Emerald Sky 2 DAC and Others v Victoria Homes Ltd and Others

• Jurisdiction: Ireland
• Judge: Ms. Justice Emily Egan
• Judgment Date: 21 July 2023
• Neutral Citation: [2023] IEHC 446
• Court: High Court
• Docket Number: [2023 1641 P]

Between

Emerald Sky 2 Designated Activity Company, Lotus Decalia Designated Activity Company, Myles Kirby and John Healy

Plaintiffs

and

Victoria Homes Limited, Victoria Homes Developments Limited and Patrick (Otherwise “Paddy”) Byrne

Defendants

[2023] IEHC 446

[2023 1641 P]

THE HIGH COURT

JUDGMENT of Ms. Justice Emily Egan delivered on the 21 ^st day of July, 2023

Introduction

1 . In its judgment in Charleton v. Scriven [2019] IESC 28, the Supreme Court, per Clarke C.J. emphasised that interlocutory injunctions should not be treated as a means of attempting, in practice, to obtain a summary judgment. The first and second plaintiffs (where the context so requires, “the lenders”) carry on business primarily as lenders to developers in the construction industry. The third and fourth plaintiffs (where the context so requires, “the receivers”) are receivers appointed by the lenders over three properties owned by the first defendant, known respectively as “the Dundrum property,” “the Airfield property” and “the Knocklyon property” (together, “the properties”). The first defendant, a property development company, is the registered owner of the properties. The second defendant owns 100% of the shares of the first defendant. The third defendant is a director and principal controller of the first and second defendants.

2 . The plaintiffs are seeking orders for possession of the properties with a view to their sale. They must therefore demonstrate a strong case that is likely to succeed at trial. It is common case that such a strong case has been made out. It is also common case that the grant of the orders sought will facilitate the sale of the Dundrum property in advance of any substantive trial. However, the plaintiffs argue that such is the strength of their case, and the commensurate weakness of the defence advanced, that the court is fully justified in granting these orders. In this respect, the plaintiffs rely upon Charleton v. Scriven, in which Clarke C.J stated that the sequential test for the grant of interlocutory relief identified in Merck Sharp & Dohme Corporation v Clonmel Healthcare Ltd [2020] 2 IR 1 only arises in circumstances where there is an issue of substance concerning the validity of the appointment and powers of the receivers. For reasons explored below, I am satisfied that no such issue of substance arises in this case, that no significant defence has been put forward and that the plaintiffs' case is sufficiently strong to warrant the grant of mandatory relief. Furthermore, consideration of the other relevant elements of the sequential test — in particular the adequacy of damages and the balance of convenience/balance of justice — would in any event point to the same conclusion; namely that mandatory relief in respect of the Dundrum property is warranted.

The proceedings

3 . In these proceedings, instituted on 13 ^th April 2023, the plaintiffs seek the following orders:

• a. A declaration that the plaintiffs are entitled to possession of the properties;

• b. an injunction for the delivery of possession by the defendants of the properties and of all keys, alarm codes and other security access devices in respect of the properties;

• c. an order directing the defendants to deliver all books and records of purported leases, licences and tenancy agreements in respect of the properties, together with an order declaring same null and void;

• d. An order restraining the defendants from impeding or obstructing the plaintiffs in their efforts to secure possession of the properties, to collect rents and/or sell the properties and/or from interfering with the office and functions of the receivers and/or from holding themselves out as having any entitlement to sell, rent or otherwise deal in the properties and/or restraining them from trespassing, entering or otherwise attending at the properties;

• e. damages for trespass and for intentional interference in the economic interests of the plaintiffs;

• f. judgment in favour of the first and second plaintiffs as against the first defendant as of 12 ^th April 2023 in the sum of €8,288,297.00;

• g. an order for possession of the properties pursuant to s. 97(2) of the Land and Conveyancing Law Reform Act, 2009 and an order pursuant to s. 100(3) of the 2009 Act authorising the plaintiffs to exercise their power of sale over the properties.

4 . The plaintiffs sought interim relief broadly in terms of paragraphs 3 (a) to 3 (g) above on 14 ^th April 2023 and was granted short service for an early return date for the interlocutory application which came before this court on 28 ^th April 2023.

Summary of the defendants' argument

5 . Although it is common case that the plaintiffs have made out a strong case likely to succeed at trial, the defendants nonetheless argue that the court ought not grant the relief sought. Although they accept their indebtedness to the lenders, the defendants rely upon a deed of settlement of 29 ^th November, 2020 (“the deed of settlement”) as between the lenders, the first defendant and Derryveigh Development Ltd pursuant to which the parties agreed a workout of the first defendant's repayment obligations in tandem with phased completion of the development and sale of the properties (and certain other properties which are not the subject of these proceedings). Phased completion of the developments did not occur in the manner specified in the deed of settlement and the first defendant failed to comply with the repayment schedule set out therein. As a result of such default, the lenders were entitled to appoint the receivers over the property. However, it is contended that the first defendant's admitted failure to comply with the deed of settlement was brought about by the deliberate actions of the lenders. The defendants also assert that, if permitted to take possession of the properties, the lenders will procure the sale of the properties at a deliberate undervalue to a purchaser connected with the lenders with a view to receiving a “kickback” on subsequent sale at full market value.

6 . It is convenient to now set out the various contractual provisions regulating the loan facilities, the mortgages (“together the finance documents”), the appointment of the receivers and crucially the deed of settlement.

Relevant contractual provisions

7 . There are six separate facility letters (“the facility letters”) dated between 20 ^th June 2018 and 26 ^th February 2019 pursuant to which the lenders advanced substantial funds to the first defendant as borrower (with Derryveigh Developments Ltd acting as guarantors) for the purposes of acquiring and developing the properties. The facility letters were accepted by the first defendant and Derryveigh Developments Ltd by way of six separate loan agreements (“the loan agreements”). It was an express term of the loan agreements that monies advanced thereunder would be repayable on demand and would be secured by first legal charges over the properties. The first defendant also entered into four separate mortgages (“the mortgages”) which included the following conditions:

• • a term that the first defendant would pay and discharge all its indebtedness to the lenders – (existing and future) — on demand;

• • the creation of charges (“the charges”) over the properties as security for the secured obligations meaning all monies, obligations and liabilities (existing and future) of the first defendant to the lenders;

• • a term that the security would become immediately enforceable and that the lenders may in their absolute discretion enforce all or part of the security;

• • a term permitting the enforcement of the security without any restrictions imposed by law on the power of sale;

• • a term empowering the lenders to appoint a receiver;

• • a term that the powers of the receiver appointed included all powers under the Land and Conveyancing Law Reform Act, 2009 and inter alia powers to take immediate possession, sell, realise or otherwise dispose of the security.

8 . The charges were registered with the Land Registry as a burden on the folio of each property. The loans were not repaid within the time specified entitling the lenders to terminate the facility, demand immediate repayment and take enforcement action including exercising their power to appoint a receiver and execute the power of sale. Although it is common case that the first defendant was in breach of its obligations under the loan agreements, the parties ultimately reached an agreement which was formalised in the deed of settlement executed as between the lenders of the one part and first defendant and Derryveigh Developments Ltd (defined in the deed of settlement as “the borrowers”) of the other part. All parties were legally advised in the negotiation of the deed of settlement which, as stated at para. 5 above provided for a workout of various developments by the borrowers and for certain repayment obligations once the relevant assets were sold. The following clauses of the deed of settlement are of relevance:

• • At clause 2.1 the borrowers acknowledged and confirmed that they were indebted to the lenders in the amount of €14,739,353.79 (as of 28 ^th October 2020).

• • At clause 2.2 the borrowers acknowledged that the amounts due and owing under the above loan agreements were fully valid, binding and enforceable against the borrowers. The borrowers undertook not to dispute that the amount represented their indebtedness to the lenders.

• • Clause 2.3 recorded that the borrowers had procured further funding (of not less than €750,000) from a specified investor (“the investor”) to facilitate the phased completion of the developments (defined as six separate development projects being carried out by the borrowers including the development of the properties the subject matter of these proceedings). As each sale progressed, the amount realised would be lodged to an escrow...