Citywide Leisure Ltd v Irish Bank Resolution Corporation Ltd

• Jurisdiction: Ireland
• Judge: Mr. Justice Brian J. McGovern
• Judgment Date: 24 May 2012
• Neutral Citation: [2012] IEHC 220
• Court: High Court
• Date: 24 May 2012

[2012] IEHC 220

THE HIGH COURT

[No. 7023 P/2011]

Citywide Leisure Ltd (in receivership) & Ors v Irish Bank Resolution Corporation Ltd

BETWEEN

CITYWIDE LEISURE LIMITED (IN RECEIVERSHIP), BLARNEY INN LIMITED (IN RECEIVERSHIP), BCGM LIMITED (IN RECEIVERSHIP), JRM HOTELS LIMITED (IN RECEIVERSHIP) AND ASPERE PROPERTY INVESTMENTS LIMITED

PLAINTIFFS

AND

IRISH BANK RESOLUTION CORPORATION LIMITED

DEFENDANT

COMPANIES ACT 1963 S390

COMPANIES ACT 1963 S60

DPP v CORBETT 1992 ILRM 674

RSC O.28 r2

RSC O.19 r 28

WOORI BANK & ANOR v KCB IRELAND LTD UNREP CLARKE 17.5.2006 2006/59/12499 2006 IEHC 156

PORTERIDGE TRADING LTD v FIRST ACTIVE PLC UNREP CLARKE 7.9.2007 2007/51/10774 2007 IEHC 313

CUTTLE v ACC BANK PLC T/A ACC BANK UNREP KELLY 30.3.2012 2012 IEHC 105

CORNHILL v MINISTER FOR AGRICULTURE UNREP O'SULLIVAN 13.3.1998 1998/14/4976 2012 IEHC 105

NATIONAL ASSETS MANAGEMENT AGENCY ACT 2009 S99

NATIONAL ASSETS MANAGEMENT AGENCY ACT 2009 S102

IARNROD EIREANN v IRELAND 1996 3 IR 321 1995 2 ILRM 161 1995/8/2405

CONSTITUTION ART 40.3

CONNAUGHTON ROAD CONSTRUCTION LTD v LAING O'ROURKE IRELAND LTD UNREP CLARKE 16.1.2009 2009/9/2055 2009 IEHC 7

LANCEFORT LTD v BORD PLEANALA 1998 2 IR 511 1998/8/2345

PRACTICE & PROCEDURE

Pleadings

Amendment - Statement of claim - Delay - Whether delay unreasonable - Whether claim bound to fail - Whether amendment necessary to determine real issues - Security for costs - Defendant seeking security for costs - Whether special circumstances enabling court to exercise discretion not to order security for costs - Connaughton Road Construction Ltd v Laing O'Rourke Ireland Ltd [2009] IEHC 7 (Unrep, Clarke J, 16/1/2009) considered - Companies Act 1963 (No 33), s 390 - Application to amend pleadings refused, security for costs granted (2011/7023P - McGovern J - 24/5/2012) [2012] IEHC 220

Citywide Leisure Ltd (in receivership) v Irish Bank Resolution Corporation Ltd

Facts: The plaintiff companies owned and managed a number of properties in Dublin as a group. One of the plaintiffs was indebted to the defendant in regards of a number of loans, the debt being secured on the group as a whole. Following the failure of the plaintiffs to repay the debt upon the loans being called in, the defendant appointed a receiver to each of the companies.

The plaintiffs began litigation to challenge the receiver's appointment and to claim damages for breach of contract. As part of the proceedings, the plaintiffs now sought to amend their claim whilst the defendant applied for security of costs

Held by McGovern J, that the plaintiffs' first and second amendments would be allowed as the defendant consented to the amendments. However in regards to the third amendment, having applied the relevant principles the Court assessed that the proposed amendment would result in a claim that was bound to fail. Woori Bank & Another v KDB Ireland Ltd [2006] IEHC 156, Porteridge Trading Ltd v First Active Plc [2007] IEHC 313, Cuttle v ACC Bank PLC T/A ACC Bank [2012] IEHC 105, and Cornhill v. Minister for Agriculture (Unreported, 13 March 1998) applied.

In regards of the security of costs, the plaintiffs had to show that special circumstances existed which would justify the Court refusing to order security for costs. In the absence of any such circumstances, an order for security for costs was therefore appropriate and an order would be made accordingly.

1 1. Two motions are brought before the court in this case. The plaintiff has brought a motion for leave to amend its statement of claim and the defendant has brought a motion for security for costs pursuant to s. 390 of the Companies Acts 1963 ("the 1963 Act").

Motion to amend Statement of Claim

2 2. The plaintiffs are a group of companies which owned and managed the following properties: the Holiday Inn Hotel in Pearse Street, Dublin; a restaurant in Temple Bar, Dublin; Tante Zoe's restaurant, Dublin; and the Blarney Inn Hotel, Kildare Street, Dublin along with an associated nightclub called Club Nassau in Dublin.

3 3. One of the plaintiff companies had a debt with the defendant but the debt was cross-secured on assets of the plaintiff companies as a whole. The loans were refinanced in 2008, but the defendant (formerly Anglo Irish Bank Corporation, otherwise "Anglo") called in the loans pursuant to the terms of the loan agreement, and when the plaintiffs were unable to pay the sums due, the defendant appointed a receiver to the companies.

4 4. In these proceedings, the plaintiffs challenge the appointment of the receiver and seek a declaration that the appointment of the receiver over the assets and undertakings of the plaintiffs or any of them is in breach of contract, void and otherwise invalid. The plaintiffs also claim damages for breach of contract and seek an order directing the taking of accounts and an inquiry as the Court may deem appropriate.

5 5. The statement of claim was delivered on 21 ^st November, 2011, in accordance with case management directions given by Kelly J. The defendant delivered a full defence to the claim.

6 6. The plaintiffs seek to make three amendments to their statement of claim. One concerns an allegation that security documents were altered. The second amendment involves an allegation that there was a breach of s. 60 of the 1963 Act, in that assistance was given to the plaintiff companies by loans from the defendant for the purposes of the purchase of its own shares and that the defendant had constructive knowledge of this. The third amendment concerns what was described by counsel as "the NAMA point". The defendant does not contest the entitlement of the plaintiffs to be granted an order making the first and second amendments. Accordingly, I give liberty to the defendant to make those amendments. They are set out in the amended statement of claim as follows:

2 2 "41. The Plaintiffs further claim that the transactions set out at paragraph 6 hereof were executed in breach of section 60 of the Companies Act 1963 as amended an are thus voidable at the instance of the plaintiffs. The breaches of the Companies Acts were known to the Defendant. The appointment of receivers was made on foot of the said transactions and was therefore unlawful.

42 42. Further the Defendant, its servants or agents, materially altered documents so as to give effect to certain securities. The said alteration was unlawful. As the appointment of receivers was made on foot of the said securities the appointment was unlawful."

7 7. The amendment sought to be made in relation to the "NAMA point" is as follows:

2 2 "43. The Plaintiffs claim and assert that they have been subjected to a profound inequality of treatment and/or invidious discrimination by agencies of the State which constitute and continue to constitute a breach of their property rights guaranteed by the Constitution of Ireland.

Particulars of breach of Property Rights

(a) The defendant is a financial institution licensed in the State and fully owned and controlled by the State and/or its agents.

(b) The State in recognising the need to address the serious threat to the economy and the instability of credit institutions in the State generally and the need for the maintenance and stabilisation of the financial system in the State and recognising the need to facilitate the availability of credit in the economy of the State, to resolve the problems created by the financial crisis in an expeditious and efficient manner and achieve a recovery in the economy and to contribute to the social and economic development of the State, enacted the National Asset Management Agency Act, 2009.

(c) Under the terms of the said legislation the defendant has been designated as a participating institution. In that regard certain of the defendant's loans have been transferred to the National Asset Management Agency NAMA) and borrowers of those loans now deal with the Agency.

(d) The plaintiffs' loans, by reason of the fact that they do not exceed €20,000,000, were not transferred to the NAMA and remain on the balance sheet of the defendant.

(e) NAMA, in acquiring loans form the defendant, purchased same at a substantial discount to their face value.

(f) Having acquired the loans, NAMA requires each borrower to submit a business plan whose primary purpose is to present a complete account of its financial affairs and to provide a detailed plan of how and when all liabilities to NAMA will be repaid. It is to be noted that the liability to NAMA is represented by the discounted price paid by NAMA for the original loan.

(g) The borrower's business plan is reviewed by an independent business reviewer who assesses the reasonableness of assumptions used by the borrower, conducts a detailed analysis of cash flow projections and presents an independent critique of the plan. The plan and the associated independent business review are then considered by the NAMA board, credit committee, chief executive or senior management, based on a cascading system of delegated authorities approved by the board. Other factors to take into account at this stage include the degree of the borrower's co-operation with NAMA and the quality of its corporate governance arrangements.

(h) The business plan process leads ultimately either to approval of the borrower's business plan, possibly subject to changes and the imposition of certain conditions, or to enforcement. The latter applies in the case of borrowers who are unable to prove that they have the capacity to meet their debt obligations, even if re-structured, or where they have failed to co-operate with the process. NAMA has stated that enforcement is not its preferred option but that its stated objective is to try and achieve a consensual workout with as many borrowers as possible.

(i) Further, credit activity...