Fennell and Another v N17 Electrics Ltd

• Jurisdiction: Ireland
• Judge: Ms. Justice Dunne
• Judgment Date: 11 May 2012
• Neutral Citation: [2012] IEHC 228
• Court: High Court
• Docket Number: [2011 No. 21 COS]
• Date: 11 May 2012

Fennell & ACC Bank PLC v N17 Electrics Ltd (in liquidation)

IN THE MATTER OF N17 ELECTRICS LIMITED (IN LIQUIDATION) AND IN THE MATTER OF THE COMPANIES ACTS 1963 TO 2009

BETWEEN

KENNETH FENNELL AND ACC BANK PLC.

APPLICANTS

AND

N17 ELECTRICS LIMITED (IN LIQUIDATION)

RESPONDENT

[2012] IEHC 228

[No. 21 COS/2011]

THE HIGH COURT

LAND LAW

Mortgage

Lease - Statutory power of leasing - Whether statutory power of leasing excluded by terms of mortgage - Whether consent of mortgagee required - Whether mortgagee aware of lease - Whether lease binding on mortgagee - Insolvency - Winding up - Company property - Lease - Whether lease asset of company for purposes of winding up - ICC Bank plc v Verling [1995] 1 ILRM 123, Iron Trades Employers Assurance Association v Union Land and House Investors [1937] Ch 313 and In re O'Rourke's Estate (1889) 23 LR Ir 497 approved; Taylor v Ellis [1960] 1 Ch 368 followed - Conveyancing Act 1881 (44 & 45 Vict, c 41), s 18 - Companies Act 1963 (No 33), s 236 - Declaration granted (2011/21Cos - Dunne J - 11/5/2012) [2012] IEHC 228

Re N17 Electrics Ltd: Fennell v N17Electrics Ltd

Facts: The respondent, a company in liquidation, was a lessee of a number of retail premises in Galway. The lessor, having already entered into a number of charges with the second applicant against the premises, agreed the lease agreement with the respondent in 2005. The applicants contended that the terms of the charges precluded the leasing of the premises without the express consent of the second applicant. The applicants therefore sought a declaration that the leasing power of s. 18 of the Conveyancing (Ireland) Act 1881 was excluded by the terms of the charges and the lease of the premises was not binding on the applicants.

Held by Dunne J, that a number of relevant points could be established from the relevant authorities and practitioners" texts. Firstly, the power under the 1881 Act could be excluded to permit leasing subject to the consent of the mortgagee. Secondly, in the event consent was not sought the lease agreement would not bind the mortgagee save in exceptional circumstances. Finally, the mere knowledge of the lease agreement by the mortgagee where the rental funds are being used to pay the outstanding mortgage fees does not constitute a relationship between the mortgagee and the lessee. Iron Trades Employers Assurance Association Ltd v Union Land and House Investors Ltd [1937] Ch 313, In Re O'Rourke's Estate [1889] 23 LR Ir 497 and Taylor v Ellis [1960] 1 Ch 368 applied.

Having considered the parties" submissions, the Court was satisfied that no prior consent was granted to the lease agreement. The authorities discussed, although dating back some time, were still applicable because of the logic of the principles set out therein. The respondent"s submission that the bank was estopped from disputing the lease agreement"s validity was without merit, and the applicants would therefore be granted the declaration.

COMPANIES ACT 1963 S236

CONVEYANCING & LAW OF PROPERTY ACT 1881 S18

CONVEYANCING & LAW OF PROPERTY ACT 1881 S18(1)

CONVEYANCING & LAW OF PROPERTY ACT 1881 S18(6)

CONVEYANCING & LAW OF PROPERTY ACT 1881 S18(7)

CONVEYANCING & LAW OF PROPERTY ACT 1881 S18(8)

CONVEYANCING & LAW OF PROPERTY ACT 1881 S18(13)

WYLIE LANDLORD & TENANT LAW 2ED 1998 PARA 6.10

ICC BANK PLC v VERLING & ORS 1995 1 ILRM 123 1994/10/3083

CONVEYANCING & LAW OF PROPERTY ACT 1881 S13

HARPUM & ORS MEGARRY & WADE: THE LAW OF REAL PROPERTY 7ED 2008 PARA 25.080

MORGAN & ORS FISHER & LIGHTWOODS LAW OF MORTGAGE 13ED 2010 PARA 29.18

WOODFALL WOODFALLS LAW OF LANDLORD & TENANT 27ED 1968 PARA 2.169

IRON TRADES EMPLOYERS INSURANCE ASSOCIATION LTD v UNION LAND & HOUSE INVESTORS LTD 1937 CH 313 1937 1 AER 481

O'ROURKES ESTATE, IN RE 1889 23 LRI 497

TAYLOR v ELLIS 1960 CH 368 1960 2 WLR 509 1960 1 AER 549

COMPANIES ACT 1963 S290

FIRST ENERGY (UK) LTD v HUNGARIAN INTERNATIONAL BANK LTD 1993 2 LLOYDS 194 1993 BCC 533 1993 BCLC 1409 12 LDAB 354

1 JUDGMENT of Ms. Justice Dunne delivered on the 11th day of May 2012

2 1. This is an application by Kenneth Fennell and ACC Bank plc. (the applicants) for a declaration pursuant to s. 236 of the Companies Act 1963 to 2009, that a business lease agreement dated 1 ^st April, 2005, in respect of "N17 Electrics Superstore in Milltown and Terryland Retail Park" is not binding on the applicants and is not an asset of the company for the purposes of the winding up. Other related relief is also sought.

3 2. The basis of the applicants' contention is that as a result of entering into four charges with ACC Bank plc, Mr. Tom Naughton, the owner of the retail units, was unable to avail of the statutory power of leasing conferred by s. 18 of the Conveyancing Act 1881, which power was expressly excluded in the four charges.

4 3. The respondent contends that it is entitled to rely on the business lease agreement as the basis for its occupation of the properties known as the Terryland units and the Milltown premises and asserts that the lease is an asset of the respondent.

5 4. It is not in dispute between the parties that as the four charges concerned predate the coming into force of the Land and Conveyancing Law Reform Act 2009, that Act has no bearing upon the issues that arise in this case.

The Charges

6 5. The first of the charges was dated 19 ^th November, 2004 ("the Milltown Charge") and was made between Tom Naughton, the borrower, and the bank, whereby the borrower charged premises described therein, being retail premises at Milltown, Tuam, County Galway, comprised in Folio No. 61301F of the Register of Freeholders County Galway, as security for the liabilities described therein. The other charges related to three retail units at Terryland Retail Park ("the Terryland Units"), Galway, and they were as follows:

7 (a) A mortgage/charge dated 29 ^th June, 2001, in which the borrower, as security for monies advanced by the bank, mortgaged and charged premises known as Unit A3 (registered under Folio No. 4387IF County Galway) to the bank.

8 (b) The second mortgage/charge was dated 12 ^th September, 2002 ("the Second Terryland Mortgage"). The borrower, as security for monies advanced by the bank, charged the premises known as Unit 2 (registered under Folio No. 43758F County Galway to the bank.

9 (c) The third mortgage/charge was dated 30 ^th May, 2003 ("the Third Terryland Mortgage") whereby the borrower, as security for the monies advanced by the bank on foot of same, charged the premises known as Unit Al registered under Folio No. 65397F County Galway to the bank.

10 6. The Milltown Charge contained the following provision at clause 6.1 headed 'Negative Pledge' in the following terms:

"The borrower shall not, except with the prior written consent of the bank,"

(a) create, extend or permit to subsist any encumbrance over the secured assets or any of them ranking in priority to or pari passu with or after the security hereby created, or

(b) part with, sell, convey, assign, transfer, lend, lease or otherwise dispose of, whether by means of one or of a number of transactions related or not and whether at one time or over a period of time, the whole or any part of the secured assets or any interest therein."

11 7. All of the Terryland Mortgages contained similar clauses as follows:

"The borrower covenants with the bank during the continuance of the mortgage ... that he will not assign, lease, sublet or part with the possession of the mortgaged premises or any part thereof without the consent in writing of the bank previously had and obtained."

12 The various mortgages/charges provided for the bank to appoint a receiver in the event that an act of default under the terms of the respective mortgages/charges occurred and in consequence of such an act of default occurring, the receiver was, by deed of appointment dated 20 ^th January, 2011, appointed by the bank as receiver over the three Terryland retail units, and by a similar deed, was appointed as receiver over the Milltown premises on the same date. No issue arises in relation to the appointment of the receiver.

13 8. The position in relation to the company is that it was wound up by order of the Court on 31 ^st January, 2011, a petition having been presented to the Court in the first instance on 11 ^th January, 2011.

The Business Lease Agreement

14 9. The business lease agreement is dated 1 ^st April, 2005 and is very short. It describes the lessor as Tom Naughton and the lessee as N17 Electrics Ltd. of Milltown, Tuam, County Galway. The premises are described as "N17 Electrics Superstore in Milltown and Terryland Retail Park". The permitted user is described as N17 Electrics. The term of the lease is described as being "from 1 ^st April, 2005 to 1 ^st April 2020". The rent payable is said to be "€30,000 with a rent review to take place at five-year intervals" and the manner payable is described as "monthly direct debit".

15 10. The longest part of the Memorandum of Agreement is the final paragraph which states as follows:

"Whereby the lessor agrees to lease and the lessee agrees to take the premises for the term of and at the rent details of which as set out above and the lessee agrees to pay the amount of the rent and other payments in the manner and at the times described herein and each of the said parties further agree and accept the terms and conditions on their respective parts to be observed and performed and which are set out in the Special and General Conditions attached to this agreement."

16 It is then signed by Mr. Naughton as the lessor and there is a signature on behalf of the company, which is a signature by an individual, and there is nothing in relation to the capacity of that individual to sign on behalf of the company and there is...