Allied Irish Banks Plc v Darcy
|Ms. Justice Laffoy
|10 November 2016
| IESC 65
|[Appeal No. 2013/416]
|10 November 2016
 IESC 65
THE SUPREME COURT
[Appeal No. 2013/416]
Banking – Consent order – Liability – Respondent seeking an order varying or discharging a consent order – Whether consent order ought to have been discharged
Facts: The plaintiff/respondent, Allied Irish Banks plc (the Bank), on 27th June, 2012, brought a motion (the 2012 Application) in plenary proceedings initiated in the High Court by the Bank against the defendants/appellants, Mr and Ms Darcy, by plenary summons issued on 26th February, 2010 (the 2010 Plenary Proceedings), seeking the following orders: (a) an order varying or discharging an order made by the High Court (Murphy J) by consent on 19th May, 2010 (the Consent Order); and/or (b) an order varying the Consent Order to permit the application of the funds the subject of the Consent Order in reduction of the liability of the appellants to the Bank. The appellants disputed the Bank’s entitlement to the reliefs sought in the 2012 Application both on a factual and legal basis. The 2012 Application was heard in the High Court by Gilligan J (the trial judge) on 23rd July, 2013. The conclusion of the trial judge was reflected in the order of the High Court dated 23rd July, 2013 and perfected on 10th September, 2013 against which the appellants appealed to the Supreme Court. It ordered that the Consent Order be discharged to permit the application of the funds the subject thereof in reduction of the liability of the appellants to the Bank. However, execution on foot of that order was stayed in the event of an appeal.
Held by Laffoy J that the issues which arose on the appeal were the following: (a) whether the High Court had jurisdiction to determine the 2012 Application; and (b) if it did have such jurisdiction, was the jurisdiction properly exercised by discharging the Consent Order so as to permit the application of the funds the subject of the Consent Order in reduction of the Appellants’ liability to the Bank. On the issue as to whether the High Court had jurisdiction to discharge the Consent Order, as it purported to do, Laffoy J concluded that the appropriate course to adopt on this application was to assume that the High Court did have such jurisdiction. On the basis of that assumption, on the question whether the jurisdiction was properly exercised, Laffoy J came to the conclusion that it was not; the consequence of those conclusions was that the Consent Order should not have been discharged and should have remained in place. Therefore, Laffoy J held that the appeal must be allowed, the effect of which was that the Consent Order was reinstated.
Laffoy J held that there be an order allowing the appeal and discharging the order of the High Court made on 23rd July, 2013.
There has been a considerable amount of litigation between the plaintiff/respondent (the Bank) and the defendants/appellants (the Appellants) in the High Court, the Court of Appeal and in this Court arising out of the banker/customer relationship of the Bank and the Appellants. This appeal arises out of plenary proceedings initiated in the High Court by the Bank against the Appellants by plenary summons which issued on 26th February, 2010 (Record No. 2010/1965P) (the 2010 Plenary Proceedings). Those proceedings related to a very distinct aspect of the banker/customer relationship of the Bank and the Appellants, which I consider it is important to identify and to distinguish from other issues arising from that relationship which have generated other litigation.
The Appellants, as the owners of a dwelling house known as ‘Woodview’, situate at Grey's Lane, Howth, County Dublin (‘Woodview’), by a mortgage dated 27th January, 2006 made between the Appellants of the one part and the Bank of the other part (the Mortgage) mortgaged and charged ‘Woodview’ and other properties in favour of the Bank as security for all monies and liabilities due by the Appellants to the Bank.
‘Woodview’ was seriously damaged by fire in May 2009. At the time, ‘Woodview’ was insured with AXA Insurance Company (AXA), but the interest of the Bank as mortgagee in ‘Woodview’ was not noted on the relevant insurance policy. Hence, the 2010 Plenary Proceedings were initiated by the Bank to enforce the obligations of the Appellants to it under the Mortgage in relation to insuring ‘Woodview’.
The Appellants' obligations in relation to insuring ‘Woodview’ were regulated by Clause 7 of the Mortgage, which contained the covenants by the Appellants as mortgagors. Paragraph (d) dealt specifically with the obligations to take out and maintain index-linked insurance cover over, inter alia, ‘Woodview’. It was specifically provided that, on request, the Appellants would complete all necessary documentation to enable the Bank to have its interest in ‘Woodview’ noted by the insurance company on the policy (sub-paragraph (iii)). There was also provision that the Bank (but without obligation) might pay any premium or effect such insurance if the Appellants did not do so (sub-paragraph (iv)). In sub-paragraph (v) the Appellants covenanted with the Bank in the following terms:
‘To apply any moneys payable or received on any insurance of the mortgaged property whether effected by the Mortgagor or the Bank (without prejudice to any obligation to the contrary imposed by law or special contract) exclusively and expeditiously either in or towards making good the loss or damage in respect of which such moneys are payable or received or in default towards the discharge of the secured moneys AND the Mortgagor hereby declares that any such moneys payable to or received by him shall be held upon trust for the Bank subject to the proviso for redemption herein before contained.’
As was noted earlier, when the 2010 Plenary Proceedings were initiated, the interest of the Bank was not noted on the policy of insurance which the Appellants had taken out over ‘Woodview’ with AXA. Moreover, while the Appellants had made a claim against AXA on foot of that policy in respect of the fire damage to ‘Woodview’, the claim was subject to proceedings by the Appellants against AXA, which were then pending. In order to protect its interest, the first relief sought by the Bank in the general endorsement of claim on the plenary summons was an order directing the Appellants to take all steps necessary to have the Bank's interest noted by AXA on the policy in relation to ‘Woodview’. The Bank also sought orders restraining the Appellants from seeking or receiving payment of the proceeds of any claim for damage to ‘Woodview’ in their sole name and for an order directing the Appellants to furnish to the Bank full information in respect of the progress of the claim and to consult with the Bank prior to acceptance of any sum in settlement of such liability. The Bank also sought an order in the following terms:
‘An Order directing the [Appellants] to apply any monies payable or received on foot of such policy of insurance solely and exclusively for the purposes set out in Covenant 7(d)(v) [of the Mortgage] …’
Damages for breach of contract were also claimed.
The next step taken by the Bank in the 2010 Plenary Proceedings after issuing the plenary summons was to bring a motion which was returnable in the High Court on 10th May, 2010. In the notice of motion the Bank sought orders in precisely the same terms as the orders sought on the general endorsement of claim on the plenary summons for injunctive relief, which have been outlined above. The duration of the orders sought was not limited to the period pending the determination of the 2010 Plenary Proceedings, as is usual when interlocutory injunctive relief is sought, nor were the orders sought described as interlocutory orders.
The outcome of that motion was that an order was made by the High Court (Murphy J.) by consent on 19th May, 2010 (the Consent Order). The Consent Order, the duration of the effect of which was not stated therein to be limited, encompassed all of the four components of the injunctive reliefs sought against the Appellants both in the notice of motion and in the general endorsement on the plenary summons, with some minor variations. The second component of the curial part of the Consent Order (paragraph 2), which restrained the Appellants from seeking or receiving payment of the proceeds of any claim in their sole name contained the following additional provisions:
(a) the Parties further agree that the proceeds of the claim attributable to the reinstatement works be placed in a joint account in the names of the [Appellants] and [the Bank] in an AIB branch with all three to sign and that any payments made from the account are made against the Architect's certificates confirming completion of works
b. the Parties further agree that works are carried out exclusively and expeditiously towards making good the loss/damage in accordance with the Covenant 7(d)(v) contained in the [Mortgage] and thereby fully reinstating the property to its pre-fire condition noting that the “default” referred to therein refers only to the obligation to make good therein and the [Bank] shall be entitled to rely upon such default if and when such arises’
The wording of the final component of the curial part of the Consent Order (paragraph 4) differs from the final relief sought on the motion in that it was worded as a direction that the Appellants –
‘do apply any proceeds of claim attributable to the reinstatement works exclusively and expeditiously towards making good loss/damage in accordance with the covenant 7(d)(v)...
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