High Court: Brothers awarded €40,000 damages for receiver’s trespass

About this case:

• Citation:
  [2018] IEHC 445
• Judgment:
  External link
• Court:
  High Court
• Judge:
  Ms Justice Marie Baker

Background

Michael and Tony Harrington, retired bakers and confectioners, are brothers and shareholders in Harrington Confectioners Limited, which ran a successful business in Cork City until 1999.

Tony Harrington described the difficult times after the business closed and said that he and his brother worked hard to discharge all debts of the Company, which they succeeded in doing.

The buildings from which Harrington Confectioners traded, commercial units and lands at Churchfield Industrial Estate, Co. Cork, were purchased by the brothers as tenants-in-common from Harrington Confectioners and developed into light industrial units to provide an income and to make pension provision for each of them.

The purchase of the units and lands were financed by a secured loan from Anglo Irish Bank in October 2000 (the first facility).The first facility provided for repayment on an interest-only basis, to be cleared ‘within two years from full sale proceeds of sale of each warehouse unit as they are released from [Anglo’s] charge’ ‘without prejudice to the demand nature of the Facility’. The second facility, dated November 2003, was to assist the Harrington’s to repay a company debt and was stated as repayable in full ‘on or before July 2012’.

Anglo was nationalised in 2009; in 2011 it merged into Irish Bank Resolution Corp (IBRC); IBRC went into special liquidation in February 2013; and the special liquidators of IBRC sold the benefit of the Harrington’s loan facilities to Gulland Property Finance Ltd in December 2014.

Throughout this time, the Harringtons continued to pay the interest-only amount, which were up to date at the time of the hearing.

The Harringtons were notified of the transfer of the loans in February 2015, and Justice Baker explained that there was no argument about the effectiveness of the transfer of the debt – the issue in the case was the assurance of the security interest. The securities were transferred in October 2016, however, Gulland purported to appoint a receiver (Mr Tennant) in February 2016 – i.e. ‘before it had taken the benefit of the security interest by which it was entitled to so appoint’.

The primary issues for determination in the present case related to the appointment of Mr Tennant by Gulland in February 2016, and whether Gulland was entitled to call in the loans. If no valid demand was made, the counterclaim had to fail.

Validity of the appointment

Justice Baker was satisfied that Gulland had no title to the charge at the time Mr Tennant was appointed in February 2016, and therefore had no entitlement to appoint a receiver. As such, Mr Tennant’s appointment was invalid, and Mr Tennant had no authority to act as a receiver at any time.

Mr Tennant explained that the error ‘occurred in circumstances where a significant number of charges on registered lands were transferred from IBRC to Gulland, and that the deeds were redacted because of the commercially sensitive nature of some of the information contained therein’.

While Justice Baker did not accept that Mr Tennant’s appointment as receiver was a fraudulent act, she said that ‘Mr. Tennant and Gulland acted in an unprofessional and wholly careless way in appointing a receiver without checking the underlying documentation’.

Justice Baker emphasised that lenders have a profound responsibility ‘to identify, in each individual case, whether it has taken the benefit of a loan or security before calling in that loan’ – and said that a careless or mindless calling in of loans, or the appointment of a receiver, was something not to be encouraged having regard to the impact such an action may have on individual or small companies.

Considering, inter alia, Conway v Irish National Teachers Organisation [1991] 2 IR 305 and Haggart Construction Ltd. v The Canadian Imperial Bank of Commerce 1998 ABQB 5; Justice Baker was satisfied that the Harrington’s were entitled to damages for trespass. Having regard to the fact that Mr Tennant was able to operate as receiver for approximately five weeks, Justice Baker was satisfied that the correct measure of damages to express her ‘disapproval of the careless actions of Gulland’ was an award of €20,000 each.

Justice Baker rejected the Harrington’s claims for special damages for the alleged loss of a tenant, and damages for distress.

Gulland’s Counterclaim

Considering whether Gulland was entitled to call in the loans, Justice Baker considered  Titford Property Company Ltd. v. Cannon Street Acceptances Ltd. (Unreported, Goff L.J., High Court for England and Wales, 22 May 1975) at length. Justice Baker was not satisfied that Titford provided an authoritative basis for a finding that the demand provisions were repugnant to the purpose of the loan agreements. In this regard, Justice Baker was satisfied that the purpose of the first facility was to finance construction of the units, and the purpose of the second facility was to assist the Harrington’s to repay a company debt – as such, Justice Baker said that ‘the purpose has long since been achieved’ and the purpose of the loans was not frustrated by the addition of the clause for repayment on demand.

Considering the letters of demand, Justice Baker said that they were ‘not valid to require payment “forthwith”, or within 24 hours, of the facilities which were being met in accordance with an informal arrangement between the parties for fifteen years and where it must have been apparent to Gulland notwithstanding its very limited knowledge of the factual nexus and almost complete absence of relevant background documentation, that the borrowers could not have been in a position to repay at such short notice’. As such, Gulland’s counterclaim for monies due on foot of the loan facilities, interest and costs failed.

Justice Baker rejected the Harringtons’ argument that an estoppel existed sufficient to invalidate the demands, but said that Gulland was not entitled to call in the loans ‘entirely arbitrarily and without a consideration of all of the circumstances.’ While it was not necessary to ‘determine the precise length of notice that ought to have been given’, Justice Baker said that the effect of giving notice of ‘three days’ or ’24 hours’ was not an exercised of power envisaged by the overall agreement.

• by Seosamh Gráinséir for Irish Legal News