Bank of Ireland v Rockfield Ltd

• Jurisdiction: Ireland
• Judge: KENNY
• Judgment Date: 01 January 1979
• Neutral Citation: 1978 WJSC-SC 2143
• Court: Supreme Court
• Docket Number: [1976 No. 46 Sp.]
• Date: 01 January 1979

1978 WJSC-SC 2143

SUPREME COURT

O'Higgins C.J.

Henchy J.

Griffin J.

Kenny J.

Parke J.

No. 46 Sp./1976

183/1977

BANK OF IRELAND FINANCE LTD v. ROCKFIELD LTD.

RESERVING HIGH COURT 4.7.77

BANK OF IRELAND FINANCE LIMITED

v.

ROCKFIELD LIMITED

1 The judgment of the Court was delivered by KENNY.:28th July 1978

2 In this action, the plaintiffs, Bank of Ireland Finance United ("the Bank") sue as equitable mortgagees for possession of the lands in Folio 453 of the register of Freeholders County Wicklow containing about 29 acres with the buildings on then known as "The Rockfield Hotel" of which the defendant ("Rockfield") are the registered owners. The Bank claim that there is now over £200,000 due to then by Rockfield, who admit that the sum was paid by the Bank but say that the contract under which it was advanced never became binding on them and that if it did, the Bank knew that the money they were advancing was to be used for the purchase of shares in Rockfield and so the transaction was void under s.60 sub-s.14 is of the companies Act 1963.

3 Rockfield had been registered as full owners of the lands in the folio on 7th of July 1967. The advance by the Bank was made in September and October 1973 and was secured by the deposit by the defendants with the plaintiffs of the land certificate relating to the lands hands in May 1974. The Bank did not become aware that Rockfield were registered as owners of the lands until May 1974 and, however remarkable it say seem, they made this large advance on the security of a mortgage by deposit without inspecting the Folio or asking for a copy of it.

4 The shares in Rockfield were until the 5th of September 1973 in the names of Timothy Gwyn Jones, Mrs. Steinhouse and Douglas Farrow. In July 1973 Mr. Alan Blakemore visited the hotel at Rockfield and there were a number of discussions between Mr. Gwyn Jones and him about the acquisition of the lands in the Folio so that the hotel would continue to be fun as a hotel but the lands would be developed by building very food bungalows. Mr. Blakemore who was English, was interested in the project and discussed it with Mr. Brandan Costello, a business man in Dublin who had had come experience of property development. Mr. Costello agreed to put £50,000 into the project and the two of them discussed how they could borrow the money to finance the purchase of the lands. Various methods of carrying out the transaction were discussed: one was the use of a company called Hillside Limited to acquire the lands, another war that the shares in Rockfield should be acquired by Hillside and a third was to buy the shares in Rockfield. They estimated that they needed an advance of £170,000 and they retained Mr. John Quinlan, a loan broker who carries on business under the name of Finance and General Brokers Limited, to get them a loan to carry out the purchase and development. They had estimates of the cash flow and of the ultimate cost of the project prepared and gave these to him He approached the Bank with details of the project and was asked to send in the documents which vouched the transaction. He dealt first with Mr. Leyden, an official of the Bank and gave him an estimate of the amount required for the project, an estimate of the cash flow, the planning permission which had been granted for the lands in 1972 and an opinion of senior counsel given to the Wicklow County Council in connection with some drainage problems which the development would cause. The documents did not include a copy of the Folio relating to the lands. In the estimate of the capital required, the acquisition costs of the property were shown as £175,000 and the stamp duty was shown as £1,750, a rate of 1 per cent. Mr. Leyden was emphatic in his evidence that it was never suggested by Mr. Quinlan nor shown by any of the documents that the acquisition of the land was to be carried out by purchasing the shares In Rockfield and that, he understood that a new limited company was to be formed to acquire the lands He also said that he did not ask Mr. Quinlan from whom the property was being bought. Mr. Leyden vent on holidays and the transaction was taken over by Mr. Seeldrayers who had a number of meetings with Mr. Quinlan who told him that the finance was needed to help with the purchase and development of the lands which were at Brittas Bay. Mr. Seeldrayers did not ask who owned the lands and was never told that the transaction was to be carried out by acquiring the shares in Rockfield. The planning permission showed Rockfield as the applicants and counsel's opinion was headed Rockfield. Mr. Seeldrayers assumed that the moneys were to be advanced to Rockfield which was, he thought, an entirely new company. Mr, Costello also met Mr. Seeldrayers on a number of occasions. He said in evidence that he told the Bank officials that the advance was to be used for the purchase of shares in Rockfield but Mr. Leyden, Mr. Seeldrayers and Mr. Murphy, who subsequently took over from Mr. Seeldrayers, denied this and it is abundantly clear that the judge who tried the action, (Mr.Justice McWilliam)did not believe Mr. Costello's evidence.

5 The Bank were concerned about security for any advance they would make and they told Mr. Quinlan that they would require the land certificate of the lands, to be deposited with them as security when the sale was completed,that a sum of £50,000 to which Mr. Costello was entitled under a trust should be lodged with and hypothecated to then so that, if necessary, it could be applied in reduction of the amount advanced and that they also required a guarantee by Mr. Blakemore and Mr. Costello for the advance. At the time when the documents relating to the planning permission were given to the Bank, it was generally believed that anyone, be he owner of the lands or not, could apply for planning permission and this remained the general impression among the members of both branches of the legal professions, and architects and engineers until the 30th of July 1974 when this Court gave judgment in Frascati Estates Limited v. Walker (1975) I.R. 177. Mr. Murphy then took over the handling of the negotiations. He too was not aware that Rockfield owned the lands and thought that Rockfleld was the name of a company which was going to acquire the lands with the help of an advance from the Bank. None of the legal staff of the Bank were consulted about the transaction until long after the advance was made. The estimates of the cash flow had been prepared by Messrs Gardner Donnelly and Co., the wellknown auditors, who had put the heading of "Rockfield Development" on each of the documents which they sent. They also discussed the matter with the Bank. The Bank were originally reluctant to enter into the transaction but ultimately agreed to advance £170,400 to Messrs Blakemore and Costello. The Bank had concentrated their enquiries on the financial standing of Messrs Costello aid Blakemore and on the costing of the Rockfield project. However remarkable it may seem, they never asked who the owners of the Rockfield property were or inspected the Folio. All the Bank's officials were aware of s. 60 of the Companies Act 1963which imposes restrictions on a company advancing money for or helping in any way in the acquisition of its shares and, if they had known that Rockfield were the owners of the land, they would not have entered into the transaction.

6 The long negotiations ultimately led to agreement which and was expressed in a letter of the 30th of July 1973 from the Bank to Messrs Costello and Blakemore. They were written to by the Bank at the request of Mr. Quinlan. The Bank officials thought that the letter should go to Rockfield but he persuaded then not to do this. The relevant parts of this letter are:

"I have pleasure in informing you that we will agree to make loan facilities to the extent of £170,400 available to you jointly subject to the following conditions:"

1. Purpose

7 Purchase and development of 29.7 acres of building land in Brittas Bay, County Wicklow on which there is full planning permission.

8 2. Rate

9 The rate of interest applicable is subject to variation, at our discretion, in line with our six months deposit rate, but is presently 15 per cent per annum.

10 3. Security

11 (a) Equitable deposit by you of the title deeds relating to 29.7 acres of land being purchased at Brittas Bay, County Wicklow.

12 (b) A deposit account for £50,000 to be opened in Foster Finance Limited, the deposit moneys to be hypothecated to us for the duration of the loan. Your acceptance of the foregoing terms and conditions should be signified by signing and returning to us the enclosed duplicate copy of this letter within a period of fourteen days from the date of same."

13 This letter was signed by Mr. Blakemore and Mr. Costello and returned to the Bank.

14 The Bank were then informed that the £50,0OO were trust funds and, to get over this difficulty, it was suggested that the advance should be increased to £220,000 and, on the 7th of August 1973 the Bank wrote to Mr. Huinlan that they were not. prepared to accept the new proposition and that they required the £50,000 to be placed on deposit with them. On the 3rd of September Messrs William Fry and Sons wrote to the Bank that "inconsideration of loan facilities granted to our. clients (Mr. Costello and Mr. Blakemore) we hereby undertake to hold in trust for you land certificate Folio 453 County Wioklow (29.7 acres Brittas Bay, County Wicklow) when same comes into our possession on the closing of the sale and...