the commencement of the original facility in 2000. It is submitted by the plaintiffs that the plaintiffs never arranged for the payment of rent to Anglo or IBRC and nor did Anglo or IBRC seek to require them to do so, with no account being set up into which this rental income could be paid.
22. The defendants rely upon the decision of McGovern J. in Komady Limited v. Ulster Bank Ireland Limited [2015] IEHC 314 in support of its contention that the plaintiffs cannot rely on the course of dealing, or an estoppel claim which they seek to make in these proceedings. The plaintiffs argue that the factual matrix in the instant case is entirely different to the factual matrix which applied in the Komady case and they rely upon the aforementioned correspondence between the parties which they say demonstrates a clear acceptance by Anglo and its successors of a course of dealings. They further rely on the averments in the affidavits of Mr. Dowling and Mr. Murray. Furthermore the plaintiffs argue, inter alia that the loan facility is not a demand facility; there was no requirement that accounts be opened, into which, the rents would be paid; that in Komady the plaintiffs did not adduce any material demonstrating a waiver on the part of the lender. In the instant case affidavits have been sworn by two individuals who were employees of Anglo during a substantial period of the relevant time. As regards the reservation of rights issue, the defendants assert that a reservation of rights letter was sent to the plaintiffs by Anglo on 12th July, 2011. However, it is submitted on behalf of the plaintiffs that they did not receive this letter and that the only version of this letter produced by the defendants is an unsigned copy which has been categorised as a draft document. There is therefore a conflict as regards this particular matter which is not for resolution at this stage of the proceedings. The defendants furnished a letter from Pepper Finance Corporation (Ireland) Limited (its agent) dated 3rd October, 2014 seeking to reserve its rights.
23. Whilst the plaintiffs properly accept the principles applicable to the construction of contracts, they argue that such principles must be applied in the appropriate context and that this is subject to the agreed course of dealings between the parties as established on the evidence.
The Estoppel Argument
24. In the instant case the plaintiffs further contend that arising from the course of dealing between the parties, the defendants are estopped from claiming that the 2008 facility is in default and from appointing Mr. Tennant as receiver. In this regard the plaintiffs place a heavy emphasis upon the decision of Charleton J. in National Asset Management Agency v. McMahon and Ors. [2014] IEHC 71 wherein the law of estoppel in this jurisdiction was considered in detail. Charleton J. said the following:-
“Estoppel can arise pursuant to an oral or written representation, and that is the normal situation. It can also arise by virtue of an assumption, perhaps tacit, shared by parties. In that instance, however, there must be conduct which establishes an objective state of affairs whereby the party otherwise bound by the legal relations is placed in circumstances whereby it is understood that a new state of affairs governs the relations between the parties. This clearly requires some action or behaviour or representation by the party who is to be bound by the new state of affairs. People cannot just jump to conclusions that matters must be so, with no foundation in the behaviour of the party whose rights in law are to be estopped, and then claim what is in essence an altered state of obligation. Estoppel is not based on bare assumption. Estoppel is based either on representations or on situations of behaviour that, reasonably construed, clearly withdraw or alter the strictures of legal obligations in such a way that it would be unfair to later enforce these. Where the matter is one of representation, it should be easy to identify the legal term supposedly altered and the representation directed in this regard. Where it is a matter of both parties proceeding on the basis of a common understanding, the mutual convention of the parties may suffice as a foundation for estoppel. If it is so, it is because of that common understanding. In Treitel’s The Law of Contract, 13th Ed. (London, 2011) at 3.094 the learned editor sets out the law thus:
‘Estoppel by convention may arise where both parties to a transaction “act on an assumed state of fact or law, the assumption being either shared by both or made by one and acquiesced in by the other”. The parties are then precluded from denying the truth of that assumption, if it would be unjust or “unconscionable” to allow them (or one of them) to go back on it. Such an estoppel differs from estoppel by representation and from promissory estoppel in that it does not depend on any “clear and unequivocal” representation or promise. It can arise where the assumption was based on a mistake spontaneously made by the party relying on it, and acquiesced in by the other party, though the common assumption of the parties, objectively assessed, must itself be “unambiguous and unequivocal”.’”
25. The plaintiffs submit that an estoppel by convention arises in the instant case as a result of the course of dealing between the parties, which when objectively assessed, leads to the “unambiguous and unequivocal” conclusion that there is compliance with the 2008 facility following the repayment in accordance with the amortisation schedule. A party cannot rely on an estoppel by convention, on foot of a simple empty assumption made by a party. The plaintiffs clearly contend in this instance that the plaintiffs are not moving on a bare assumption but on a course of dealings over a considerable number of years by the relevant parties.
26. It is necessary for the moving party to demonstrate that there is a fair question to be tried. This is the threshold criterion in considering an application for injunctive relief. Each case must of course be considered on its own facts. I am satisfied that the plaintiffs have demonstrated that there is a fair question to be tried.
Adequacy of Damages
27. On this aspect of matters, I must assess as to whether the plaintiffs will be adequately compensated by an award of damages for any loss suffered between the hearing of this injunction and the trial of the action, if the injunction is not granted and in the event that the plaintiffs ultimately succeed at trial. If damages would be an adequate remedy, then the interlocutory injunction must be refused. This, of course, is subject to the proviso that the defendants would be in a position to pay such damages. I am satisfied that the defendants would be able to meet an award of damages.
28. In the instant case, it is contended by the plaintiffs that damages would be extremely difficult to quantify. It is averred in the second affidavit of Mr. O’Byrne that:-
“The asset is a pension type investment of considerable quality, with scope for further development and for significant price appreciation. Measuring the value of the plaintiffs’ loss on the determination of the plenary action is not only an extremely difficult if not impossible task, it deprives the plaintiffs of the opportunity to sell the asset at a time of their choosing…”
It is the position in accordance with the Supreme Court decision of Curust Financial Services Limited v. Loewe-Lack-Werk [1994] 1 I.R. 450 that a difficulty as opposed to an impossibility should not lead a court to a conclusion that damages are an adequate remedy. The plaintiffs argue that the repayment is to be made on foot of the 2008 facility by April, 2020. They argue, therefore, that there is a limited time period between the hearing of the plenary action in these proceedings and that date. In addition, that the property is a particularly high quality asset and that it cannot be asserted with any confidence that a similar type of asset could be acquired by the plaintiffs and, therefore, the plaintiffs would be denied continued ownership of an asset and the opportunity to benefit from it.
29. Reliance is placed by the plaintiffs upon the decision of Barrett J. in Bainne Alainn Limited v. Glanbia PLC [2014] IEHC 482 where, on considering the issue as to when it will be impossible to measure damages in the context of the Curust decision, he set out three categories the third being the most apposite in my mind to this case where he stated:-
“The third is where the alleged loss can conceivably be reduced to damages but where the quantification of these damages is not capable of reasonably precise estimates. In the last regard, nothing is impossible to an accountant or an actuary: if asked to quantify a loss he or she will do so but such estimates may and sometimes will be little more than informed guesswork. In other words one will reach a point where it is possible still to quantify the amount of damages but impossible to do so with any meaningful accuracy.”
Having considered the submissions made on behalf of the plaintiffs and taking into account that the partnership is entirely solvent, I am satisfied that damages would not be an adequate remedy for the plaintiffs.
30. In those circumstances it is necessary to decide whether damages would be an adequate remedy to the defendants should the plaintiffs obtain injunctive relief but fail at the trial of the action. I am satisfied that the plaintiffs would be in a position to pay such damages in the event of such a situation arising.
31. It is contended by the plaintiffs in this regard that the defendants’ interest is in obtaining immediate repayment of the principal balance outstanding on the 2008 facility. Therefore, the plaintiffs argue that damages are an entirely adequate remedy in such circumstance. Furthermore it is submitted that any damages incurred by the defendants are easily quantifiable, being the differential between the ultimate sale price pending the determination of the proceedings and the remaining outstanding balance on the 2008 facility. The security is twice the outstanding value of the loan.
32. In light of the fact that the partnership is solvent and having regard to the aforementioned matters, I am satisfied that damages would be an adequate remedy for the defendants. Therefore, I propose to grant the injunctive relief sought.
Balance of Convenience
33. Nonetheless, I have also considered the balance of convenience in the instant case. It is the position that I must approach this issue on the basis of trying to achieve a solution which minimises the risk of injustice. It appears to me on a consideration of the evidence and the submissions made, that the balance of convenience favours maintaining the status quo and that, in the circumstances, the injunctive relief should be granted.
The allegation of material non-disclosure at the ex parte hearing
34. Allegations of non-disclosure have been made by the defendants in respect of the plaintiff in the conduct of the ex parte application for interim relief. The defendants refer to the transcript of the proceedings on the 5th October, 2015 and in particular to the undisputed fact that there was no disclosure by the plaintiffs that the plaintiffs had, two days prior to the interim application, received a payment of rental income in the region of €230,000. The argument put forward by the defence in oral submission varied somewhat from the argument set forward in written submission on this point. In effect the defendants argued that two days prior to the application for interim relief the plaintiffs had received a rental payment, of in and around, €230,000. This rent was paid on the first day of every quarter and therefore the rent was not due again for another three months. The application for interim relief was moved on the basis of urgency as is the norm in this type of situation but, the defendants argue, there cannot have been any urgency that the plaintiffs would lose the rental income because it had already been paid. This was the thrust of the defendants’ submission. It is important to look at the timeline in relation to the rental arrangement. The rental payment fell due on the first day of every quarter and was therefore paid on 1st October, 2016, the plaintiffs became aware of the deed of appointment on 4th October, 2016 and the application was moved on the Wednesday, 5th October, 2016. Therefore, the rental income was received before the plaintiffs became aware that a receiver had been appointed.
35. In the course of the application for interim relief it was indicated to the court through counsel for the plaintiffs that the receiver could seek to collect the rent and therefore alter the practice of the preceding sixteen years.
36. In Bambrick v. Cobley [2005] IEHC 43, having reviewed the relevant authorities, Clarke J. distilled the factors that the court should consider in deciding whether to exercise its discretion to set aside an ex parte order in the event of a material non-disclosure and he set them out as follows:-
“1. The materiality of the facts not disclosed.
2. The extent to which it may be said that the plaintiff is culpable in respect of a failure to disclose. A deliberate misleading of the court is likely to weigh more heavily in favour of the discretion being exercised against the continuance of an injunction than an innocent omission. There are obviously intermediate cases where the court may not be satisfied that there was a deliberate attempt to mislead but that the plaintiff was, nonetheless, significantly culpable in failing to disclose.
3. The overall circumstances of the case which lead to the application in the first place.”
I consider the following to be relevant:-
(i) In the affidavit of Ronan O’Byrne, his concluding averments do not make any reference to a concern regarding the collection of rents.
(ii) On a consideration of the transcript dated 5th October, 2016, the first concern voiced by Mr. Fanning S.C. on behalf of the plaintiffs was that the receiver would conduct an overnight sale which would be hugely detrimental in his submission to the members of the partnership. The reference to a concern regarding the rents comes about in the latter stages of the application.
It is indeed the position that parties must be scrupulous in ensuring accuracy in all applications and this is of particular moment in an application for interim relief. I am not satisfied that the failure to disclose that rental income had been received amounts to a material fact. The rental income received seems to me to be pertinent only towards the urgency of the application. The real concern was the possibility of the sale of the secured properties.
Conclusion
37. On the basis of the undertaking as to damages I will grant an order in terms of paragraph 1 of the notice of motion.
38. I do not see that it is necessary that the undertakings as given to McGovern J. continue, that is, that the rents and income generated by the secured properties be held in escrow pending the determination of the proceedings or until further order. The market value of the secured property is twice the value of the outstanding debt. The debt continues to be paid.
Freeman -v- Bank of Scotland PLC & ors
[2016] IESC 14 (15 March 2016)
Judgment of Ms. Justice Dunne delivered the 15th day of March 2016
Introduction
This is an appeal from a judgment of the High Court (McGovern J.) delivered on 29th May, 2014 ([2014] IEHC 284) wherein the learned High Court judge dismissed the claim brought by the plaintiffs/appellants (“the Appellants”) on the basis that the Appellants had failed to prove their case against the defendants/respondents (“the Respondents”) on any of the issues before the High Court.
Background and procedural history
The background to this matter is described in the judgment of the learned trial judge but it would be of assistance to set out the background here. The Appellants are husband and wife. Between 1996 and 2006 they purchased six investment properties with finance provided by First Active Building Society (“the Society”). By way of security for the finance provided, the Appellants entered into mortgages in favour of the Society.
In 2006 the Appellants refinanced their borrowings with the Society by means of a loan from Bank of Scotland (Ireland) Limited (“BOSI”). The six investment properties were re-mortgaged with BOSI as security for the sum of €1,406,000 approximately provided by BOSI. The borrowings of the Appellants with the Society amounted to approximately €800,000 at that time and that sum was discharged on the refinancing of their borrowings with BOSI. Following the discharge of their borrowings with the Society, a surplus of €600,000 approximately was released to the Appellants.
By deed of mortgage and charge dated the 5th January, 2007 (“the Charge”) the Appellants granted a first legal charge over the property (described in the schedule to the Charge and comprising the six houses at issue in these proceedings) being the land and premises at:
(1) 52, Huntstown Drive, Blanchardstown, Dublin, 15 (Folio 26512F, County Dublin);
(2) 27, Willowood Lawn, Blanchardstown, Dublin, 15 (Folio 61206F, County Dublin);
(3) 55, Huntstown Wood, Blanchardstown, Dublin, 15 (Folio 3413F, County Dublin);
(4) 15, Ventry Drive, Cabra, Dublin 7 (Folio 53190L, County Dublin);
(5) 23, Dunsink Green, Finglas, Dublin 11 (Folio 13478L, County Dublin); and
(6) 1, Drumcliffe Drive, Cabra, Dublin, 7 (Folio 42656F, County Dublin).
The loans provided by BOSI were for a period of twenty years and the loans were described as interest only.
On the 31st December, 2010, BOSI was the subject of a cross-border merger with Bank of Scotland Plc (“the Bank”) by virtue of which all the assets and liabilities of BOSI transferred to the Bank. The Appellants defaulted on the loan facilities granted to them by BOSI and failed to repay the sums due when demanded. On the 17th November, 2011, the second named respondent (“the Receiver”) was appointed by the Bank as receiver over the above mentioned properties of the Appellants. The third named respondent was appointed to sell the assets comprising of the six properties referred to above.
On the 28th August, 2012, the Appellants commenced High Court proceedings in which they sought, inter alia, to invalidate the appointment of the Receiver. The Respondents brought an application to dismiss the Appellants’ claim as frivolous, vexatious and bound to fail. The High Court (Gilligan J.) in a judgment delivered on 31st May, 2013 ([2013] IEHC 371) dismissed the Appellants’ claim save for two issues, namely “the issues raised by the [Appellants] in relation to securitisation and alleged non-compliance with Central Bank codes”. Other heads of claim were struck out and the Appellants were directed to deliver an amended statement of claim. There were various amended statements of claim but for the purposes of these proceedings the relevant statement of claim is that amended pursuant to the order of Gilligan J. referred to above and dated the 21st January, 2014. At that stage the position was that three issues were permitted to go forward by Gilligan J. Those were the issues of securitisation and alleged non-compliance with Central Bank codes as provided for in the judgment of Gilligan J. of the 31st May, 2013. In addition, by his order made on the 21st January, 2014, the Appellants were granted liberty to amend their pleadings to include a pleading that were it not for an error in interest applied to the account – which error was corrected by the Bank and the amount overcharged refunded with interest – the Appellants would not have defaulted on their loans. Thus, at that time, there were three issues to be determined in the trial. Subsequently, in submissions delivered to the Respondents shortly before the commencement of the trial, the Appellants raised a further issue in relation to the effect of s. 64 and s. 90 of the Registration of Title Act 1964 (“the Act of 1964”). Initially, the Respondents objected to this issue being raised given that it was not permitted to be raised by Gilligan J. and because it had not been pleaded. However, when the matter came on for trial before McGovern J., the Respondents withdrew their objection and the matter was considered and dealt with by McGovern J. Accordingly, there were four issues before McGovern J. to be considered, namely:
(1) the issue of securitisation;
(2) the alleged breach of the Central Bank Codes of Practice;
(3) the effect of s. 64 and s. 90 of the Act of 1964; and
(4) whether the error in interest calculation and consequent overcharging caused or contributed to the default of the Appellants on their loans.
Judgment of the High Court
It was contended by the Appellants that the Bank was not entitled to enforce loans that were securitised and in particular to enforce the Charge granted by the Appellants as security for such loans. Five of the Appellants’ loans were securitised. Two were removed from the pool of securitised loans on the 16th November, 2011 prior to the appointment of the Receiver and the remaining loans were purchased from the special purpose vehicle used for the securitisation of loans on the 5th November, 2013. The Appellants did not dispute that the loans were in default and the learned trial judge was satisfied that more than one “event of default” as defined in the terms and conditions applicable to the loans had taken place. He was also satisfied that the evidence established that the Appellants in accepting the loans signed documents in which they agreed to BOSI securitising the loans. McGovern J. concluded that the securitisation of the loans was properly effected and did not in any way alter the obligations of the Appellants so far as the repayment of the loans was concerned. He further concluded that following the cross-border merger the Bank stood in the position of BOSI. He concluded that as the legal title in the Charge of the properties is held by the Bank, the Bank was the proper body to appoint a receiver and could rely on the contractual power to do so which was formerly vested in BOSI. Accordingly he rejected the Appellants’ claim that the Bank was not entitled to appoint a receiver either by reason of the cross-border merger issue or the securitisation issue.
As no issue was raised by the Appellants in their appeal in relation to the alleged breach of the Central Bank Codes of Practice and the error in interest calculation and consequent overcharging, it is not necessary to consider those issues further.
The final issue raised before the High Court concerned the interpretation of the Act of 1964. Two issues were raised by the Appellants in respect of the Act of 1964. It was contended by the Appellants that the Receiver was not appointed by the registered owner of the Charge, BOSI. BOSI was still registered as the owner of the Charge at the time of the appointment of the Receiver although the cross-border merger had taken place at that time resulting in the dissolution of BOSI. The argument was made that there had been no registration of the transfer of the rights and powers of BOSI to the Bank and that consequently the appointment of the Receiver was invalid. The Bank contended that the transfer was effected by operation of law in accordance with the Cross-Border Merger Directive (05/56/EC) which was given effect in this jurisdiction by the European Communities (Cross-Border) Mergers Regulations 2008 (S.I. 157 of 2008). The learned trial judge concluded that there was no requirement to execute an instrument of transfer in this case as the transfer occurred by operation of the law. He concluded (at para. 26):
“Section 90 of the Registration of Title Act 1964 is limited to circumstances where ‘by reason of an instrument of transfer’ a transfer is made. As there is no such instrument of transfer, s. 90 has no application.”
The second issue raised concerned the approach of the Property Registration Authority which had issued an Office Notice 1/2011 stating that discharges by Bank of Scotland (the Bank) of BOSI charges will be acted upon as if the charge was registered by the Bank. The learned trial judge rejected the arguments of the Appellants that it was not permissible for the Bank to act on foot of the Charge as though it, the Bank, was the registered owner of the Charge. (Emphasis added)
Accordingly the learned trial judge dismissed the claim brought by the Appellants on the issues before him.
Kavanagh and Bank of Scotland Plc v. McLaughlin & Anor.
It should be said at the outset that the issue of the cross-border merger raised in this appeal is identical to that considered by this Court (Clarke J., Laffoy J. and Dunne J.) in the case of Kavanagh and Bank of Scotland Plc v. McLaughlin & Anor. ([2015] IESC 27) (Kavanagh v. McLaughlin) concerning, as it does, the same cross border merger. An argument had been made in that case about the treatment of security for the purpose of considering the effect of a cross-border merger. Clarke J. said in the course of his judgment at para. 6.20:
“As previously indicated, a result of the proper interpretation of the Directive and the Irish Regulations which led to the conclusion that an extremely important part of the practical business of a lending institution (and, indeed other companies) was not to be transferred in the context of a cross-border merger would be highly surprising. Such an interpretation could only be reached if there was clear wording in the body of the relevant measures which could lead only to an interpretation which had that effect. On the contrary, an analysis of the meaning of the term ‘asset’ leads to the conclusion that it clearly includes security backing up loans, which loans themselves are part of the assets of the relevant lending institution. The security has the potential to have a significant effect on the value of those loans. It is, in that context, clearly an asset. The company is better off with the security than it would be if it had not security in place. For those reasons I am satisfied that it is absolutely clear that, amongst the assets which passed from BOSI to BOS on the cross-border merger coming into effect, was whatever security BOSI held in respect of loans which were transferred at that time.”
Clarke J. continued at para. 6.24 as follows:
“While, for the reasons already analysed, there is no specific mention of security as a separate line in the balance sheet contained in the common draft terms, nonetheless the availability of security has an effect on that balance sheet by virtue of reducing the extent to which it is necessary to make provision against non-performing loans. The fact that the relevant loans are secured has, therefore, an effect on that valuation by potentially reducing the provision which needs to be made in respect of non-performing loans. Even if, therefore, it were necessary to interpret the term ‘assets’ by reference to the common draft terms, that would not exclude securities from being properly considered to be assets, for security affects the valuation of non-performing secured loans. In making that point, I should not be taken to accept, in any event, that it is necessarily appropriate to interpret the term ‘assets’ by reference to the common draft terms. The purpose of the inclusion of an assessment of the assets of a company in those terms is to provide a valuation rather than to list the assets themselves. There is nothing, therefore, in my view, to suggest that the common draft terms could alter the clear statutory language contained in the Directive which is to the effect that ‘all assets’ are to be transferred.”
The decision of this Court in Kavanagh v. McLaughlin makes it clear that the cross-border merger had the effect of transferring the Charge held by BOSI to the Bank together with the underlying loan contracts. Thus, the cross-border merger issue cannot give rise to any basis for invalidating the appointment of the receiver in this case.
A judgment was also delivered by Laffoy J. in Kavanagh v. McLaughlin dealing principally with issues arising in relation to the validity of the appointment of a receiver in circumstances where the Bank was not registered as owner of the relevant charge in that case following the transfer of assets from BOSI to the Bank effected by the cross-border merger which took place on the 31st December, 2010. The judgment of Laffoy J. in Kavanagh v. McLaughlin was relied on by the Appellants to argue that the non-registration of the Bank as owner of the Charge meant that the second named respondent’s appointment as Receiver was not valid and that the subsequent actions of the Receiver do not have the effect of depriving the Appellants of their ownership of the six properties.
Office Notice 1/2011 issued by the Property Registration Authority was considered in Kavanagh v McLaughlin. In the course of the hearing before the High Court in that case, evidence had been given by Mr. Murphy from the Property Registration Authority as to the Authority’s understanding of the consequences of the cross-border merger. He confirmed that the interim Chief Executive of the Property Registration Authority had written to the solicitors on record for the Receiver and the Bank in the following terms as set out at para. 13 of the judgment of Laffoy J:
“I confirm that as a consequence of the merger of [BOSI] with [BOS] and in accordance with Regulation 19(1)(g) and (h) all mortgages registered with PRA to which BOSI is a party should be construed as if BOS had been a party thereto and all references to BOSI should be construed as references to BOS.
It is confirmed that BOS is in the same position as a transferee in s. 64(4) of the Registration of Title Act in relation to BOSI mortgages and purchasers and receivers appointed by BOS pursuant to BOSI charges will be registered without any requirement for re-registration of BOS.”
It was contended by the McLaughlins in that case that the enforcement of the 2006 charge against the McLaughlins was not possible in the absence of the registration of BOS as the owner of the charge. In that context Laffoy J. considered a number of the provisions of the Act of 1964. Thus at para. 23 et seq. of the judgment she stated:
“23. The provisions of the Act of 1964 which govern charges are principally contained in ss. 62 to 67 inclusive. Some of those provisions have been amended by the Land and Conveyancing Law Reform Act 2009 (the Act of 2009), which was in force when the cross-border merger took place just before midnight on 31st December, 2010.
24. Section 62 deals with the creation and effect of a charge on registered land. Sub-section (1) provides that a registered owner may, subject to the provisions of the Act of 1964, charge the land with payment of money and it further provides that ‘the owner of the charge shall be registered as such’. Sub-section (2), which has been amended by the Act of 2009, deals with the form of the charge and also provides that ‘until the owner of the charge is registered as such, the instrument shall not confer on the owner of the charge any interest in land’. Sub-section (6) is the provision which is of most significance for present purposes. In its original form it provided:
‘On registration of the owner of a charge on land for the repayment of any principal sum of money …, the instrument of charge shall operate as a mortgage by deed within the meaning of the Conveyancing Acts, and the registered owner of the charge shall, for the purpose of enforcing his charge, have all the rights and powers of a mortgagee under a mortgage by deed, including the power to sell the estate or interest which is subject to the charge.’
The Act of 2009 amended that provision and substituted –
(a) for the words ‘mortgage by deed within the meaning of the Conveyancing Acts’, the words ‘legal mortgage under Part 10 of the [Act of 2009]’; and
(b) for the words ‘under a mortgage by deed’, the words under such a mortgage.
The important point to be noted in relation to subs. (6) is that the power to enforce a charge is conferred on ‘the registered owner of the charge’. The consequences of a sale of registered land the subject of a charge by the registered owner of the charge are set out in subsequent provisions of s. 62 (subs. (9) and (10), in particular). Such consequences are dependent on the land being sold and transferred by the registered owner of the charge.
25. Section 64 deals with the transfer of a charge. Sub-section (1) empowers the registered owner of a charge to transfer the charge to another person as the owner thereof, and provides that the transferee shall be registered as the owner of the charge. Sub-section (2), which has been amended by the Act of 2009, stipulates the form of the transfer but also, consistent with s. 62(2), it provides that ‘until the transferee is registered as owner of the charge, that instrument shall not confer on the transferee any interest in the charge’.”
Laffoy J. then went on to consider the validity of the receiver in that case and said at para. 27:
“27. Bearing in mind that the only issue which was determined in the High Court and, consequently, the only issue which arises on the appeal, in relation to enforcement of the securities given by the McLaughlins to BOSI which are now vested in BOS is whether BOS was entitled to appoint the Receiver, it is appropriate to consider that issue first by reference to the narrow argument advanced on behalf of BOS and the Receiver, namely, that BOS had a contractual entitlement to appoint a receiver independently of the provisions of the Act of 1964. Having regard to the terms of Clause 9.1 of the 2006 Charge, which has been quoted earlier, as a matter of contract between BOS, a successor in title of BOSI, and the McLaughlins, BOS unquestionably had power to appoint a receiver independently of the powers conferred by the Act of 1964. There is nothing in the Act of 1964 which limits or restricts the contractual power to appoint a receiver once it is exercisable. Accordingly, I am satisfied that the fact that BOS is not registered on the relevant folio as the owner of the 2006 Charge did not prevent it appointing the Receiver as Receiver over the registered property secured by that charge. To the extent that the fact that BOS was not registered as owner of the 2006 Charge forms the basis of the argument that the Receiver was not validly appointed, the McLaughlins fail in their appeal against the finding of the trial judge that their arguments in relation to non-registration of the charges failed to establish that the Receiver was not validly appointed. However, that conclusion goes no further than affirmation that the Receiver was validly appointed. It does not address how the Receiver might make title to the registered property the subject of the 2006 Charge, if he decided to sell that property, nor does it address whether BOS could effectively exercise its power of sale and give good title to a purchaser without being registered as owner of the charge.”
Laffoy J. referred in the course of that passage to Clause 9.1 of the 2006 Charge and earlier in the judgment she described the terms of Clause 9.1. Clause 9.1 is similar in its terms to Clause 8 of the Home Loan Mortgage Conditions attached to the Charge in this appeal. There is no difference in substance between Clause 9.1 referred to in the judgment of Laffoy J. in the case of Kavaghan v. McLaughlin and Clause 8 of the Charge, the subject of this appeal, as was conceded by Counsel for the Appellants, Mr. Hogan, S.C.
The Appeal
Mr. Hogan, S.C., on behalf of the Appellants, made it clear that the sole issue in the case so far as he was concerned related to the validity of the appointment of the Receiver. He relied heavily on the judgment of Laffoy J. in Kavanagh v. McLaughlin.
Insofar as the issue of securitisation was concerned it seems to me that Mr. Hogan on the appeal appeared to make a somewhat different point than had been made in the High Court. In the High Court, as recited in the judgment of McGovern J., (see para. 7) the Appellants had argued that the Bank was not entitled to enforce loans that were securitised, and in particular to enforce any mortgage or charge granted by the Appellants as security for such loans. McGovern J. explained the process by which the loans were securitised. On the 30th November, 2008, BOSI sold its legal and beneficial interest in a series of loans and their related security comprising the portfolio to a special purpose vehicle (SPV) pursuant to the terms of a mortgage sale agreement. It was found by McGovern J. that the sale by BOSI to the Issuer of the loans by way of securitisation was effected by way of equitable assignment. The completion of the transfer or conveyance of the loans and related security (and where appropriate, their registration) to the Issuer was deferred. Accordingly, it was found that the legal title to the loans and related security remained with BOSI until the completion of the transfers to the issuer and notification of the transfers being given to the borrower. McGovern J. observed that such transfers would only be completed and notifications given in the circumstances provided for in the mortgage sale agreement between BOSI and the special purpose Issuer. No such event had occurred and the assignment of each of the Appellants’ loans and related security was effected in equity only. It was noted that the security transaction was completed on the 5th November, 2013 when the Bank repurchased the special purpose vehicle’s interest in the securitised loans and relevant securities. Accordingly, McGovern J. concluded that the securitisation of the loans did not affect the entitlement of the Bank to appoint a Receiver.
Before this court, Counsel on behalf of the Appellants stated that insofar as the issue of securitisation was concerned the point being made was that for the Bank to be entitled to appoint a receiver, the transfers effected by the securitisation agreement should have been registered in accordance with the provisions of the Act of 1964 and even though the assignment of each of the Appellants’ loans and related security was effected in equity only, as equitable rights cannot be effected without registration in accordance with s. 68 of the Act of 1964, any rights in relation to those loans which had been securitised could not be effected without registration.
It should be borne in mind that the Appellants agreed by the terms of the Mortgage to the securitisation of the loans by BOSI, such securitisation having been described by McGovern J. at p. 7 of his judgment, quoting from Wellstead v Judge Michael White [2011] IEHC 438, :
“It is typical of such securitisation schemes that the original lender will retain under the scheme, by agreement with the transferee, the obligation to enforce the security and account to the transferee in due course upon recovery from the mortgagors.”
As is clear from the decision in Kavanagh v. McLaughlin, the non registration of the Bank as the owner of the charge following the cross border merger did not affect the contractual entitlement to appoint a receiver. I cannot see any reason to disagree with the approach taken by McGovern J. in the High Court or any basis upon which the non registration of the transfers effected by the securitisation agreement could have affected the contractual entitlement to appoint a receiver by reason of s.68 of the Act of 1964 or otherwise.
As pointed out earlier, the Appellants have throughout these proceedings maintained that the appointment of the Receiver was invalid by reason of the cross-border merger, the securitisation of the loans and the non-registration of the Bank as the owner of the Charge in accordance with the provisions of the Act of 1964. As is clear from the judgments in Kavanagh v. McLaughlin, those arguments cannot succeed. The Bank, following the cross border merger was the entity entitled to appoint a receiver and that entitlement was not affected by the securitisation of the loans or the non-registration of the Bank as the owner of the Charge.
That has led to a somewhat different argument being put forward by Mr. Hogan in reliance on the judgment of Laffoy J. in Kavanagh v. McLaughlin. He pointed out that the six properties at issue have been sold by the Receiver, unlike the situation in Kavanagh v. McLaughlin, where no sale had taken place. Four of the properties were sold by August 2012 and the purchasers of those properties have been registered as owners in accordance with the practice of the Property Registration Authority outlined in the testimony of Mr. Murphy referred to in the judgment of Laffoy J. in Kavanagh v. McLaughlin. The purchasers of the last two properties are awaiting registration, pending further consideration of the judgment of Laffoy J.
It was argued on behalf of the Appellants that the sale of the properties could potentially create a liability on the part of the Appellants to the purchasers of the properties, given that the Receiver is the agent of the mortgagors in accordance with the terms of the Charge, in the event of any claim being made by the purchasers because of any deficiency in the title of the purchasers by virtue of the non-registration of the Bank as the owner of the charge. On that basis, it is contended that as such a potential liability was never contemplated by the parties to the Charge, the Charge is void or non est factum and consequently, the appointment of the Receiver is invalid.
The provisions of the Act of 1964 are central to the arguments of the Appellants. For that reason, it would be helpful to set out the relevant provisions of s. 62 of the Act of 1964 as originally enacted:
“(6) On registration of the owner of a charge on land for the repayment of any principal sum of money with or without interest, the instrument of charge shall operate as a mortgage by deed within the meaning of the Conveyancing Acts, and the registered owner of the charge shall, for the purpose of enforcing his charge, have all the rights and powers of a mortgagee under a mortgage by deed, including the power to sell the estate or interest which is subject to the charge.
(9) If the registered owner of a charge on land sells the land in pursuance of the powers referred to in subsection (6), his transferee shall be registered as owner of the land, and thereupon the registration shall have the same effect as registration on a transfer for valuable consideration by a registered owner.
(10) When a transferee from the registered owner of the charge is registered, under subsection (9), as owner of the land, the charge and all estates, interests, burdens and entries puisne to the charge shall be discharged.
(11) When it is expressed in the instrument of charge that any person covenants for repayment of the principal sum charged, there shall be implied a covenant by that person with the registered owner for the time being of the charge to pay the sum charged and interest (if any) thereon at the time and rate specified in the instrument of charge, and also a covenant, if the sum or any part thereof is unpaid at the time so specified, to pay interest half-yearly at the specified rate on so much of the principal sum as for the time being remains unpaid.”
As Laffoy J. observed in para. 27 of her judgment in Kavanagh v. McLaughlin, the non-registration of the charges did not establish that the receiver was not validly appointed but that conclusion did not address how the receiver could make title to property if he decided to sell that property nor did it address whether the Bank in that case could effectively exercise its power of sale and give good title to a purchaser without being registered as owner of the charge. She then expressly addressed the issue as to whether or not the approach of the Property Registration Authority described by Mr. Murphy in his evidence in that case was correct. At para. 29 of her judgment she said:
“The relevant provisions of s. 62 and s. 64 of the Act of 1964 which apply to the enforcement of a charge over registered land are mandatory. In s. 62(2), it is expressly provided that an instrument such as the 2006 Charge ‘shall not confer’ on the owner of the charge any interest in the land until the owner is registered as such. Similarly, in the case of the transfer of a charge, subs. (2) of s. 64 provides that the instrument of transfer ‘shall not confer’ on the transferee any interest in the charge until the transferee is registered as owner of the charge. While that provision is not of relevance in this case because the transfer took effect by operation of law, it is consistent with the crucial requirement for enforcement of a charge on registered land imposed by an Act of the Oireachtas. That requirement is contained in subs. (6) of s. 62 and it is that the owner of the charge be registered as such and, when registered, subs. (6) provides that the owner ‘shall, for the purpose of enforcing his charge, have all the rights and powers of a mortgagee’. Insofar as BOS has not applied to be substituted for BOSI on the relevant folios in accordance with para. (4) of Legal Office Notice No. 1/2011, it is BOSI which is registered on the relevant folios as the owner of the charges on registered land transferred to BOS with effect from just before midnight on 31st December, 2010. BOS is not registered as owner of the said charges and, accordingly, in my view, BOS does not meet the requirement of s. 62(6) and cannot exercise the powers conferred by that sub-section or avail of the protections afforded by subs. (9) and (10) of s. 62.”
Laffoy J. continued at para. 30:
“Further, in my view, neither the invocation of sub-paragraphs (g) and (h) of Regulation 19(1) of the Irish Regulations, nor the corresponding provisions of the U.K. Regulations nor any provision of the Directive, obviates the mandatory statutory requirement of registration as owner of the charge before the powers and protections afforded by s. 62 can be availed of.”
She added:
“However, the special formalities required by the law of this jurisdiction to enforce the security must be complied with in accordance with paragraph (2).”
She contrasted the position with other legislation which related to transfers effected by operation of law such as those to be found in, for example, the National Asset Management Agency Act 2009 which provides in s. 107(1):
“Where a bank asset has been acquired by NAMA or a NAMA group entity –
(a) notwithstanding anything in any Act listed in subsection (2) or any other Act that provides for the registration of assets, security or details of them, NAMA or the NAMA group entity is not required to become registered as owner of any security that is part of the bank asset,
(b) notwithstanding sections 62 and 64 of the Registration of Title Act 1964, NAMA or the NAMA group entity has, in relation to any such charge, the powers of a mortgagee under a mortgage by deed, even though NAMA or the NAMA group entity is not registered as owner of any such charge,
(c) NAMA or the NAMA group entity has the powers and rights conferred on the registered owner of a charge by the Registration of Title Act 1964.”
In the case of cross-border merger regulations there is no similar provision. Accordingly Laffoy J. concluded at para. 35:
“Having regard to the foregoing, I am satisfied that, absent any specific statutory provision relieving BOS from the mandatory obligation of becoming registered as owner of a charge in respect of which it wishes to exercise any of the powers conferred, or to avail of any of the protections afforded, by s. 62 of the Act of 1964, it must become registered as the owner of the relevant charge on the relevant folio, if it wishes to exercise the statutory powers conferred by the Act of 1964.”
What then are the consequences of the non-registration of the Bank as the owner of the charge for the exercise of the power of sale? As pointed out above, four of the properties have been sold and the transferees of those properties have been registered as owners. Further, the proceeds of sale have been returned to the Bank by the Receiver. Despite the fact that those transferees have been registered as owners of the properties, can it be said that the charge has been discharged given that the transferee is not a transferee from the registered owner in accordance with s.62(10)?
Both sides in the course of their submissions made reference to the decision in the case of In re Strong [1940] I.R. 382 (In re Strong) in which the Supreme Court considered s. 35(2) of the Local Registration of Title (Ireland) Act, 1891 (‘the Act of 1891’) which corresponds with s. 62(2) of the Act of 1964. In that case a purchaser for value paid over the entire purchase money and the transfer was delivered. Subsequently, a judgment mortgage was registered against the vendor’s interest before registration of the transfer for value. O’Byrne J. delivered the judgment on behalf of the majority in that case stating (at p. 407):
“It was contended by Mr. Roe and Mr. Newett that the effect of s. 35 is to keep the entire estate and interest in the lands in the transferor until the registration of the transfer. Sub-sect. 2 of that section provides that: ‘Until the transferee is registered as owner of the land transferred that instrument [i.e., the transfer] shall not confer on the transferee any estate in the lands.’
In my opinion the foregoing provision deals only with the effect of the transfer and operates so as to prevent any estate or interest being conveyed by the transfer until registration. It would, in my opinion, be going beyond the provisions of the section and would be inconsistent with s. 44, sub-s. 2, to hold that no unregistered right can be created in the registered land. It is not the transfer which is relied upon by the appellant but the contract for purchase, coupled with the payment of the purchase money.”
Reliance was placed in the course of the judgment in that case on the decision in Devoy v. Hanlon [1929] I.R. 246 in which Murnaghan J., at page 262 of his judgment, observed in relation to s. 44, subs. (2) of the Act of 1891 as follows:
“This section, therefore, makes it clear that the registered owner can by an unregistered disposition create an estate in registered land which will be valid as against the owner of the land.”
He went on to observe at page 263:
“The Act therefore provides for the recognition of rights, including estates, which do not appear on the register. Such rights are valid against the registered owner creating them, against a voluntary transferee from the registered owner, and against everyone claiming through a voluntary transferee where the person so claiming has not given valuable consideration.”
Mr. Hogan in his arguments had relied on the minority judgment of Meredith J. in In re Strong and the statement made by him at page 400 that:
“The neglect or failure of the purchaser to do what, under the statute, was necessary to effect a transfer of the legal estate did not preserve any equity in him.”
Thus Mr. Hogan contended that the Bank was in the same position as the purchaser in In re Strong. The comment of Meredith J. was made in the course of a minority judgment in that case and as such I fail to see how it can avail the Appellants, having regard to the contents of the majority judgments in that case. It is clear from those authorities that the non-registration of the Bank as owner of the Charge does not prevent a subsequent purchaser of property from the Receiver appointed by the Bank from obtaining an estate or interest which will be valid against the owner of the Charge. Obviously, there would be a problem in having their transfer registered by virtue of the fact that the owner of the charge was not registered, as identified by Laffoy J.
Given that the Receiver is stated in the Charge to be the agent of the mortgagors, it was argued on behalf of the Appellants that the inability of the transferees to register their transfers could give rise to a potential liability on the part of the Appellants in relation to the title given. This was the basis on which it was contended that the Charge was “non est factum” as such a potential liability was never contemplated by the parties. The basis of a plea of non est factum is described by McDermott, Contract Law, (Dublin, 2001), at paragraph 12.153 as follows:
“In Tedcastle McCormack & Company Ltd. v. McCrystal Morris J. held that a person seeking to raise the defence of ‘non est factum’ must prove:
(i) that there was a radical or fundamental difference between what he signed and what he thought he was signing;
(ii) that the mistake was as to the general character of the document as opposed to the legal effect; and
(iii) that there was a lack of negligence, i.e. that he took all reasonable precautions in the circumstances to find out what the document was.”
Of course, the fundamental point is that the person relying on a defence of non est factum must be in a position to show that the document they signed is fundamentally different in substance or in kind to that which they thought they were signing. That clearly is not the case here. The fact that there is the possibility of a potential liability on the part of the Appellants, however remote that may be, does not in any way give rise to the contention that the Charge is non est factum in circumstances where the Appellants quite clearly must have known and understood the nature of the document that they were signing. It was never suggested otherwise when the matter was heard in the High Court. In any event, such a defence simply does not arise in the circumstances of this case.
During the course of argument, Mr. Gallagher, S.C., on behalf of the Bank, conceded that there was, as he put it, “a blot” on the title of the transferees of the properties sold by the Receiver. Nonetheless he contended that this was of no benefit to the Appellants. I agree. If transferees of the four properties already registered have a problem with their title, and they may or may not, their recourse will be to the Receiver and the Bank. Nevertheless, given that they have been registered as owners of the properties concerned and bearing in mind the conclusiveness of the Register, (See s.31 of the Act of 1964), it is difficult to imagine that the transferees could have any problem with their title. Consequently, there should be no problem for the Appellants in this regard.
It is also important to bear in mind that it is still possible at this stage for the Bank to be registered as owner of the Charge in order to ensure that the two remaining transferees of the properties can have their transfers registered enabling them to be registered as owners. As a matter of practicality I do not see how those transferees can be registered as owners having regard to the judgment of Laffoy J. unless and until the Bank is registered as owner of the Charge. This should be done forthwith. I would expect that in the event that any of the four transferees who have already been registered as owners with the Property Registration Authority have any difficulties with their title, however unlikely that may be, the Bank would take the necessary steps to perfect the transferees’ title.
I find it impossible to see how the possible potential difficulty in conferring good title on the transferees can in any way invalidate the appointment of the Receiver or the validity of the Charge. Quite simply the problem that has now arisen by virtue of the non-registration of the Charge is one that affects the Bank and potential transferees but not the Appellants. Looking back once more at the provisions of s. 62(9) of the Act of 1964 it provides:
“If the registered owner of a charge on land sells the land in pursuance of the powers referred to in subssection (6), his transferee shall be registered as owner of the land and thereupon the registration shall have the same effect as registration on a transfer for valuable consideration by a registered owner.”
The Bank is not the registered owner of the Charge on the land. Even though the Bank can sell its interest in the property and any such sale will be binding as between the Bank and the purchaser, it is not possible for a transferee of the property to be registered as owner of the property until such time as the Bank is registered as owner of the Charge. The provisions of s. 62(10) provide that once the transferee is registered, the Charge shall be discharged and clearly that cannot occur until such time as the owner of the Charge selling the land is registered as owner of the Charge, thereby enabling the transferee to be registered but the non registration of the Bank does not vitiate or invalidate the appointment of the Receiver. It simply creates a problem for the transferees of the properties concerned in perfecting their title. In the event that any transferee sought a remedy directly against the Appellants arising out of the problem caused by the non-registration of the Bank, it is inconceivable that the Appellants would not have a remedy against the Bank for any potential liability that they could have. To suggest that the remote possibility of a transferee claiming that the Appellants have any liability for the “blot” on their title such that the charge is rendered void or “non est factum” is simply not credible. The remote possibility that such liability could be asserted does not in my view have any bearing whatsoever on the validity of the appointment of the Receiver.
In all the circumstances of this case, I would dismiss the appeal.
Murphy & anor -v- Neill
[2017] IEHC 734 (06 December 2017)
EX TEMPORE JUDGMENT of Mr. Justice Twomey delivered on 6th December, 2017
Summary
1. This case involves a claim by Mr. Neill, a business man, that he should not have to give up possession of a property in Baltimore, County Cork which he gave as security for a bank’s loan to him of €2,000,000. In these interlocutory proceedings, Mr. Neill is seeking to have a trial on two preliminary points of law before the hearing of the substantive matter. For the reasons set out below, Mr. Neill’s application is rejected by this Court.
2. Costs of these unsuccessful proceedings are being awarded against Mr. Neill. Furthermore the application to have that costs order stayed until the resolution of the substantive hearing is rejected on the grounds that that it is important in interlocutory applications that are unsuccessful, that litigants appreciate the level of costs involved in High Court litigation and the fact that there is a risk of those costs being awarded against them. This is preferable to having the costs deferred until the resolution of the whole litigation which can be many years later, particularly if there is an appeal, since the level of costs may then only be fully appreciated by litigants when it is too late.
Factual background
3. In this case, the plaintiffs are joint receivers (“the Receivers”) of a property at the Grainery, Baltimore, County Cork (“the property”), which is owned by the defendant. The Receivers are seeking possession of that property.
4. Mr. Neill borrowed €2,000,000 from Bank of Ireland on the security of the property and has failed to repay that loan. He now seeks to dispute the right of the Receivers to the possession of that property.
5. There are two motions before this Court brought by the defendant in which he seeks a trial on two preliminary points of law pursuant to Order 34 of the RSC, namely whether this Court has jurisdiction to enter upon these proceedings since they are claimed to concern a property which is subject to a housing loan and also whether the plaintiffs have locus standi to bring these proceedings pursuant to the relevant mortgage, a Mortgage dated 24th August, 2010.
6. Under Order 34, if there is any question of law which the Court determines it is convenient to have decided before evidence is given or any question or issue of fact is tried, it may make an order accordingly.It is clear therefore that there must not be any factual dispute which impacts upon the preliminary issue to be tried before this Court can make an order for a trial of that preliminary issue.
7. In relation to the first preliminary point, the defendant relies upon s. 3 of the Land and Conveyancing Reform Act, 2009, to claim that the loan in this case is a housing loan and therefore subject to the jurisdiction of the Circuit Court, rather than the High Court. The 2004 Act defines a housing loan as follows:
“an agreement for the provision of credit to a person on the security of a mortgage of a freehold or leasehold estate or interest in land on which a house is constructed where the house is to be used or to continue to be used as the principal residence of the person or the person’s dependants.”
8. It is common case that the mortgaged property in this case was not “to continue to be used” as a principal residence by Mr. Neill at the time of the loan facility letter on the 24th June, 2008, since it was not used at that time as a principal residence of Mr. Neill.
9. Equally, no evidence was produced to this Court to indicate that at that time the intention of Mr. Neill was that it was “to be used” as his principal residence. For their part, the plaintiffs have claimed that at the time of the loan in 2008, Mr. Neill made representations that he was not resident in Ireland for tax purposes, but was resident in Gibraltar.
10. It is particularly significant that the facility letter itself is addressed to Mr. Neill at an address in Lisburn, Northern Ireland and the loan is described as a loan to provide funding against a “residential investment property known as The Grainery, Baltimore, County Cork”. Thus, the loan which is now alleged by Mr. Neill to be a housing loan was in fact described in the facility letter as a loan for an investment property.
11. It is clear therefore from this evidence alone that there is a factual dispute between the parties, since Mr. Neill claims that he satisfies the definition of housing loan and therefore falls within the jurisdiction of the Circuit Court, although based on the wording of the relevant section and the evidence produced to this Court, this seems at best an arguable point.
12. For this reason, this Court does not believe that it is convenient for this matter to be decided as a preliminary issue.
13. As regards the second matter, which it is sought to have dealt with by means of a trial of a preliminary issue, it is claimed that the wording of Clause 11 of the Mortgage Deed is such that the plaintiffs do not have locus standi to bring proceedings seeking the possession of the mortgaged property on the basis that ejectment proceedings can only be taken in the name of the mortgagor, which was not done in this case and also on the basis that a receiver is an agent of the mortgagor and there is therefore a conflict of interest in the Receivers seeking to take possession of the property from Mr. Neill, the person for whom they are agent.
14. Clause 11, insofar as relevant, states:
“The Bank may at any time hereafter without any further consent on the part of the Mortgagor enter into possession or […] appoint at the sole risk and cost of the Mortgagor a person to collect and receive such rents and profits for the use and benefit of the Bank at such commission as the Bank shall think fit and any such person shall have power in the name of the Mortgagor to give notice to quit and bring and bring and take actions or proceedings for ejectment or recovery of possession of the Mortgaged Premises on the expiration or determination or forfeiture of any tenancy or otherwise[…]”
15. Before considering the wording of this clause, it is relevant to bear in mind that it is clear from the judgment of Dunne J. in Tritton Development Fund Ltd v. Markin AG [2007] IEHC 21, that a trial on a preliminary issue is something that is only done in exceptional cases.
16. It is this Court’s preliminary view that the interpretation being urged upon this Court of Clause 11 is one that is not consistent with business common sense since it would mean that a receiver could not seek possession from a borrower in default who happens to be in occupation of the mortgaged premises.
17. A common sense approach has been taken by the Courts to similar issues of interpretation regarding the rights of receivers in the past. For example in Kavanagh and Lowe v. Lynch [2011] IEHC 348, Laffoy J. dealt with a claim that a ‘rent receiver’ was not entitled to possession since his deed of appointment made no reference to his being appointed in respect of ‘possession’ of the property. Laffoy J. held that while it was not stated that the receiver had power to take possession, such a right must be implied since without it, “he effectively would not be able to do his job”.
18. It is also the case that the opening words of Clause 11 make clear that Bank of Ireland is entitled to seek possession of the property in its own right and the joint receivers’ position is that this power has been delegated to them by the Bank of Ireland. Furthermore Bank of Ireland has agreed to be joined as a plaintiff to the within proceedings.
19. For all of these reasons there is a clear risk that there would not be a saving of time and cost by the trial of this issue regarding locus standi as a preliminary matter. On this basis, this Court concludes that the default position, namely of a unitary trial, is the most appropriate and convenient manner in which this action should proceed.
McCann -v- Halpin & anor
[2016] IESC 12 (11 March 2016)
Judgment of Ms. Justice Laffoy delivered on the 11th day of March, 2016
1. This appeal is against an order of the High Court (Peart J.), which as originally perfected on 23rd December, 2013, was erroneously dated 17th October, 2013. That error was corrected by order of the High Court dated 16th January, 2014 in which it was ordered that the date of the order be amended to 17th December, 2013 in lieu of 17th October, 2013. The amended order will be referred to hereafter as “the Possession Order”.
2. The Possession Order was made in proceedings which had been initiated in the High Court by special summons (Record No. 2012/379SP), which issued on 13th July, 2012 and in which the plaintiff/respondent (the Receiver), in his capacity as receiver appointed by Irish Bank of Resolution Corporation Limited (IBRC) by deed of appointment dated 17th February, 2012, sought an order against the defendants/appellants (the Appellants) pursuant to Order 54, rule 3 of the Rules of the Superior Courts for possession of the lands and premises described in the first schedule thereto, being the premises known as and situate at Nos. 53 and 55 Park Avenue, Sandymount in the City of Dublin and which were otherwise described in the first schedule as the premises known as Aberdeen Lodge, 53/55 Park Avenue, Sandymount in the City of Dublin. Those premises had been mortgaged and charged by Elektron Holdings Limited to Irish Nationwide Building Society (now IBRC) pursuant to, inter alia, a Deed of Mortgage dated 9th October, 1998.
3. As the Possession Order discloses, the special summons proceedings were listed before the High Court on 25th September, 2013 together with related proceedings under s. 316 of the Companies Act 1963 proceedings (Record No. 2012 No. 411 COS) between the Receiver, as applicant, and the Appellants, as respondents (the s. 316 Proceedings).
4. Judgment was delivered by the High Court (Peart J.) in the s. 316 proceedings on 8th November, 2013. In the judgment it was held, inter alia, that the Receiver had been validly appointed receiver over the assets of Elektron Holdings Limited. Consequential on that finding and a declaration to that effect, in the Possession Order it was ordered that possession be granted to the Receiver of the premises described in the first schedule to the special summons and in the first schedule to the Possession Order against the Appellants and also against Elektron Holdings Limited, which, by order of the High Court, had been joined as a defendant, as is recorded in the Possession Order.
5. The Appellants appealed against the order of the High Court in the s. 316 proceedings and against the Possession Order in the special summons proceedings. Both appeals were heard together.
6. This Court having on this day dismissed the appeal of the Appellants against the order made in the s. 316 proceedings and having found that the Receiver was validly appointed as Receiver over the assets of Elektron Holdings Limited, it follows that this appeal against the Possession Order must also be dismissed.
Cunningham & Anor -v- Bank of Scotland Plc & Ors
[2016] IEHC 65 (01 February 2016)
Judgment of Ms. Justice Murphy delivered the 1st day of February, 2016.
1. The first named applicant is a director and shareholder of the second named applicant which company has been in receivership since 14th December, 2012. The applicants seek directions pursuant to s. 316 of the Companies Act 1963, (now contained in s. 438 of the Companies Act 2014), relating to the validity of a mortgage debenture dated 31st July, 1997 between Keelgrove Properties Limited (“the Company”) of the first part and Equity Bank Limited (subsequently Bank of Scotland plc)(“the Bank”) of the other part; directions regarding the validity of the subsequent appointment by the Bank of Tom Kavanagh, as receiver over the property the subject of the mortgage; a declaration that the mortgage is invalid at law; a declaration that the appointment of the receiver was invalid; and, alternatively, directions as to whether or not there was a duty on the part of the receiver to provide information to the Company and/or the applicant in relation to the sale to the purchaser, Kendlebell Mid-West Limited and/or whether or not the best price reasonably obtainable was obtained for the property; a declaration that the duties to provide information and/or to obtain the best price reasonably obtainable were not complied with by the receiver; directions as to whether the possession subsequently taken by the purchaser following the conveyance was valid in law; a declaration that the receiver had no power to sell the property to the purchaser without notice to the Company or the applicant; a declaration that the purchaser was not entitled to take possession of the property or that it was not entitled to take possession in the circumstances in which it was so taken; a declaration that the third named defendant is a trespasser on the Company’s property; an order restoring possession of the property to the Company and/or the applicant; an injunction restraining the third named defendant from trespassing on the property; and, if necessary, directions for the mode of trial of these proceedings, including trial by way of plenary hearing and, in that event, such further directions as to the exchange of such pleadings as the Court deems fit.
2. The number and breadth of the reliefs sought gave rise to immediate concern on the part of the Court as to the appropriateness of determining these matters in a s. 316 application. Having considered the facts, the law and the submissions of the parties as set out hereunder, the Court’s initial concern has hardened into a conviction that this application is a wholly inappropriate use of s. 316. Furthermore, for the reasons set out herein, the Court is satisfied that even if this were an application appropriate to the powers conferred by s. 316, the second applicant lacks standing to bring such an application and the first applicant who claims to be a creditor of the insolvent company, has failed to adduce any evidence that in his capacity as such a creditor, he is being “unfairly prejudiced by any actual or proposed act or omission of the receiver”.
3. The catalyst for this application was events which took place in or about 23rd May, 2014. On that day the third named respondent, Kendlebell Mid-West Limited entered and took possession of a car park premises on Moore Lane, Dublin, which premises it had purchased from the second respondent, in his capacity as receiver of Keelgrove Properties. By an indenture of conveyance dated 17th December, 2013 ownership of the property was transferred to the third respondent. It appears that in order to gain access to the property the servants or agents of the third respondent broke and removed locks. The first named applicant has asserted that at the material time he was a lessee of the property on foot an oral tenancy granted by the applicant company prior to the receivership. Rather than pursue such rights as he might have in Landlord and Tenant law, the applicants have embarked on a s. 316 application which has as its objective the unravelling of all transactions relating to this property over a period of seventeen years right back to the original mortgage of the property executed by the applicant Company on 31st July, 1997, pursuant to which the Company had been placed in receivership.
Facts
4. On 12th March, 1997, the second named applicant, Keelgrove Properties Limited (“the Company”) was registered in the State pursuant to the provisions of the Companies Acts. It carried on business as a property developer and property holding company.
5. The first named applicant, Mr. Cunningham, was a director and shareholder of the applicant Company. He avers that he was appointed as a director on either 4th September, 1997 or 13th March, 1998. He is also a shareholder of half of the issued share capital of the Company. The other half of the shares was owned by Treasury Holdings. The applicant Company was formed to give effect to a joint venture between the two parties. On 9th October, 2012, Treasury Holdings went into liquidation and the applicant contends that as a consequence, he became entitled to their shares by virtue of a provision in the shareholder’s agreement. Mr. Cunningham avers that he has since fallen out with Treasury Holdings and their directors/principals.
6. A further complication arose from an ongoing dispute between Mr. Cunningham and Valebrook Developments, another company in receivership of which Mr. Cunningham is also a director and which he has described as “one of my property companies”. The dispute is whether Mr. Cunningham, the first applicant, or Valebrook holds the beneficial ownership of the applicant’s shares in Keelgrove Properties. Mr. Cunningham’s position is that he was and is the beneficial and legal owner of these shares. The Court has been told that the dispute is the subject of legal proceedings which are currently under appeal to the Supreme Court.
7. Mr. Cunningham also claims that he is a creditor of Keelgrove Properties in the sum of €412,611.
8. In 1997, the Company, Keelgrove Properties Limited, was involved in the acquisition and purchase of a number of properties, namely, 17, 18 and 19 Moore Lane, Dublin 7. On 30th July, 1997, title was transferred to the Company in respect of those properties.
9. Mr. Cunningham states that he paid various deposits out of his own funds for these properties so that his director’s loan account with the Company amounted to £164,459 according to the year end for 1997. The balance of the funds was provided by the other joint venture vehicle, Treasury Holdings Limited and by a mortgage with Equity Bank Limited (now Bank of Scotland), the first named respondent. On 30th July, 1997 the Bank issued a facility letter for a maximum sum of £1 million for the purposes of assisting with the purchase of 17, 18 and 19 Moore Lane. Among the security conditions, at paragraph 7(a) of this facility letter was the requirement that there be a debenture in the Bank’s standard form creating fixed and floating charges over all the assets of the Company to include a first legal mortgage over the Moore Lane properties. This letter was signed for and on behalf of the Company by the applicant, Mr. Cunningham and Mr. John Ronan, who were expressed therein to be directors of the Company. On 31st July, 1997 the Company entered into a mortgage debenture whereby they agreed to mortgage and charge the Moore Lane properties to the Bank and to give the Bank power to appoint a receiver and/or sell the property in certain specified circumstances. Mr. Brian Cunningham, the first applicant, and Mr. Richard Barrett executed the mortgage deed on behalf of Keelgrove Properties Limited using the Company seal and the deed was witnessed by one Assumpta Kenny.
10. By virtue of s. 2, s. 3 and s. 38(1)(a) of the Real Property Act 1845 the mortgage, being a conveyance of land, was required to be under seal. The Company’s articles of association provide:
“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 this purpose.”
Thus, according to the applicant, a valid legal mortgage can only be created in circumstances where the seal of the company is affixed to the document and that document is in turn signed by directors of the company. The first applicant has maintained that at the time he executed the mortgage on behalf of the second applicant he was not in fact a director of the Company. He has exhibited contradictory B10s both signed by him. The first, signed by him on the 29th October, 1999 and filed in the CRO on 18th November, 1999, confirms his appointment as a director with effect from 4th September, 1997 approximately six weeks after the mortgage was executed. The second, signed on 24th May, 2000, and filed in the CRO on 31st May, 2000, confirms his appointment as a director with effect from 13th March, 1998, some seven and a half months after the execution of the mortgage. On this basis he contends that since, at the time of the execution of the mortgage deed he was not a director of the applicant Company, the mortgage deed signed by him did not create a valid legal mortgage. He accepted that if his submission in this regard was correct, that the first respondent merely holds an equitable rather than a legal mortgage over the properties in Moore Lane.
11. The first named respondent, Bank of Scotland, avers in the affidavit sworn on its behalf, that prior to the signing of the mortgage on 31st July, 1997, its predecessor, Equity Bank Limited, was provided with a certificate, signed by one Deirdre Lemass who was expressed to be secretary of the Company, which stated that at a meeting of the directors of the Company between 21st and 24th July, 1997, at which both Mr. Cunningham and Mr. Barrett were present, it was resolved that the cash advance facility of 14th July, 1997 from Equity Bank to the Company was approved and Mr. Barrett was authorised to sign the said facility. The Bank was further provided with two written board resolutions in respect of the approval of a lease from the Company to Valebrook Developments Limited and Treasury Holdings, dated 22nd July, 1997. Both resolutions were signed by Mr. Cunningham with Mr. Cunningham and Mr. Barrett recorded as present. On 24th July, 1997 the Company sent a letter to the Bank enclosing a certified resolution of the Company, a certified resolution of Treasury and a guarantee of Treasury. This letter is exhibited by the Bank without its enclosures. In addition, the Bank exhibits a certified extract of a board minute of a directors’ meeting of 30th July, 1997 at which both Mr. Cunningham and Mr. Barrett were expressed to be present and which states as follows:
“IT WAS RESOLVED that the Cash Advance Facility No: 2746 dated 30th July 1997 from Equity Bank Limited addressed to the company produced to the meeting be and the same is hereby approved and accepted AND THAT John Ronan [and] Brian Cunningham be and is [sic] hereby authorised to sign the facility letter aforesaid and on behalf of the company…”
Mr. Cunningham denies all knowledge of the certificate of the directors’ meeting which apparently authorised the transaction, and also of the letter of 24th July, 1997 sent to Equity Bank. He avers that these were not written or signed by him, that they were clearly prepared by Treasury Holdings and that they are incorrect. For the purposes of this decision, it is neither necessary nor appropriate for the Court to resolve this issue. The facts are set out solely for the purpose of explaining the Court’s determination of this application set out below.
12. In October 2012 a liquidator was appointed to Treasury Holdings by the High Court. Treasury Holdings had held a lease of the Moore Lane premises, however, following the appointment of a liquidator to Treasury Holdings, the applicant Company purportedly exercised its right to re-enter the premises pursuant to the lease agreement.
13. On 7th November, 2012, Bank of Scotland issued a letter of demand in respect of the sums advanced to the applicant Company pursuant to the agreement of 31st July, 1997. The amount outstanding on the relevant loan was €831,566.63. On about 13th November, 2012, the Company became engaged in a planning dispute with Dublin City Council who claimed that the use of the premises as a car park was unauthorised.
14. In or about early December 2012, Richard Barrett and Johnny Ronan were apparently removed from their directorships of the applicant Company at a board meeting. Following their removal, on or about 10th December, 2012, the first named applicant, Mr. Cunningham avers that the Company made an oral letting arrangement with him in respect of the properties at 17, 18 and 19 Moore Lane. The rent was to be €200 per month payable on resolution of the planning issue. The third named respondent who is now the prima facie owner of the premises doubts the existence of any such agreement, pointing out inter alia that the solicitor acting for the first and second named applicants made no reference to Mr. Cunningham’s purported leasehold interest in his letter to the third named respondent of 15th May, 2014, a week before the third respondent took possession of the premises.
15. On 14th December, 2012 a receiver was appointed by Bank of Scotland, the mortgagee, pursuant to the terms of the mortgage of 31st July, 1997. At this time the Company was continuing to trade and the Moore Lane premises were being operated as a car park by Mr. Cunningham in his personal capacity. On 11th January, 2013, the receiver sent a letter to Mr. Cunningham, the first named applicant, informing him of his appointment over the assets at 17, 18 and 19 Moore Lane, seeking various information including details of any occupants, leases or licences affecting the premises and seeking return of any keys to the premises in Mr. Cunningham’s possession. It also provided Mr. Cunningham with contact details should he wish to arrange a meeting or seek information from the receiver. There was no response by Mr. Cunningham to this letter. In particular, he did not challenge the validity of the mortgage, nor the validity of the appointment of the receiver. Furthermore, he did not notify the receiver of the existence of the oral tenancy which he allegedly held from the Company.
16. Around the same time, on 4th January, 2013, Dublin City Council wrote to Mr. Cunningham, in his capacity as secretary of the applicant Company, to advise him that the properties at Moore Lane were being used as a car park without the benefit of the relevant planning permission. The letter further required him to cease using the properties in such a manner, advised him that the matter was under investigation, and invited him to make submissions on the matter. On 22nd April, 2013, Dublin City Council again wrote to Mr. Cunningham requesting that he submit a response to confirm cessation of the operation of the car park within three weeks and informing him that otherwise enforcement proceedings would be pursued. The same letter was also sent to Mr. Tom Kavanagh, as receiver of the applicant Company and to the Company itself at its registered address. In January 2014, Dublin City Council issued a number of summonses against the applicant Company and its directors in respect of the planning dispute. In April 2014, the planning proceedings were withdrawn as they were statute barred. Mr. Cunningham avers that the receiver was on notice of such proceedings but did not defend them. Mr. Cunningham avers that he and the applicant Company spent a considerable time and considerable effort in engaging solicitors and dealing with the dispute in an effort to make the premises more valuable and states that at this time he was not aware of the planned sale of the property by the receiver.
17. On 14th November, 2013, a sale was agreed in respect of the properties which were sold by private treaty. On 17th December, 2013, the receiver closed a sale agreement with Kendlebell Mid-West Limited. The amount achieved upon the sale of the property was €550,000 with a further €50,000 achieved by the receiver in respect of a nearby plot at Moore Street. At this date the secured indebtedness of Keelgrove Properties Limited in relation to the properties was €852,238.33.
18. On or about 8th May, 2014, the first named applicant, Mr. Cunningham, avers that he became aware that the receiver had entered into an agreement for the sale of the Moore Lane properties, on being served with a possession notice from the third named respondent, Kendlebell Mid-West Limited. The notice stated that his occupation of the premises was unlawful and that Kendlebell, as owner, would enter on the premises in order to repossess it in seven days. The notice further stated:
“Take further notice that if vacant possession is not furnished to the Owner seven days from the date hereof, the Owner will be forced to issue court proceedings for same. If court proceedings are issued, this Notice will be relied upon to recover legal and other costs incurred.”
19. On 15th May, 2014, Mr. Cunningham’s solicitor wrote to Kendlebell Mid-West Limited seeking evidence of its title in respect of the premises, requesting full details on the basis on which they claimed that Mr. Cunningham’s occupation was unlawful and informing Kendlebell of his client’s intention to vigorously defend any court proceedings. In his affidavit sworn on behalf of Kendlebell, Mr. Ben Deane, director of Kendlebell, notes the significance of the fact that the solicitor acting for the first and second named applicants did not refer to Mr. Cunningham’s alleged leasehold interest in his letter of 15th May, 2014.
20. On 23rd May, 2014, Kendlebell, with the apparent assistance of the Gardaí, took possession of the Moore Lane premises. At 9 a.m. on the same day, Mr. Cunningham’s solicitor received a call informing him that the property had been taken over by MCR Security acting on behalf of Kendlebell. He avers that it appears that the servants or agents of Kendlebell entered the property forcibly by breaking the locks and states that the Gardaí were not present when he attended the property on that date. Mr. Cunningham’s averments in relation to Kendlebell’s taking of possession are disputed by Kendlebell in the affidavit sworn on its behalf. On attending the property Mr. Cunningham was presented with a copy of the Indenture of Conveyance between Kendlebell and the receiver, dated 17th December, 2013. Mr. Cunningham avers that it was only at this point that it became apparent to him that the directors of the Company at the time the indenture of July 1997 was entered into, were Assumpta Kenny and Jacqueline Cleary and that he and Richard Barrett were only appointed on either 4th September, 1997 or 13th March, 1998, well after the date of the mortgage. It is the position of the first named respondent, Bank of Scotland, that Mr. Cunningham cannot plausibly claim that such facts only came to his attention after receipt of the deed of conveyance of December, 2013 since he was at all times a principal of the Company and knew its transactions intimately and further, that Mr. Cunningham cannot but have known at the time of the execution of the facility letter and the mortgage that he represented to the Bank’s predecessor, Equity Bank Limited, that he, Mr. Barrett and Mr. Ronan were directors of the Company. Mr. Cunningham, in response, avers that he signed the documentation in question without reading it and on the instructions of his then legal advisors. He states that he became aware of the defects in the mortgage document following a change of legal advisor.
21. According to correspondence from the third respondents’ solicitors dated 28th May, 2013, on 23rd May, 2014 the applicants’ solicitor spoke to the solicitors of the third named respondent asserting that his client was in occupation of the Moore Lane properties on the basis of a thirty five year lease. Correspondence from the applicants’ solicitor to the solicitor for the third respondent (dated 18th August, 2014) asserted that such a conversation was without prejudice and off the record and that the third respondent’s solicitors’ account of such conversation was inaccurate. According to the same correspondence from the solicitors for the third respondent, the applicants’ solicitor wrote to the third respondents’ solicitor on 26th May, 2014 asserting that his client was in occupation of the premises on the basis of a lease of 4 years 9 months. This letter is not exhibited. However a letter of 26th May, 2014, is exhibited in which solicitors on behalf of Kendlebell Mid-West Limited declined to respond to the queries raised by the applicants’ solicitor in his letter of 15th May on the basis that Mr. Cunningham had no interest in the property and reserved their right to issue proceedings. On 28th May, 2014, Mr. Cunningham’s solicitor wrote to Kendlebell requesting sight of the deed on the basis of which ownership was asserted and asserting that the power of attorney on which the receiver relied in the creation of such a deed was not validly created and that as such, the possession notice was invalid. None of the letters from the applicants’ solicitor which are exhibited refer to any assertion on the part of the applicant that he holds a lease over the premises in question. On the same day, the solicitors acting for Kendlebell reiterated their position that the premises were not subject to any lawfully granted lease or licence. The letter also made reference to a discrepancy in the description of the alleged lease by Mr. Cunningham’s solicitor as described above. Mr. Cunningham’s solicitor was invited to give an undertaking on behalf of both himself and his client, to desist from interfering with Kendlebell’s enjoyment of the property and to acknowledge that Mr. Cunningham had no interest in same. By reply, dated 18th August, 2014, Mr. Cunningham’s solicitor refuted the content of his conversation with a member of the solicitor’s firm representing Kendlebell, which he further asserted to have been “off the record” and did not respond to the requests contained in the letter of 28th May, 2014.
22. On 30th June, 2014, the first and second named applicants’ solicitor wrote to Mr. Kavanagh, the receiver, to inform him of his clients’ position that the mortgage debenture of 31st July, 1997 was invalid as a matter of law since it was not executed in accordance with the memorandum and articles of association of the applicant Company, on the basis that neither Mr. Brian Cunningham nor Mr. Richard Barrett, who purported to execute the debenture, were directors of the Company at that time. This letter also informed the receiver of the applicants’ intention to make an application to this Court under s. 316 of the Companies Act 1963 if satisfactory response was not received within seven days. On 3rd July, 2014, the solicitors acting for the receiver responded, refuting the applicants’ claim as to the validity of the debenture and confirming their satisfaction that their client had been validly appointed on foot of the mortgage. The receiver’s solicitors repeated such assertions in further correspondence to the applicants’ solicitor, dated 9th July, 2014. On 14th July, 2014, the applicants’ solicitors wrote to the first and second named respondents to inform them of their intention to issue an application pursuant to s. 316. On 6th August, 2014, solicitors acting for the first named respondent, Bank of Scotland, wrote to the applicants’ solicitors enclosing copies of documents, including resolutions of the board of the applicant Company, wherein Mr. Barrett and Mr. Cunningham were listed as directors. On 26th September, 2014, LK Shields entered an appearance for the first and second named respondents. On 15th February, 2015, Mr. Cunningham avers that an article appeared in the Sunday Times which suggested to him that Kendlebell’s directors were business associates of former officers of Keelgrove and/or Treasury Holdings. This was denied by the solicitors acting for Kendlebell, in a letter dated 25th February, 2015, in which they informed Mr. Cunningham’s solicitor that they had been instructed that Kendlebell’s directors and shareholders had no connection to Treasury Holdings.
23. The first named applicant, Mr. Cunningham, avers that the receiver purported to sell the Moore Lane premises to Kendlebell without any prior or subsequent notice to the second named applicant, the Company, or to Mr. Cunningham as occupier. He avers that the lack of validity of the mortgage by reason of lack of due execution by the Company renders both the appointment of the receiver and the purported sale of no effect. He further avers that even if the mortgage is effective the receiver breached his duty to the Company in failing to consult or notify it in relation to the sale of the property or to exercise reasonable care to get the best price possible since it is self-evident that selling any property with vacant possession would have received a better price. Finally, Mr. Cunningham avers that the forcible possession taken by Kendlebell was invalid and ineffective by reason, inter alia, of his prior letting agreement with the Company, by which Kendlebell was bound.
24. The second named respondent, the receiver, does not accept that he is under any duty of consultation or notification and points to the fact that his letter to Mr. Cunningham of 11th January, 2013, was simply ignored. That letter notified Mr. Cunningham, of the receiver’s appointment over the assets at 17, 18 and 19 Moore Lane. It sought certain information including details of any occupants, leases or licences affecting the premises and seeking return of any keys to the premises in Mr. Cunningham’s possession. It also provided Mr. Cunningham with contact details should he wish to arrange a meeting or seek information from the receiver. The receiver refutes any suggestion by the applicants that he contravened any legal requirement or that he conducted the sale in any way other than at arm’s length. He also contends that the claim that he failed to exercise reasonable care to get the best price for the property is entirely unsubstantiated. He notes that Mr. Cunningham has not sought to identify what a “better price” would be in the circumstances nor what loss accrued to Keelgrove Property Limited or to Mr. Cunningham personally as a result of the sale. He further notes that any want of vacant possession arose from Mr. Cunningham’s own possession and his wrongful refusal to part with it.
25. Mr. Cunningham, in response, states that in circumstances where he does not even know the date of the agreement to sell and has not seen the contract of sale it is not possible for him to even obtain an informed valuation from a professional valuer and contends that the receiver should bear the burden of proof in this regard. The receiver responds that Mr. Cunningham at no stage sought to argue that he was not in a position to obtain expert valuation evidence and that Mr. Cunningham himself exhibited the conveyance and assignment in his first affidavit which expressly set out the sale price of the properties. He again points out that the first applicant was expressly invited in writing to contact the receiver if he had any issues relating to the receivership. He did not do so. The receiver thus states that it is simply not credible for Mr. Cunningham to advance such an argument. He complains that it is a matter of very great concern to him that very serious and damaging allegations have been made against him without any proper evidential foundation.
26. The first named respondent, Bank of Scotland, points out that Mr. Cunningham has purported to swear an affidavit on both his own behalf, and that of the applicant Company, without exhibiting any documentary evidence of the Company’s board authorising its joinder to the proceedings nor authorising Mr. Cunningham to swear an affidavit on the Company’s behalf. Counsel on behalf of both the first and second named respondents further point out that the Company does not have standing to bring an application under s. 316. They submit that the only party with potential standing is the first named applicant, Mr. Cunningham.
27. The first named respondent contends that though a member in respect of some or all of the issued share capital Mr. Cunningham has not demonstrated that he has any interest in the present proceedings given the insolvency of the Company. In respect of the original mortgage they submit that, regardless of the validity of the mortgage debenture of 31st July, 1997, the Company clearly agreed to provide security in respect of advances from the first named defendant’s predecessor, Equity Bank Limited, such that there exists, in addition to and in parallel with the legal mortgage, valid equitable security. In such circumstances it is impossible for Mr. Cunningham, on his own behalf or on behalf of the Company, to allege that any unfair prejudice has befallen him or the Company because the first named respondent would, under the mortgage or under any equitable security, have the entitlement to sell the properties in question.
28. The first named respondent further contends that Mr. Cunningham is estopped from seeking to repudiate the mortgage by reason of his own conduct and his representations to the Bank at the time of the execution of the facility letter and mortgage that he, Mr. Barrett and Mr. Ronan were directors of the applicant Company. In relation to the lease the first named respondent states that there is no board minute or documentary evidence of any lease agreement between the Company and Mr. Cunningham and points to paragraph 7.18 of the mortgage agreement which prohibits the granting of a lease, licence or tenancy without the prior consent of the Bank. On this basis, the Bank contends that the lease is not binding on the Bank, its successors or assignees.
Decision of the Court
29. Section 316 provides a mechanism for speedy and efficient disposal of issues which arise in the course of an insolvency. Originally the process was only available to receivers, but it was later extended to other parties who might have an interest in the conduct and resolution of a particular insolvency by s. 171 of the Companies Act 1990. The process was not designed nor intended as an alternative to substantive plenary proceedings.
30. Regardless of the question of standing, the Court does not consider it appropriate to engage in an examination of the issues raised by the applicants nor of the applicants’ entitlement to each or any of the thirteen reliefs sought since it appears to the Court that this matter has been brought before it by an entirely inappropriate application on the basis of a provision of law which is intended to ensure proper compliance with corporate insolvency law and not to determine substantive issues of the type raised by the applicant. In that regard, the Court notes the following remarks of Clarke J. in Re HSS [2011] IEHC 497 in relation to the scope of s. 316:
“The court enjoys a wide discretion under s. 316. It is true that the court is entitled to give directions or make orders declaring the rights of persons, as the court thinks just. However, it does not seem to me that that section confers on the court any entitlement to change the proper implementation of the regime for dealing with the assets of insolvent companies as set out in the Companies Acts. The reason why the court has been given a wide discretion is that the types of directions or orders that might be required may vary enormously depending on the facts with which the court is faced. The court is, therefore, given a very wide discretion as to the type of intervention which may be appropriate.
However, it does not seem to me that s. 316 confers on the court any discretion to alter the legal rights of parties as determined by corporate insolvency law. The Companies Acts contain very many measures designed to determine who gets what out of the assets of insolvent companies. The court can, in an application under s. 316, decide issues that arise as to who is to get what and make whatever directions or orders are appropriate to ensure that parties get what they are entitled to. The section does not, however, give the court carte blanche to reassess whether the carefully crafted provisions of corporate insolvency law ought to apply”.
31. Section 316 of the 1963 Act, now s. 438 of the 2014, reads as follows:
“(1) Where a receiver of the property of a company is appointed under the powers contained in any instrument, any of the following persons may apply to the court for directions in relation to any matter in connection with the performance or otherwise, by the receiver, of his or her functions, that is to say:
(a)
(i) the receiver;
(ii) an officer of the company;
(iii) a member of the company;
(iv) employees of the company comprising at least half in number of the persons employed in a permanent capacity by the company;
(v) a creditor of the company; and
(b)
(i) a liquidator;
(ii) a contributory; and, on any such application, the court may give such directions, or make such order declaring the rights of persons before the court or otherwise, as the court thinks just.
(2) An application to the court under subsection (1), except an application under that subsection by the receiver, shall be supported by such evidence that the applicant is being unfairly prejudiced by any actual or proposed act or omission of the receiver as the court may require.”
32. The Courts power to grant directions or to determine rights is limited by the section to “any matter in connection with the performance or otherwise, by the receiver, of his or her functions”. Where an applicant is not a receiver the Courts power to intervene depends on an applicant providing evidence that he/she is being unfairly prejudiced by “any actual or proposed act or omission of the receiver”. The wording of the section suggests to the Court that every application under s. 316 is predicated on a receiver being validly appointed. The Court’s remit under the section is to consider the performance by the receiver of his/her functions. The issue of the validity of a receiver’s appointment, it appears to the Court, is outside the scope of s. 316. Accordingly the Court holds that any relief which depends directly or by inference on a challenge to the validity of a receiver’s appointment cannot properly be brought by means of a s. 316 application.
33. These s. 316 applicants seek thirteen substantive reliefs. In their submissions to the Court, they raise, inter alia, the following seven issues:
(i) Whether the deed was validly executed;
(ii) The status of the purported mortgage/debenture in law and in equity;
(iii) The validity of the appointment of the receiver;
(iv) The validity of the sale to Kendlebell;
(v) Whether the receiver had a duty to notify the Company of the intended and actual sale of its premises;
(vi) The significance of the receiver allowing the Company to defend a planning application when, as far as he was concerned, the Company did not own the premises;
(vii) Whether Kendlebell was entitled to take possession in the manner in which it did.
The first four issues all derive from and entail a challenge to the validity of the receiver’s appointment and as such are not appropriate reliefs to be sought in a s. 316 application. The applicants in essence submit that if the mortgage deed was not validly executed then the receiver was not validly appointed and the sale to the third respondent, Kendlebell was invalid. For the reasons stated these are not issues appropriate for determination in a s. 316 application. Issue (v) above, whether the receiver had a duty to notify the Company of the intended and actual sale of its premises, might in certain circumstances fall to be determined in a s. 316 application but for reasons set out below the Court is not persuaded that it is required to do so in this case. Similarly, the Court is not persuaded that it is required to address the significance, if any, of the receiver allowing the Company to defend planning proceedings while maintaining that the Company had no entitlement to the property as set out at (vi) above. Finally, the issue as to whether Kendlebell was entitled to take possession in the manner in which it did, listed at (vii) above, is in the Court’s view outside the ambit of the receivership and as such cannot come within the ambit of s. 316. The third respondent on the evidence was a bona fide purchaser from the second respondent, the receiver. Any issue arising between them and the first applicant (if any – the Court shares the scepticism of the respondents both as to the fact and nature of the first applicant’s claimed tenancy) falls to be determined by the law of landlord and tenant.
34. Even if the Court is wrong in its view, and all the reliefs sought by the applicants can in fact be sought in a s. 316 application, the Court would still be of the view that the applicants are not entitled to succeed. The legislation provides that certain parties related to a company may apply to the court for directions and, where necessary, determinations of rights. These parties include a receiver, an officer, a member, employees, creditors and, where the company is in liquidation, the liquidator or a contributory. The company the subject of the receivership is not a party authorised to maintain a s. 316 application. Therefore the second named applicant has no standing to maintain this application and consequently its application must fail.
35. The first applicant as a member and claimed creditor, but not in his alleged capacity as a tenant, does have potential standing to maintain an application. To succeed in his application however, the application must “be supported by such evidence that the applicant is being unfairly prejudiced by any actual or proposed act or omission of the receiver as the court may require”. In this regard the Court notes the remarks of Clarke J. in Re HSS at paragraph 4.10 and 4.11:
“…It seems to me that the prejudice that is spoken of in s. 316(1A) is prejudice to the actual rights of individuals. In other words, a creditor applying under s. 316 needs to show that that creditor’s rights might be unfairly prejudiced by an action (or, indeed, inaction) of a receiver. It does not give the Court some general jurisdiction to consider whether things are fair or unfair.
It seems to me, therefore, that s. 316 is concerned with determining the rights of parties in the context of corporate insolvency law and making whatever orders or giving whatever directions are necessary to ensure that parties, having regard to those rights, are not dealt with in an unfair way. The starting point has to be, however, a determination of the party’s legal rights”.
36. Insofar as Mr. Cunningham’s legal rights are concerned, the Court acknowledges the arguments of the applicant in relation to the validity of the mortgage but notes that even if it were to accede to the applicant’s arguments on that issue, and hold that a legal mortgage was not validly created on 31st July, 1997, there is no dispute that funds were advanced and the applicant did not contest that the Company, in entering into the facility with the Bank, agreed to provide a debenture creating a fixed and floating charge over all assets of the Company including a first legal mortgage over the properties at 17, 18 and 19 Moore Lane, Dublin. As a minimum, a valid equitable mortgage subsists in favour of the Bank such that Mr. Cunningham cannot allege that any unfair prejudice has befallen him.
37. Neither has Mr. Cunningham advanced evidence sufficient to satisfy the Court of any improprieties insofar as the actions of the receiver were concerned. No evidence has been adduced to substantiate the claim that the receiver did not achieve the best price possible for the sale of the properties at Moore Lane. There has been no evidence beyond bare assertion of impropriety in the sale to the third respondent. No evidence has been offered to establish how the secured debt could have been discharged, along with the costs of the receivership, so as to leave a surplus for the benefit of other creditors. In these circumstances the Court considers that no evidence has been placed before it which would substantiate Mr. Cunningham’s assertion that he has suffered unfair prejudice such as would confer standing on him to bring the present application.
38. Finally, the Court wishes to observe that quite apart from the legal issues which have arisen on this application, the application itself is entirely unmeritorious. The first applicant was given an open opportunity to engage with the receiver shortly after his appointment in December 2012. On 11th January, 2013, the receiver sent a letter to Mr. Cunningham, the first named applicant, informing him of his appointment over the assets at 17, 18 and 19 Moore Lane, seeking various information including details of any occupants, leases or licences affecting the premises and seeking return of any keys to the premises in Mr. Cunningham’s possession. It also provided Mr. Cunningham with contact details should he wish to arrange a meeting or seek information from the receiver. Mr. Cunningham did nothing. He sat back and let matters take their course. Eighteen months later when the new owner of the property sought possession he decided to assert rights and to invite the Court to set aside the original mortgage, the appointment of the receiver and the sale of the property to the third respondent Kendlebell Mid-West Limited. For the reasons set out herein, the Court declines to do so.
J. D. Brian Ltd (in liquidation) & Ors -v- Companies Acts
[2011] IEHC 113 (25 March 2011)
JUDGMENT of Ms. Justice Finlay Geoghegan delivered on the 25th day of March, 2011
1. In this application, brought pursuant to s. 280 of the Companies Act 1963 (as amended), the official liquidator of the companies named in the title (“the Companies”) and other companies within the Belgard Group, seeks declarations and directions of the court arising out of the purported crystallisation of floating charges created by each of the Companies in favour of the Governor and Company of the Bank of Ireland (“the Bank”). The application raises important issues relating to the proper construction of s. 285(7) of the Companies Act 1963 (as amended) and the validity of so-called “automatic crystallisation” of a floating charge in this jurisdiction. Counsel for the applicant and notice parties made detailed submissions and referred me to a significant number of authorities from other common law jurisdictions and, in particular, England and Wales. Their research indicates that there is no written judgment in this jurisdiction on either issue. I am not aware of any such decision.
2. The background facts giving rise to the application are not in dispute. Whilst a number of the companies in liquidation granted similar debentures in favour of the Bank, I only propose referring to that given by J.D. Brian Motors Limited (in liquidation) (“the Company”).
3. On 20th December, 2005, the Company executed a debenture (“the Debenture”) in favour of the Bank as security for present and future borrowings. The debenture provided, inter alia:
“4. The Company, as Beneficial Owner hereby charges in favour of the Bank all its undertaking, property and assets, whatsoever and wheresoever both present and future including goodwill and its uncalled capital for the time being with the payment of all moneys hereby secured including interest as aforesaid.
5. The Charge hereby created shall as regards the lands described in the Schedule hereto (the “Scheduled Premises”) and all estate or interest legal or equitable in all freehold and leasehold property, all profits a prendre, easements, rights of way, rights under covenants, agreements, undertakings and indemnities and rights to compensation, statutory or otherwise, attaching thereto which shall at any time hereafter during the continuance of this security become the property of the Company all present and future proceeds of insurance receivable by the Company, and its goodwill and uncalled capital for the time being be a specific charge and shall as regards the other property hereby charged be a floating security but so that the Company shall not be at liberty to create any mortgage or charge ranking in priority to or pari passu with these presents.
. . .
10. The Bank, may, at any time, by notice in writing served on the Company, convert the floating charge contained in this Deed into a first fixed charge over all the property, assets and rights for the time being subject to the said floating charge or over so much of the same as is specified in the notice. A notice under this clause may be served by the Bank only if, in the sole judgment of the Bank, the Bank considers that the property, assets and rights described or referred to in the notice are in any way in jeopardy.
11. The floating charge contained in this Deed shall in any event stand converted into a fixed charge automatically upon:
(a) the filing of a petition for the winding up of the Company;
(b) the passing of a resolution for the winding up of the Company;
(c) the appointment of a Receiver on behalf of the holders of any debentures of the Company secured by a floating charge;
(d) possession being taken of any property by or on behalf of the holders of any debentures of the Company secured by a floating charge.”
4. On 28th October, 2009, the Bank served a notice, pursuant to clause 10 of the debenture, on the Company, in which, having referred to the debenture, it stated, in the operative part:
“We now give you NOTICE that we now consider the property, assets and rights which are subject to the floating charge contained in the Debenture are in jeopardy.
We further give you NOTICE that, pursuant to clause 10 of the Debenture, we hereby convert the floating charge contained in the Debenture into a first fixed charge with respect to all property, assets and rights which are subject to such floating charge.”
5. On 13th November, 2009, a petition was presented for the winding up of the Company and Mr. Tom Kavanagh was appointed provisional Liquidator. On 7th December, 2009, an order for the winding up of the Company was made and Mr. Kavanagh was appointed official Liquidator.
6. Similar notices were served by the Bank on the other companies within the group and petitions similarly presented and winding up orders made and Mr. Kavanagh appointed both provisional and official Liquidator thereof.
7. The total indebtedness of the Companies to the Bank at the date of commencement of the windings up was in the order of €16,250,000. The official Liquidator, in his grounding affidavit, anticipates realisations in the order of €12,500,000 to €14,500,000, of which approximately €2 million may relate to assets which are the subject of the floating charge provisions of the debentures (“Floating Charge Assets”). All of the assets of the Companies are charged in favour of the Bank and there are no unsecured assets available for distribution to the creditors of the Company. It is anticipated that there will be a shortfall in the monies due to the Bank.
8. The official Liquidator, on advice, contends that the floating charge created by the Company in the debenture of 20th December, 2005, was validly crystallised by the service of the notice of 28th October, 2009. Further, that by reason of the crystallisation of the floating charge prior to the date of commencement of the winding up, the Bank is entitled to all of the assets of the Company, and the preferential creditors have no entitlement to be paid in priority to the Bank out of any portion of the assets realised, pursuant to s. 285(7) of the Act of 1963. He seeks declarations and directions to that effect.
9. The application is on notice to the Revenue Commissioners. There are preferential debts due to the Revenue Commissioners by some or all of the Companies. The Revenue Commissioners submit that on a proper construction of s. 285(7), priority is given to its preferential claim over the claim of the Bank to the monies realised from the assets the subject matter of the floating charge in the Debenture, regardless of whether or not the floating charge crystallised prior to the commencement of the winding up. The Revenue Commissioners also submit that there has not been a valid crystallisation of the floating charges created in favour of the Bank so as to convert the charges into fixed charges.
10. By agreement of the official Liquidator and the Revenue Commissioners, the Governor and Company of the Bank of Ireland. was also represented at the hearing. Submissions were made on its behalf to the same effect as those of the official Liquidator. Insofar as I refer in this judgment to submissions made on behalf of the official Liquidator, I am also including submissions made on behalf of the Governor and Company of the Bank of Ireland.
Section 285 of the Companies Act 1963
11. Section 285, insofar as is relevant, provides that in a winding up, there shall be paid in priority to all other debts, certain rates, taxes and debts to employees due at the “relevant date”. The relevant date is defined in ss.(1) as meaning:
“(i) where the company is ordered to be wound up compulsorily, the date of the appointment (or first appointment) of a provisional liquidator or, if no such appointment was made, the date of the winding-up order, unless in either case the company had commenced to be wound up voluntarily before that date.”
The relevant date for the purposes of s. 285 is, accordingly, not necessarily the same date as the date of commencement of the winding up in accordance with section 220. Section 220 provides:
“(1) Where, before the presentation of a petition for the winding up of a company by the court, a resolution has been passed by the company for voluntary winding up, the winding up of the company shall be deemed to have commenced at the time of the passing of the resolution, and unless the court, on proof of fraud or mistake, thinks fit to direct otherwise, all proceedings taken in the voluntary winding up shall be deemed to have been validly taken.
(2) In any other case, the winding up of a company by the court shall be deemed to commence at the time of the presentation of the petition for the winding up.”
As appears, in most instances, the date of commencement of a winding up by the court is the date of presentation of the petition. The relevant date, in accordance with s. 285(1) for preferential debts may also be that date where a provisional liquidator is appointed on the same date as the petition is presented, but may also be one or more later dates, including a subsequent appointment of a provisional liquidator or, where no appointment was made, the date of the winding up order.
12. Section 285(7) provides:
(7) The foregoing debts shall—
(a) rank equally among themselves and be paid in full, unless the assets are insufficient to meet them, in which case they shall abate in equal proportions; and
(b) so far as the assets of the company available for payment of general creditors are insufficient to meet them, have priority over the claims of holders of debentures under any floating charge created by the company, and be paid accordingly out of any property comprised in or subject to that charge.”
13. On the facts herein, there are no assets available for payment to the general creditors of the Company. There is a fund likely to be in the order of €2 million, realised from the assets which were the subject matter of the floating charge created by the Company in the debenture of December 2005. There are preferential debts. The construction issue on s. 285(7) is whether it should be construed as meaning that the preferential debts rank in priority to the claim of the Bank, as debenture holder, to the funds realised from the assets subject to the floating charge in the debenture, irrespective of whether that floating charge crystallised prior to the commencement of winding up, or whether such a priority only exists if the floating charge has not yet crystallised at the date of commencement of the winding up.
14. It is not in dispute that the court must construe s. 285(7) in accordance with the intention expressed by the Oireachtas by construing the words used in their ordinary and natural sense (and any statutory definition). See, inter alia, Howard v. Commissioners of Public Works [1994] 1 I.R. 101, and Crilly v. T&J Farrington Limited [2001] 3 IR 251. Counsel for the Revenue Commissioners submitted that if the court considered there to be an ambiguity or, as she submitted, an absurdity on the literal interpretation contended for by the official Liquidator, then, in accordance with s. 5 of the Interpretation Act 2005, the court should give s. 285(7) a construction which reflects the plain intention of the Oireachtas, as ascertained from the Act of 1963 as a whole.
15. The only word or term in s. 285(7)(b) which is defined in s. 2 of the Act of 1963, is ‘debenture’, which is defined to include “debenture stock, bonds and any other securities of a company, whether constituting a charge on the assets of the company or not”.
16. A floating charge is not defined for the purposes of the Companies Act. It appears probable that there is no one definition of a floating charge. Rather, judicial decisions have referred to the “normal characteristics” of a floating charge, as was done by Blayney J. In Re Holidair [1994] 1 IR 416, where at p. 445, he referred with approval to the well known passage from the judgment of Romer L.J. in the Court of Appeal in the case of In Re Yorkshire Woolcombers’ Association Limited [1903] 2 Ch. 284, at p. 295:-
“I certainly do not intend to attempt to give an exact definition of the term ‘floating charge’, nor am I prepared to say that there will not be a floating charge within the meaning of the Act which does not contain all the three characteristics that I am about to mention, but I certainly think that if a charge has the three characteristics that I am about to mention it is a floating charge.
(1) If it is a charge on a class of assets of the company present and future;
(2) if that class is one which, in the ordinary course of the business of the company, would be changing from time to time; and
(3) if you find that by the charge it is contemplated that, until some future step is taken by or on behalf of those interested in the charge, the company may carry on its business in the ordinary way as far as concerns the particular class of assets I am dealing with.”
17. Goode on ‘Legal Problems and Security’, 4th Ed. (Sweet and Maxwell, 2008), in considering the nature and characteristics of a floating charge, at p. 126, asserts that it “is now established that a floating charge creates an immediate, albeit, unattached security interest”. The authors state that this idea is most clearly expressed by Buckley L.J. in Evans v. Rival Granite Quarries Ltd. [1910] 2 K.B. 979:
“A floating charge is not a future security; it is a present security which presently affects all the assets of the company expressed to be included in it . . . A floating security is not a specific mortgage of the assets, plus a licence to the mortgagor to dispose of them in the course of his business, but is a floating mortgage applying to every item comprised in the security, but not specifically affecting any item until some act or event occurs or some act on the part of the mortgagee is done which causes it to crystallise into a fixed security.”
In my judgment, it is of some importance to the construction of s. 285(7) that it was well established, prior to 1963, that a floating charge creates an immediate, albeit unattached security interest, as explained by Buckley L.J. in the passage cited above. In In Re Interview Limited [1975] I.R. 382, Kenny J., at p. 395, stated:
“The charge floats over the assets of the company until some act is done which causes it to fasten on to the property and goods of the company.”
18. The second relevant concept is that of crystallisation of a floating charge. Upon crystallisation, the charge ceases to float over the assets which are subject to it, and attaches to or becomes fixed on those assets. As is sometimes said, the floating charge upon crystallisation becomes a fixed charge. However, no new charge is created by the company. The existing charge, the floating charge created by the company, changes in nature and becomes a fixed charge. The nature of the security held by the debenture holder under the floating charge created by the company upon crystallisation changes; it ceases to float, and becomes a fixed charge over the charged property. In accordance with the general principles relating to fixed charges, upon the charge becoming fixed, there is an equitable assignment of the relevant assets to the debenture holder. Nevertheless, the right of the debenture holder to the charged assets derives from the floating charge created by the Company. It is the nature of the right which is changed by the crystallisation.
19. If there were no relevant judicial authority on the construction of s. 285(7) or a predecessor or similar section in the UK Companies Acts, I would have no hesitation in construing the section as giving priority to preferential debts over the claims of holders of debentures under floating charges which crystallise prior to the commencement of winding up. Further, I would construe the section as meaning that the preferential debts were entitled to be paid out of the realisation of assets subject to a floating charge in the Debenture, notwithstanding that such floating charge crystallised prior to the commencement of winding up. My reasons for so construing the section, in accordance with the ordinary and plain meaning of the words used, and the definition of debenture in s. 2 of the Act of 1963, are as follows.
20. The priority given to preferential debts by s. 285(7) is “over the claims of holders of debentures under any floating charge created by the company”. How does the Bank claim an entitlement to the Floating Charge Assets herein? It appears to me the answer is self-evident. The only entitlement of the Bank to make a claim to such assets is as the holder of a debenture or security under the floating charge created by the Company. It has no other right to such assets. The only charge created by the Company over the assets is a floating charge. It is of the essence of a floating charge that it is a charge which will change in nature prior to realisation. It is a charge which ‘floats’ over the assets until the happening of an event which, in accordance with the terms of the debenture, and by law, causes it to attach to or become fixed on the relevant assets. Of course, the nature of the security, which the Bank holds, post-crystallisation, is a fixed charge. It is important to note that the section, by its words, gives priority “over the claims of holders of debentures under any floating charge created by the company”, and not over the claims of holders of any floating charge created by the Company. Debentures, as already stated, is defined in s. 2 to include “any other securities of a company, whether constituting a charge on the assets of the company or not”. It appears to me that the phrase “holders of debentures under any floating charge created by the company” is deliberately worded, having regard to the potentiality for a floating charge to crystallise and become a fixed charge so as to include persons who hold security of whatever nature, provided it is held under or by reason of a floating charge created by the company. It is the floating charge created by the Company which gives the Bank the right to make a claim to the assets. It is only the nature of the claim which changes post-crystallisation. The Bank’s claim to the charged assets remains a claim as the holder of a debenture or security under the floating charge created by the company.
21. Similarly, in my judgment, the word ‘charge’ in the phrase “property comprised in or subject to that charge” refers to the floating charge created by the company, notwithstanding that by reason of crystallisation, such floating charge may have become fixed on such property prior to the commencement of winding up.
22. A further subsidiary reason on the wording which, in my judgment, supports the above construction, is the absence in subsection 285(7) of any specification by the Oireachtas as to the date upon which the nature of the claims of “holders of debentures under any floating charge” is to be ascertained. If it was intended by the Oireachtas that this should be ascertained at the date of commencement of the winding up, as is suggested by certain judicial authorities from other jurisdictions, then it appears to me that such date would have been specified by the Oireachtas, given that in s. 285(1), they have clearly specified a date which is potentially a date other than the commencement of the winding up as the relevant date for the ascertainment of preferential claims. This is not a point which appears to have been adverted to in the decisions of other jurisdictions to which I was referred.
Relevant Authorities
23. There are relevant authorities from other jurisdictions upon which counsel for the official Liquidator has relied. He submits that they are persuasive authorities as to the proper construction of s. 285(7) and that I should follow them and give to the section the meaning for which he contends.
24. The principal decision is that of Bennett J. in the Chancery Division in England in In re Griffin Hotel Company Limited [1940] 1 Ch. 129. Insofar as relevant, that decision concerned the construction of sections 78 and 264 of the UK Companies Act 1929. Those sections replaced sections 107 and 209 of the Companies (Consolidation) Act 1908, as do sections 98 and 285 of the Companies Act 1963, in this jurisdiction.
25. The essential facts of the case were that a company owned two hotels, one at Leeds and the other at Buxton. In 1937, it issued a debenture creating a floating charge over all its assets to secure £45,000. In December 1938, an order was made in a debenture holder’s action, appointing a receiver over all the company’s property except the Buxton Hotel which was subject to a prior mortgage and of no value to the debenture holder. The company continued to operate the Buxton Hotel. In March 1939, an order was made for the winding up of the company. In the meantime, in operating the Buxton Hotel, the company incurred certain preferential debts within the meaning of s. 264 of the Companies Act 1929. One of the issues in the application was whether those preferential debts were payable in priority to the plaintiff (the debenture holder) out of the proceeds of sales of the assets over which the receiver was appointed in 1938. There were no other assets out of which the preferential debts could be discharged. The first issue related to the relationship between sections 78 and 264(4)(b) which is not of relevance. The second issue is the same construction issue arising in these proceedings, albeit in relation to s. 264(4)(b). This provided:
“The foregoing [preferential] debts shall:
(a) rank equally among themselves and be paid in full, unless the assets are insufficient to meet them, in which case they shall abate in equal proportions; and
(b) in the case of a company registered in England, so far as the assets of the company available for payment of general creditors are insufficient to meet them, have priority over the claims of holders of debentures under any floating charge created by the company, and be paid accordingly out of any property comprised in or subject to that charge.”
26. Bennett J., having expressed his conclusion that s. 78 of the Act of 1929 did not exclude or prevent the operation of sub-section 4(b) of s. 264, then continued at p. 135:
“But that conclusion on the construction and effect of the statutory provisions leaves open the question whether in the supposed events there is, when the winding up take place, any floating charge or any property subject to that charge. In my judgment, sub-s. 4(b) of s. 264 only operates if at the moment of the winding up there is still a floating charge created by the company and it only gives the preferential creditors a priority over the claims of the debenture holders in any property which at that moment of time is comprised in or subject to that charge.
In the present case, the debenture held by the plaintiffs contained a floating charge over all the borrowers’ property. On December 9, 1938, that charge ceased to float on the property and assets of which Mr. Veale was appointed receiver. The charge on that day crystallised and became fixed on that property and those assets. It remained a floating charge on any other assets of the borrowers. At the moment before the winding up order was made, the charge still floated over any other assets of the borrowers and over those other assets, if any, the preferential creditors as defined by sub-s. I of s. 264 have a priority over the claims of the plaintiffs by force of the provisions of sub-s.4 of the same section. This seems to be a corollary of the proposition established by In re Lewis Merthyr Consolidated Collieries, Ld. (I) [1929] 1 Ch. 498.”
27. The wording of sub-section 264(4)(b) is identical in all material respects to s. 285(7)(b). Respectfully, it appears to me that Bennett J. reached a conclusion on the wording without any consideration of the phrase “the claims of holders of debentures under any floating charge created by the company”. He does not explain why he considered that the section only operated “if, at the moment of the winding up, there is still a floating charge created by the company” save the statement “this seems to be a corollary of the proposition established In re Lewis Merthyr Consolidated Collieries Limited”.
28. I have read carefully the judgments in the Court of Appeal and in the Chancery Division In Re Lewis Merthyr Consolidated Collieries Limited, and I have some difficulty in understanding the above view taken by Bennett J. Those decisions concerned the proper construction of s. 107 of the Companies Consolidation Act 1908 (equivalent to s. 98 of the 1963 Act). The facts were that a receiver was appointed under a debenture which created both a first fixed charge over certain property and a floating charge over other property. Section 107 applied when a receiver “is appointed on behalf of the holders of any debentures of the company secured by a floating charge . . .” and then provides that if the company is not at the time being wound up, that preferential debts in a winding up are to be “paid forthwith out of any assets coming into the hands of the receiver”. The construction issue identified by Tomlin J. at p. 504, was whether:
“. . . the priority given to this particular category of debts is a priority in respect of the assets subject to the floating charge only, or whether, where the debenture also contains a fixed charge, the creditors are entitled to claim priority in respect of assets subject to either a fixed charge or a floating charge . . .”
Tomlin J. initially examined s. 107 without regard to s. 209 of the Act of 1908, to which he had also been referred, and, having done so, stated his conclusion at p. 507:
“. . . upon the language of this section, read in vacuo, that on its true construction, the priority given is a priority given in respect of assets derived from the subject of the floating charge, and not in respect of assets which are subject to the fixed charge.”
It must be recalled that this conclusion is expressed in a factual context where the fixed charge and the floating charge were each created by the same debenture and no issue arose about the prior crystallisation of the floating charge.
29. Tomlin J., following that conclusion, then looked at s. 209 for the purpose, as he put it, of deriving comfort. He concluded that he did derive comfort and, having quoted s. 209, stated, at p. 507:
“So that it is plain in terms in s. 209, that in the case of winding up, the priority is only given in relation to assets which are subject to the floating charge. In the view I take the same result follows in the case of a debenture holders’ action where there is no winding up. Mr. Grant says there are reasons why it should be otherwise. I am not sure that I am satisfied that any such reasons exist at all. I quite understand that in regard to a floating charge there may be a reason for giving the priority, because until the receiver is appointed or possession is taken, the charge does not crystallise, and it may well be said that this particular class of debts, which may perhaps have contributed to produce the very assets upon which the floating charge will crystallise, are proper to be paid out of those assets before the debenture holder takes his principal and interest out of them. That deems to me to be a perfectly intelligible reason for the legislation, and is in accord with the view which I take of the section.”
Again, it must be recalled, Tomlin J. was considering the issue in a context where the claim being made was that the preferential debts were to be paid out of assets coming into the hands of the receiver under a first fixed charge created by the same debenture as created the floating charge.
30. In the Court of Appeal, three judgments were given and Tomlin J. upheld. Lord Hanworth M.R. preferred to decide the matter by the interpretation of s. 107 in accordance with its terms and without its being affected by the terms of section 209. Whilst Lawrence L.J. made fleeting reference to s. 209, he does not rely on it. Russell. L.J. simply agreed and indicated he did not desire to add anything to the judgment of Tomlin J.
31. Respectfully, it does not appear to me, on my reading of the judgments in In Re Lewis Merthyr Consolidated Collieries Limited, that the decision therein on the construction of s. 107 is such that the conclusion of Bennett J. in In Re Griffin Hotel Company Limited may be considered a corollary. The corollary would be whether s. 209 of the 1908 Act, or s. 284, sub-section (4) of the 1929 Act, granted priority over the claim of a debenture holder to assets the subject of a fixed charge created by a debenture, simply because the company also created a floating charge in the same debenture over different property.
32. In In Re Griffin Hotel Company Limited was subsequently referred to and relied upon by Vinelott J. in In Re Christonette International Limited 1 W.L.R. 1245. That case related to the proper construction of sections 94(1) and 319(5) of the Companies Act 1948 (equivalent to sections 98 and 285(8) of the Companies Act 1963). The earlier decision appears to have been relied upon without question and without argument against it by Vinelott J. In the UK, the Insolvency Act 1985 implemented a recommendation of the 1982 Cork Report referred to below, and defined a “floating charge” as “a charge which, as created, was a floating charge”. This has the effect of altering the construction placed upon the equivalent of s. 285(7) in In Re Griffin Hotel Company Limited.
33. Hoffmann J. in the High Court in In Re Brightlife Limited [1987] Ch. 200, referred to the decision in In Re Griffin Hotel Company Limited in the course of considering the validity of a so-called automatic crystallisation of a floating charge. His observations are relevant. In that case, the facts were that the alleged crystallisation of the floating charge occurred on 13th December, 1984, and a resolution to wind up was passed on 20th December, 1984. Hoffmann J. stated at p. 211:
“The importance of the dates lies in the construction given to what is now section 614(2)(b) of the Companies Act 1985 by Bennett J. in In re Griffin Hotel Co. Ltd. [1941] Ch. 129. He decided in that case that the priority given by the statute to preferential debts applied only if there was a charge still floating at the moment of the winding up and gave the preferential creditors priority in property which at that moment was comprised in the floating charge.
It follows that if the debenture-holder can manage to crystallise his floating charge before the moment of winding up, section 614(2)(b) gives the preferential creditors no priority. On the other hand, in the usual case of crystallisation before winding up, namely by appointment of a receiver, they may still be entitled to priority under another section of the Companies Act 1985. This is section 196, which applies:
‘whether either a receiver is appointed on behalf of the holders of any debentures of a company secured by a floating charge, or possession is taken by or on behalf of those debenture-holders of any property comprised in or subject to the charge’.
In such a case, subsection (2) provides:
‘If the company is not at the time in course of being wound up, the . . . [preferential debts] . . . shall be paid out of assets coming to the hands of the receiver or other person taking possession, in priority to any claims for principal or interest in respect of the debentures’.
Both section 614(2)(b) and section 196 originate in the Preferential Payments in Bankruptcy Amendment Act 1897. One imagines that they were intended to ensure that in all cases preferential debts had priority over the holder of a charge originally created as a floating charge. It would be difficult to think of any reason for making distinctions according to the moment at which the charge crystallised or the event which brought this about. But in In re Griffin Hotel Co. Ltd. [1941] Ch. 129 revealed a defect in the drafting. It meant, for example, that if the floating charge crystallised before winding up, but otherwise than by the appointment of a receiver, the preferential debts would have no priority under either section. For example, if crystallisation occurred simply because the company ceased to carry on business before it was wound up, as in In re Woodroffes (Musical Instruments) Ltd. [1986] Ch. 366, the preferential debts would have no priority. One could construct other examples of cases which would slip through the net. Mr. Sheldon submits that this is such a case.”
Counsel in that case conceded, for the purpose of the hearing in the High Court before Hoffmann J., that preferential debts would have no priority in respect of assets over which the floating charge had crystallised before the resolution for winding up, but reserved the point for a higher court. There does not appear to have been an appeal.
34. I respectfully agree with the observations of Hoffmann J. as to the intent of the legislation, but would question whether or not there was a defect in the drafting. This may have been politeness on the part of Hoffmann J. as the correctness of the earlier decision was not put in issue before him and considering the views expressed in the next case to which I refer.
35. In Re Permanent Houses (Holdings) Limited [1988] B.C.L.C. 563, Hoffmann J., in the Chancery Division, made clear his personal disagreement with the decision in In Re. Griffin Hotel Company Limited, but considered himself bound by it and that he would be failing in his duty to uphold the integrity of the law if he did not apply its reasoning to s. 196 of the Companies Act 1985 (the equivalent of s. 98 of the Act of 1963). Hoffmann J. expressed a personal preference for what he described as “the powerful reasoning of Barwick C.J.” in his dissenting judgment in the High Court of Australia in Stein v. Saywell [1969] 121 C.L.R. 529. In that decision, the majority of the High Court followed in In Re Griffin Hotel Company Limited and applied it to the Australian equivalent of section 285(7). I respectfully agree with Hoffmann J. My preference is for the reasoning and conclusion of Barwick C.J. in his dissenting judgment. Of the four judgments given in the majority, two simply apply the decision in In Griffin Hotel Company Limited (joint judgment McTiernan and Menzes); that of Owen J. both applied in In Re Griffin Hotel Company Limited and expressed the view that it would be improbable that the draughtsmen of s. 292(4) of the New South Wales Act would have been unaware of the decision which had stood for many years and had been cited in a number of books dealing with company law. Kitto J. similarly took the view that since In Re Griffin Hotel Company Limited there had been amending and consolidating company legislation in New South Wales, and as no opportunity to displace the decision had been taken, some strong reason would need to be found to justify placing a different construction upon it now, and expressed the view that the decision appeared to be correct. His essential reasoning was that s. 292(4) must be applied as at the date of the winding up order so that a charge, to be affected by the grant of priority to the preferential debts there referred to, must be, at that date, within the description of “floating charge”.
36. The facts upon which the appeal to the High Court was based required consideration of ss. 196 and 292(4) of the Companies Act 1961 (N.S.W.) (equivalent to ss. 98 and 285(7) of the 1963 Act). Barwick C.J., at p. 543, stated:
“This Court is not bound by the decision in that case [In Re Griffin Hotel Company Limited]. In my opinion, the proposition that s. 292(4) does not defer the claim of the debenture holder if in any case before the making of the winding-up order, or the commencement of the liquidation, the charge over the assets of the company has crystallised is, in my opinion, insupportable. I can derive neither assistance nor find compulsion from or in the circumstances that subsequent to that decision a legislature has enacted ss. 196 and 292(4). It is quite clear to my mind that the legislature in enacting these sections did not intend that the priority which it accorded to such debts as those due to employees for wages or accrued leave should be defeated by the circumstance that the floating charge had become crystallized before the time had arrived for determining and giving effect to that priority. The policy behind s. 196 and s. 292(4) is, I think, quite plain. A creditor who accepts a floating charge over a company’s assets allows the business of the company to be carried on and the assets of the company which are subject to the floating charge to be altered, perhaps augmented, by the efforts of the company and its employees. The holder of the floating charge is not to be able to displace the priorities which the legislation accords certain debts which accrue during the carrying on of the business; amongst those priorities is certain remuneration of employees of the company. The method of ensuring that the holder of such a charge does not compete with those creditors to whose debts priority of payment is given is best seen, I think, in s. 196. Under that section, in the period prior to the actual commencement of the liquidation of a company, a receiver for the debenture holder, with funds in hand which are the produce of the realization of the charge created initially as a floating charge is bound to pay out of those funds the debts of the preferred creditors. Of course, there will be occasions when the appointment of the receiver is the event which crystallizes the floating charge. Quite clearly the fact that the charge then becomes specific is irrelevant to the operation of the section. But in general the appointment of a receiver follows upon the falling due of the sum charged and the consequential crystallization of the floating charge. This was so in the present case. The description in the section “on behalf of the holders of any debentures secured by a floating charge” ought to be read as wide enough to include the charges whose rights derive from a floating charge which had become specific. It would be, in my opinion, far too narrow and an unduly literal construction to confine that description to those chargees only so long as the charge remained floating. Indeed, it would in a practical sense denude the section of much, if not the greater part, of its utility. I can find no reason, connected with the evident policy the section is designed to effect, which would support such a construction. Further, the alternative in the section, namely, the taking of possession of any property comprised in or subject to a floating charge, in my opinion, tends against such an interpretation of the section. Possession could only be taken if the amount charged had become due in which event in general the charge becomes specific. I would think it would in every case be specific before the actual taking of possession of a particular asset.
In my opinion, s. 292(4) must be construed in the same sense. It seems to me that the expression ‘the claims of the holders of debentures’ has been chosen to describe the right of the chargee whose charge originated as a floating charge to be paid out of any of the assets or the proceeds of any assets or the proceeds of any assets which in the event come within the charge by reason of the terms of the charge initially created by the company. The two sections are complementary.”
37. Subsequent to that decision, there was legislative amendment in 1971 in Australia. ‘Floating charge’ was defined for the purposes of the relevant sections as including a charge which was ‘a floating charge at the date of its creation which has since become a fixed or specific charge’.
38. It is interesting to note that the 1982 Cork Report on Insolvency Law and Practice in the United Kingdom in the context of considering automatic crystallisation stated, at paragraph 1578:
“Automatic crystallisation, however, is not merely inconvenient. In Australia, where it has become firmly established, it has disclosed an unfortunate loophole in the statutory provisions which give priority to preferential creditors. This has been partially corrected by amending legislation, which defines the expression ‘floating charge’ for the purposes of the statutory provisions corresponding to section 94 of the Act of 1948 as including a charge which was ‘a floating charge at the date of its creation which has since become a fixed or specific charge’. This is probably the test in England [emphasis added] but it would be prudent to add a definition to both sections 94 and 319(5) of the Act of 1948 on the lines of the Australian legislation.”
The reference to “unfortunate loophole” appears to be an allusion to the decision in Stein v. Saywell. However, what is of particular interest to the present consideration is the observation that the subsequent Australian legislative definition “is probably the test in England”. It appears that the distinguished Cork Review Committee was unaware of the decision in In Re Griffin Hotel Company Limited to the contrary effect. Nevertheless, the recommendation that it would be prudent to add a similar definition in England was followed in the Insolvency Act 1986. This now defines a floating charge for the purposes of the relevant sections as meaning “a charge which, as created, was a floating charge”.
39. I have concluded that I should not construe s. 285(7) in accordance with the decision in In Re Griffin Hotel Company Limited. It is not binding on me. The primary obligation of this court is to construe the intention of the Oireachtas from the words used in the section. The fact that the section at issue in In Re Griffin Hotel Company Limited and s. 295(7) both have their legislative origin in similar provisions and most recently s. 209 of the Companies (Consolidation) Act 1908, means that this court should give it careful consideration, which I have done. Nevertheless, I have concluded that I must respectfully decline to follow the decision. In my judgment, s. 287(5) cannot be construed in accordance with the plain meaning of the words used so as to give it the meaning given in In Re Griffin Hotel Company Limited. I do not consider the reasoning of the decision persuasive. Insofar as it was followed in England in the decisions to which I have been referred, it appears to have been done so either by reason of precedent or without opposing submission. Hoffman J. was critical of it. Insofar as the High Court of Australia followed the decision for the reasons already explained, I do not find the majority judgments persuasive and prefer the reasoning of the dissenting judgment of Barwick C.J.
40. I have further concluded that even having regard to the English and Australian decisions, s. 285(7) of the Act of 1963 is not ambiguous in the meaning of s. 5 of the Interpretation Act of 2005, and thus, it is not necessary to consider further a construction in accordance with the provisions of that Act.
41. Accordingly, in my judgment the proper meaning of s. 285(7) is that the preferential debts rank in priority to the claim of the Bank, as debenture holder, to the funds realised from the assets subject to the floating charge pursuant to clause 5 of the Debenture, irrespective of whether the floating charge crystallised prior to the commencement of winding up.
Automatic Crystallisation
42. Having regard to this conclusion, it is not strictly necessary for me to consider the second issue as to the validity of so-called “automatic crystallisation” of the floating charge in this jurisdiction. However having received detailed submissions and considered the matter in some depth, it appears to me desirable that I should set out, in brief, my conclusions. This is particularly so as there is a further matter which may need to be addressed if this were to become a determinative issue.
43. Terminology is important to this issue. Gough, in ‘Company Charges’, 2nd Ed. (Butterworths,1996) at p. 232, criticises judicial treatment of the expression ‘automatic crystallisation’ as not being consistent. He states:
“Sometimes, the court has used the expression clearly referring to an event specifically agreed in the charge contract as causing crystallisation. In other instances, the expression has been used to describe implicit crystallisation events of the traditional kind developed in the older case law.”
Gough identifies such implicit crystallisation events of the traditional kind from the prior case law as being:
(i) A business cessation event, including winding up and ceasing business operations as a going concern prior to winding up; and
(ii) a chargee intervention event, including appointment of a receiver or manager, taking possession as mortgagee, and obtaining an injunction against company dealings with the charged assets generally.
44. At issue in this application is an explicitly agreed crystallisation event which requires intervention by the chargee, i.e. the service by the Bank of a notice, pursuant to clause 10 of the Debenture. It appears preferable to refer to such crystallisation as “express crystallisation”. It is not truly automatic, in the sense that it does require chargee action or intervention i.e. the service of a notice. It does, however, come within the type of crystallisation which, in some of the judicial decisions, has been referred to as ‘automatic’ and is not a traditional implicit crystallisation event.
45. There is no decision on the validity of a crystallisation effected by such a notice in this jurisdiction. I have been referred to a number of English, New Zealand and Canadian decisions and leading academic texts. The Supreme Court decisions in In re Keenan Brothers [1985] IR 401 and In Re Wogan’s (Drogheda) [1993] 1 IR 157 are also relevant. These lead me to an initial conclusion that there are two separate issues which need to be addressed. They are:
(i) Whether, as a matter of principle, Irish law recognises that a chargee may, pursuant to an express contractual term, validly effect crystallisation by or on the occurrence of an expressly specified non-traditional event, and thereby cause the floating charge to become fixed on all or specified assets of the company; and
(ii) If, as a matter of principle, crystallisation may be so effected, whether, on the facts herein, the service by the Bank of the notice of 28th October, 2009, was effective to crystallise the floating charge created by the Debenture such that it then became a fixed charge on all the property assets and rights then subject to the floating charge in the Debenture.
46. On the first issue there are essentially two schools of thought see: Sealy ‘Company Law’, 7th Ed. (Oxford University Press, 2007) at 422. One is based on the fact that a floating charge is not a legally defined phenomenon but rather has certain characteristics and the freedom of the parties to the contract to agree specific terms. The other looks at the effect of such an arrangement on third parties and contends that it must be against public policy to have a charge crystallised in circumstances which may be unknown to other creditors.
47. Keane C.J., writing extra-judicially in his ‘Company Law’, 4th Ed. (Tottel, 2007), at p. 251, states:
“The proposition that there can be an automatic crystallisation on the default of the company if the debenture is in sufficiently explicit terms to permit of such a construction rests on some dicta in earlier English cases and an express decision to that effect in New Zealand [Re Manurowi Transport Ltd. [1971] NZLR 909]. It is thought, however, that this line of authority is unlikely to be followed in Ireland. The courts here will probably incline to the view that such automatic crystallisation would present problems for other creditors who would have no actual notice of the terms of the debenture and that any such doctrine would need to be the subject of considered legislation and regulation.
. . .
It has been held by the Supreme Court in Re Holidair Ltd. that a floating charge which has crystallised will decrystallise on the appointment of an examiner to the company, so that it ceases to be a fixed charge and reverts to being a floating charge. The validity of the concept of ‘decrystallisation’, which emerged for the first time in Ireland in this judgment, has been questioned, but the law appears to have been left unchanged by the 1999 Act.”
48. As pointed out by Keane C.J. in a footnote to the above passage, Courtney in ‘The Law of Private Companies’ (2nd Ed.) (Tottel Publishing, 2002), pp. 1212/3, takes an opposing point of view. He does so, mainly in reliance upon the decisions of Hoffmann J. in Re Brightlife Ltd. [1987] Ch. 200 and in Re Permanent Houses (Holdings) Ltd. [1988] B.C.L.C. 563.
49. The facts in In Re Brightlife Ltd. were somewhat similar to the facts in the present application insofar as the crystallisation event contended for was the service by the debenture holder, Norandex Inc., of a notice pursuant to an express clause 3(B) of the debenture. Clause 3(B) provided:
“Norandex may at any time by notice to Brightlife convert the floating charge into a specific charge as regards any assets specified in the notice which Norandex shall consider to be in danger of being seized or sold under any form of distress or execution levied or threatened or to be otherwise in jeopardy and may appoint a receiver thereof.”
The relevant facts were that on 4th December, 1984, Brightlife sent out notices of a creditors meeting to be held on 20th December, 1984, for the purposes of considering a resolution to wind up the company. Norandex sent Brightlife four separate notices dated 10th December, 1984. The first was a demand for payment. The second was a notice pursuant to clause 3(B):
“Of the conversion with immediate effect of the floating charge created [by the debenture] into a specific charge over all the assets of Brightlife Ltd. the subject of the said floating charge.”
The third was a demand pursuant to clause 13 of the debenture for the execution forthwith of “a legal assignment of all book and other debts currently due to Brightlife Ltd. specifying full details of the said debts therein”. The fourth is not relevant to the issues.
50. The dispute before Hoffmann J. concerned the competing claims of the Customs and Excise Commissioners for VAT as a preferential creditor, and Norandex as debenture holder, to approximately £40,000, which comprised realisation of book debts, credit at the bank and sale of stock.
51. The first issue related to whether the debenture had created a fixed charge over the book debts. This is not relevant to the present issues, save that it is of interest to note that Hoffmann J. was referred to the decision of the Supreme Court in In Re Keenan Brothers Ltd. and distinguished it only on the facts, having regard to the terms of the respective debentures. I only refer to this as it appears to me to confirm my understanding that the law relating to floating charges (and fixed charges) by the Supreme Court in In Re Keenan Brothers in reliance, in particular, on older decisions, is fundamentally the same law as that considered by Hoffmann J. in his consideration of the validity of the crystallisation effected by notice given by the debenture holder in In Re Brightlife Limited.
52. The objection to the validity, in principle, of the crystallisation effected in In Re Brightlife was fundamental. The primary submission was that events of crystallisation were fixed by law and not by agreement of the parties. Those events were confined to (i) winding up; (ii) appointment of a receiver and (iii) ceasing to carry on business. It was submitted that only those three events would cause crystallisation, notwithstanding any agreement to the contrary. The common features of the events were that, in each case, the business of the company would cease, or at any rate, cease to be conducted by the directors.
53. Hoffmann J. gave detailed consideration to what he identifies as five distinct submissions in support of the above contention and rejected all five.
54. I respectfully agree with the analysis by Hoffmann J. of the earlier caselaw and his conclusion at p. 213,:
“It is true that the commercial inconvenience of automatic crystallisation give rise to a strong presumption that it was not intended by the parties. Very clear language will be required. But that does not mean that it is excluded by a rule of law.”
55. As I have already indicated above, it appears probable that there is no one definition of a floating charge. Rather, the earlier judicial decisions have referred to characteristics or offered a description of a floating charge. In addition to the authorities already referred to, these include the well-known speech of Lord MacNaghten in Illingsworth v. Houldsworth [1904] A.C. 355 at 358, referred to with approval, inter alia, by McCarthy J. in In Re Keenan Brothers Limited.
56. On the public policy argument, the position, simply put, is that it is a matter for the Oireachtas and not the courts to intervene in order to avoid an unfair adverse impact on third party creditors from contractual arrangements which may be entered into between a debenture holder and a company. The Oireachtas has, of course, done so by enacting s. 98 (in relation to receivers), s. 99 (in relation to registration of certain charges) and s. 285(7) (in relation to priority for certain debts on a winding up) referred to extensively above. I, again, respectfully agree with Hoffmann J. that, having regard in particular to those interventions by the legislature, it is inappropriate for the courts to impose additional restrictive rules on grounds of public policy. Accordingly, on the first issue, for the very same reason set out by Hoffmann J., I am of the view that there is no rule of law which precludes parties to a debenture creating a floating charge agreeing, as a matter of contract, that the floating charge will crystallise upon the happening of an event or a particular step taken by the chargee. Whether the parties actually achieve their intention is a separate issue by reason inter alia of the Supreme Court decision in In re Keenan Brothers [1985] I.R. 401.
57. In In Re Keenan Brothers, the issue was whether or not the charge created by the debenture over book debts was a fixed charge or a floating charge. In the debenture, the charge was expressed to be a “fixed charge”. McCarthy J. who gave judgment with which a majority of the court agreed, states, at p. 421:
“It is not suggested that mere terminology itself, such as using the expression “fixed charge”, achieves the purpose; one must look, not within the narrow confines of such term, not to the declared intention of the parties alone, but to the effect of the instruments whereby they purported to carry out that intention; did they achieve what they intended or was the intention defeated by the ancillary requirements?”
58. Each of the judgments in the Supreme Court in In Re Keenan Brothers, notwithstanding the express terms of the debentures, considered whether or not the charges created, having regard to the other terms in the debentures, were, in reality, fixed or floating charges. There were two debentures at issue in the proceedings. Henchy J., at p. 419, epitomises what appears to be the proper approach of a court in determining whether or not a debenture, by its terms, creates a fixed or floating charge. In relation to the second debenture, he concluded:
“As to the debenture deed of the 5th May, 1983, the company professed to charge in favour of the Bank (A.I.I.B. Ltd.) its present and future debts as a first fixed legal charge. The extent to which this was to be in reality a fixed, rather than a floating charge, is shown by the following provisions in the deed:—
1. all moneys which were received by the company in respect of book debts were to be paid into a specified A.I.B. branch and no withdrawals or payments from that account were to be made without the prior consent of the Bank;
2. the company was not, without the consent of the Bank, to carry on its business otherwise than in the ordinary and normal course;
3. the company was not, without the consent in writing of the Bank, to diminish or dispose of its book debts otherwise than by collecting and lodging them in the specified account.
It seems to me that such a degree of sequestration of the book debts when collected made those monies incapable of being used in the ordinary course of business and meant that they were put, specifically and expressly, at the disposal of the Bank. I am satisfied that assets thus withdrawn from ordinary trade use, put in the keeping of the debenture holder, and sterilised and made undisposable save at the absolute discretion of the debenture holder, have the distinguishing features of a fixed charge. The charge was not intended to fasten in the future on the book debts; it was affixed forthwith and without further ado to those debts as they were collected; so it did not in any sense float over those moneys. As I understand the law, assets the subject matter of a floating charge may be disposed of, at least in the ordinary course of business, by the maker of the charge without the consent of the chargee. That was not the case here. I would allow this appeal and declare that the charge created by each of the two instruments of charge was a fixed charge.”
59. The Supreme Court in In Re Wogan’s (Drogheda) Ltd. [1993] 1 I.R. 157 followed In Re Keenan Brothers and made clear that where a court is required to determine whether or not a debenture creates a fixed or floating charge, that it must be done by construction of the debentures concerned and that the subsequent conduct of the parties is not a relevant evidential factor. See Finlay C.J. at p. 169. In that decision, the Supreme Court again construed the relevant debenture and concluded that, having regard to several terms of the debentures, the parties did, in reality, create a fixed charge over the book debts.
60. It appears to me, similarly, where a debenture expressly provides that a chargee may, by service of a notice, effect a crystallisation of a floating charge over all the assets or specified assets, the mere fact that the debenture so provides does not of itself mean that the service of the notice, has the intended effect i.e. that the floating charge crystallises. In the words of McCarthy J “mere terminology” used by the parties is not determinative of achieving the stated purpose but rather “one must look, not within the narrow confines of such term, not to the declared intention of the parties alone, but to the effect of the instruments whereby they purported to carry out that intention; did they achieve what they intended or was the intention defeated by the ancillary requirements”.
61. The issue is not, of course, whether the charge created by the debenture was a fixed or floating charge but, rather, whether the service of the notice provided for in Clause 10 of the Debenture does, in reality, what it purports to do, namely, “convert the floating charge contained in this deed into a first fixed charge over all the property, assets and rights for the time being, subject to the said floating charge“. Similar to the approach of the Supreme Court in the above decisions, this Court must determine whether or not the effect of the service of the notice, pursuant to Clause 10, achieved what the parties intended it to achieve, namely, the conversion of the then floating charge into a first fixed charge over all the relevant property i.e. over all of the property specified in the notice. Further, in accordance with the decision in In Re Wogan’s (Drogheda) Ltd., it appears that this issue must be determined by a construction of the terms of the Debenture and the notice served, rather than any subsequent actions by either party.
62. In accordance with Clause 5 of the Debenture, the property subject to the floating charge in October 2009 appears to have been all the property of the Companies other than land and related rights, proceeds from insurance, goodwill and uncalled capital. Certain of the Companies were trading companies in the motor business. The assets, therefore, included, inevitably, stock in trade, book debts and possibly monies deposited at the Bank.
63. If the service of the notice, pursuant to Clause 10, in reality had the effect of converting the floating charge over the book debts and stock in trade of the Companies into a first fixed charge on such assets, then it must also have effected an equitable assignment of such assets to the Bank. As a consequence, the Companies would have lost the ability to deal in or dispose of those assets, save to the extent permitted by the Bank. The Court appears obliged, in accordance with the judgments in In Re Keenan Brothers, to determine whether, in reality, such was the effect of the service of the notice, pursuant to Clause 10 having regard to the other provisions of the Debenture and the notice served.
64. It is not clear to me from the terms of the Debenture itself whether the Debenture provides that, on the service of a notice pursuant to Clause 10, any restrictions come into force on the Company’s ability to deal with assets which were formerly subject to the floating charge but which are now intended to be subject to a fixed charge. The notice served did not contain any such requirement.
65. As I have already indicated, this issue does not have to be resolved in the present application by reason of my conclusion on the construction of s 285(7) of the Companies Act 1963. If it did in the future become necessary to resolve, it would have to be further argued and in particular the Bank given an opportunity of making submissions on the issue . It was not an issue expressly addressed at the hearing before me. It would probably be necessary to consider further the nature of the assets subject to the floating charge created by each of the Companies.
Relief
As I have considered the facts in relation to J.D. Brian Motors Limited (in liquidation) I propose in the first instance making the following declaration in relation to that winding up;
That pursuant to s. 285(7) of the Companies Act 1963 as amended the preferential debts rank in priority to the claim of the Governor and Company of the Bank of Ireland to the funds realised from the assets subject to the floating charge pursuant to clause 5 of the debenture dated 20th December 2005 irrespective of whether or not the floating charge crystallised prior to the commencement of winding up.
I will hear the parties as to necessity for and form of any further declarations or directions in relation to the conduct of the liquidations to give effect to the terms of this judgment.
The Revenue Commissioners -v- Collins
[2016] IEHC 748 (28 November 2016)
U
JUDGMENT of Ms. Justice Reynolds delivered the 28th day of November, 2016
1. This matter comes before the Court by way of case stated, the matter having been referred by the Appeal Commissioner. The question for the Court to determine is as follows:
“Whether the Non-Principal Private Residents charge (hereinafter referred to as the “NPPR charge”) chargeable pursuant to the Local Government (Charges) Act 2009 is deductible against rental profits under s. 97(2) of the Taxes Consolidation Act 1997 (hereinafter referred to as “the TCA 1997”) as being “any rate levied by a local authority”.
2. The NPPR charge was introduced by the Local Government (Charges) Act, 2009 and was commenced by statutory instrument on the 24th July, 2009. It was introduced as an imposition on owners of more than one residential property, on all properties other than the taxpayer’s principal private residence, and applies to holiday homes and rental properties. For the purposes of this application, the only issue for the Court to determine is how the charge is to be applied in respect of rental properties and whether or not it should be allowed as a deductable expense from rental profits.
3. By way of background, the NPPR was introduced to go towards funding local authority services. An annual charge of €200 per property applied from 2009 to 2013 in respect of residential property that was not the taxpayer’s only or main residence in those years. The charge was collected by the local authority and retained by the local authority for its use.
4. The Local Government (Charges) Act, 2009 provides that “charge” has the meaning assigned to it by s. 3(1) and (2). The section provides as follows:
“3.— (1) A person who, on such date (in this Act referred to as the “liability date”) falling in the year 2009 as is prescribed, is the owner of a residential property shall be liable to pay the sum of €200 (in this Act referred to as a “charge”) to the relevant local authority.
(2) A person who, on 31 March (in this section also referred to as the “liability date”) of each year subsequent to the year 2009, is the owner of a residential property shall be liable to pay the sum (in this Act also referred to as a “charge”) specified in subsection (3) to the relevant local authority.”
5. Section 97(2) of the Taxes Consolidation Act, 1997 (as amended) provides as follows:
“97 (2) The deductions authorised by this subsection shall be deductions by reference to any or all of the following matters –
(a) the amount of any rent repayable by the person chargeable in respect of the premises or in respect of part of the premises;
(b) any sums borne by the person chargeable –
(i) in the case of a rent under a lease, in accordance with the conditions of the lease, and
(ii) in any other case, relating to and constituting an expense of the transaction or transactions under which the rents or receipts were received,
in respect of any rate levied by a local authority, whether such sums are by law chargeable on such person or on some other person;”
Facts
6. The respondent taxpayer herein is the owner of six rental properties to which the NPPR charge was applicable. In the taxable year 2009 he had paid the said charge, being €200 per each property and then sought to deduct €1200 against rental income received under s. 97(2)(b) of the TCA 1997.
7. The hearing proceeded before the Appeal Commissioner on 9th May, 2013 and a written determination issued on 21st October, 2013 wherein the Commissioner concluded as follows:
“The NPPR charge is a rate levied by a local authority: the amount of €200 is a fixed rate per applicable premises and that the amount is levied or collected by the relevant local authority. The charge amount is set out in the Local Government (Charges) Act 2009 and in this it results from a different process from that employed by a local authority in setting the annual rates as part of the annual budgeting process. However, this difference does not, in my determination, deny the NPPR charge to be regarded as a open “rate”; section 97(2) TCA 1997 does not restrict the meaning of a rate to that applicable to the budgeting process of local authorities set out above, the phrase used is “any rate levied by a local authority” and I have concluded that the ordinary meaning of that phrase includes the Charge. The Appellant is therefore entitled to a deduction of €200 in respect of the NPPR charge for each of the six residential properties claimed under s. 97(2) TCA 1997 in respect of 2009.”
The appellant’s case
8. It is the appellant’s case that the NPPR charge is not a “rate levied by a local authority” but rather a charge pursuant to the Local Government (Charges) Act, 2009 and is therefore not deductible. It is contended that the phrase “rate levied by the local authority” in its ordinary meaning, requires the local authority to have a function in the determination of the sum to be paid. However, it is clear from s. 3(5) of the Local Government (Charges) Act, 2009 that the charge is to be fixed by national legislation, whereby it is provided as follows
“(5) The Minister may from time to time review the amount of the charge in subsection (2) and, having regard to any change in the consumer price index since the amount of the charge was last specified or prescribed under this section, prescribe a revised amount as the Minister considers appropriate, and that amount shall have effect for and from the next liability date until further varied.”
It is contended therefore that a national charge collected locally is quite distinct from a local authority rate and this forms the core of the Appellant’s submissions. In that regard, it is contended that the charge must be distinguished from rates which apply to commercial premises.
The respondent’s case
9. The respondent argues that the word “charge” is no less generic than the word “rate” and if anything is wider in its definition. It is submitted that the word “rate” is clearly used in s. 97(2) of the Tax Consolidation Act, 1997 to capture any local authority charge.
10. Further it is argued that there are important taxation principles to be borne in mind when considering the NPPR and whether or not it should be allowed as a deductable expense. Firstly the respondent refers to Maguire in “Judge’s Income Tax 2016” at para. 1.405 as follows:
“There is a very powerful presumption against double taxation “in the domestic sense – i.e. the subjection of the same income more than once to Irish taxation” which can probably be displaced only by words incapable of bearing an alternative meaning. Indeed the courts would generally regard double taxation as a form of “absurdity” to be avoided if at all possible. In any event the constitutional legitimacy of a measure imposing double taxation might well be highly questionable.”
It is contended therefore by the respondent that if no relief is allowed for NPPR, the same income will be subject to two forms of tax. In addition, the respondent submits that a further principal of Irish taxation must be considered which is that assets which are put to economic service are not subjected to extraordinary measures.
The law
11. There is no definition of a “rate” in the Taxes Consolidation Act, 1997.
12. Under current legislation, the only “rate levied by a local authority” applies solely to commercial premises, the levying and collection of which is governed by the Valuation Acts and the Local Government Act, 2001 (as amended).
13. Because the methods by which a local authority rate such as commercial rates and the NPPR charge are fixed are so distinguishable, they are not interchangeable terms in legislation in either meaning or effect.
14. Clearly the onus rests on the respondent to establish that he is entitled to relief claimed pursuant to s. 97 (2) of the Taxes Consolidation Act, 1997.
15. There is no dispute on the facts before the Court and therefore the only issue to be determined is whether the Appeal Commissioner adopted a correct interpretation of the provisions of s. 97 (2) of the Act.
Conclusions
16. It is clear from the legislation underpinning the NPPR that the charge is constructed in a way expressly designed to ensure that the revenue achieved is attributable entirely to the local authority. It mandates that the collected funds are steered in one direction only – locally and away from central government. To conclude in these circumstances that the charge is in reality a national one, as contended by the appellants, would be contrived and artificial and contrary to the intent of the statute (namely the Local Government (Charges) Act, 2009). The legislature is the architect of a framework specifically engineered to ensure the resulting revenue stream flows directly into the coffers of the local authority. If anything, central government is deliberately bypassed to allow local authorities to be the collectors of the generated proceeds and are indeed empowered to prosecute defaulters. The government’s involvement is effectively to design and sign off on a system which takes it out of the loop and distances itself from what to all intents and purposes is a tax or charge levied by the local authority.
17. Where there is no definition of the word “rate” or “levy” in the Taxes Consolidation Act, 1997 the Court must look to the ordinary meaning of the phrase “any rate levied by a local authority”. Clearly the use of the word “any” suggests that the provision was not limited to a particular category of a rate but was providing prospectively for rates which might be contemplated by the legislature at some point in the future.
18. In interpreting the provisions of the statute, the Court is guided by the principles set down in the Inspector of Taxes v. Kiernan [1981] 1 I.R. 117. Clearly this is a legislative provision directed at the public at large and therefore the phrase “any rate levied by a local authority” must be given its “ordinary or colloquial meaning”. The test to be applied is that which “an ordinary member of the public would intend it to have when using it ordinarily”. I am satisfied that ordinary or colloquial meaning includes the NPPR charge.
19. In the circumstances, I must answer the question in the affirmative.