Garcia v Kilkenny

• Jurisdiction: Ireland
• Judge: Mr. Justice Hedigan
• Judgment Date: 19 February 2016
• Neutral Citation: [2016] IEHC 89
• Docket Number: [2014 No. 468 COS]
• Court: High Court
• Date: 19 February 2016

BETWEEN

AIDAN GARCIA (LIQUIDATOR)

AND

PANSHIRE LIMITED (IN LIQUIDATION)

APPLICANTS

AND

MARK KILKENNY, PATRICK ROONEY

AND

DANSKE BANK

RESPONDENTS

[2016] IEHC 89

[2014 No. 468 COS]

THE HIGH COURT

COMMERCIAL

Company – The Companies Act 1963 – Practice & Procedures – O. 63A, r. 5 of the Rules of the Superior Courts – Fixation of preliminary issue by Court – Delay

Facts: Following the institution of the proceedings by the applicants under s. 298 of the Companies Act 1963 against the first and second named respondent claiming various reliefs, the third named respondent/bank had now filed the present application seeking trial of a preliminary issue as to whether the bank had the priority to claim all the proceeds of the sale of the concerned development. The bank contended that the basis of its claim was the mortgage deed executed in its favour as security for loan by the first named respondent over all of his interest in the said development. The applicants contended that there was delay in filing the present application by the bank. The bank asserted that it was entitled to raise the preliminary issue after the closure of the pleadings with the delivery of the defence.

Mr. Justice Hedigan refused to grant the desired relief to the third named respondent/bank. The Court held that under o. 63A, r. 5 and r. 6 (1) (ii) of the Rules of the Superior Courts, the bank could apply for trial of the preliminary issue at any time after the matter had entered in the commercial list. The Court found that there was a delay of three months in making the present application by the bank and no reasonable explanation had been provided for such delay. The Court held that the parties in a commercial litigation should move with all possible expedition and should not delay the matter unnecessarily by making multiple applications for determination of the preliminary issues at certain interval.

JUDGMENT of Mr. Justice Hedigan delivered on the 19th of February 2016

1 Introduction

1.1 In these proceedings, the third named respondent (‘the Bank’) seeks the trial of one preliminary issue:

‘Whether the security held by the Third Named Respondent ranks in priority to any claims, rights or interests asserted by the Applicants in respect of the Clearstream Development and/or related sale proceeds?’

1.2 By notice of motion dated 19th October, 2015, the Bank seeks the following reliefs:

‘1. An order pursuant to Order 63A Rule 5 of the Rules of the Superior Courts (‘RSC’) and/or Order 63AQ Rule 6(1)(ii) RSC and/or the inherent jurisdiction of this Honourable Court fixing the following issue to be determined by way of preliminary issue (the ‘Preliminary Issue’) in the above entitled proceedings:

‘Whether the security held by the Third Named Respondent ranks in priority to any claims, rights or interests asserted by the Applicants in respect of the Clearstream Development and/or related sale proceeds?’

2. In the event of the Preliminary Issue being determined in the affirmative, an order pursuant to Order 19 Rule 28 RSC and/or the inherent jurisdiction of this Honourable Court striking out the within proceedings as disclosing no reasonable cause of action; and/or as being frivolous or vexatious; and/or bound to fail.

3. Such directions as to this Honourable Court deems appropriate in respect of the setting down of the Preliminary Issue.

4. A stay on the directions timetable in respect of the substantive proceedings as issues on 9 September 2015 pending determination of the Preliminary Issue.

5. Such further or other order as may be appropriate.

6. Costs.’

2 The Factual Background

2.1 The substantive proceedings are brought by the applicants by way of notice of motion dated 21st October, 2014, seeking, inter alia:

(1) An order pursuant to section 298 of the Companies Act 1963 against the first and second named respondents;

(2) An order pursuant to section 38 of the Companies Act 1990 against all of the respondents

(3) A declaration pursuant to section 139 of the Companies Act, 1990 (as amended) that the property of the Company comprising of the proceeds of sale of the apartments situated at Clearstream Court, Finglas, Dublin 11 was disposed of with the effect of perpetrating a fraud on the Company and its creditors.

(4) An Order pursuant to section 139 of the Companies Act 1990 (as amended) requiring the Respondents to deliver up or pay a sum to the Liquidator on such terms and conditions as the court deems fit in respect of the disposition of the proceeds of sale of the apartments situated at Clearstream Court, Finglas, Dublin 11.

2.2 Section 139 of the Companies Act, 1990 (‘the Act of 1990) provides:

‘139.—(1) Where, on the application of a liquidator, creditor or contributory of a company which is being wound up, it can be shown to the satisfaction of the court that—

( a) any property of the company of any kind whatsoever was disposed of either by way of conveyance, transfer, mortgage, security, loan, or in any way whatsoever whether by act or omission, direct or indirect, and

( b) the effect of such disposal was to perpetrate a fraud on the company, its creditors or members,

the court may, if it deems it just and equitable to do so, order any person who appears to have the use, control or possession of such property or the proceeds of the sale or development thereof to deliver it or pay a sum in respect of it to the liquidator on such terms or conditions as the court sees fit.’

2.3 The first named applicant is the liquidator of the second named applicant (‘the Company’). The Company was involved in the development of an apartment complex in McKee Avenue, Dublin 11, comprising 88 apartments and 132 car-park spaces, and known as Clearstream Court. For the purposes of the preliminary issue the following facts are admitted:

(i) That at all times Mr. Kilkenny and Mr. Rooney were directors and shareholders of the Company;

(ii) That under a facility letter dated 20th March, 2006, the Bank advanced loans in the amount of €7,900,000 (‘the Term Loan’) and €12,100,000 (‘the Development Loan’) – which loans were subsequently increased under a facility letter dated 19th November, 2007, to approximately €24,000,000 – to Mr. Kilkenny to assist in the purchase of the lands on which the Clearstream Court apartments were built, and to assist with the development costs associated with the constructions of same;

(iii) That both the Term Loan and the Development Loan were to be repayable from the proceeds of apartment sales in the development at Clearstream Court;

(iv) That Mr. Kilkenny purchased the beneficial interest in the land comprising the site on which Clearstream Court was built relying upon the Term Loan provided to him by the Bank;

(v) That Mr. Kilkenny executed a mortgage dated 25th April, 2006, in favour of the Bank over all of his interest in the Clearstream Court lands (‘the Mortgage’);

(vi) That Mr. Kilkenny contracted with the Company to build the Clearstream Development for reward;

(vii) That Mr. Kilkenny drew down the Development Loan to facilitate the construction of the site known as the Clearstream Development;

(viii) That the Bank did not lend any money to the Company and that it does not hold (and never did hold) any security from the Company, whether by way of mortgage, charge, or otherwise;

(ix) That the Clearstream Development was ready for occupation/sale in August 2008;

(x) That the first unit in Clearstream Court was sold on the 9th December, 2008;

(xi) That the first 30 units in Clearstream Court were sold by means of two separate contracts, the first being a contract for the sale of the site (‘the Site Contract’) as between Mr. Kilkenny and Mr. Rooney and the purchaser, and the second being a building agreement between the purchaser of a unit and the Company (‘the Building Agreement’)

(xii) That in respect of the first 30 sales, the Bank was furnished with a Closing Statement which referred to the consideration payable by the purchaser, as apportioned between ‘Sale of Site as per Contract (Mark Kilkenny & Patrick Rooney)’ and ‘Building Agreement (Panshire Limited)’ and;

(xiii) That the Bank received a substantial sum of money representing the proceeds of sale of the apartments at Clearstream Court, including part of the ‘Building Agreement’ element of such proceeds of sale, and applied the same in permanent reduction of the debt due by the first named respondent in respect of the Term Loan and Development Loan.

3 The Legal Framework

3.1 Order 63A, r. 5 of the Rules of the Superior Courts provides:

‘A Judge may, at any time and from time to time, of his own motion and having heard the parties, give such directions and make such orders, including the fixing of time limits, for the conduct of proceedings entered in the Commercial List, as appears convenient for the determination of the proceedings in a manner which is just, expeditious and likely to minimise the costs of those proceedings.’

3.2 Order 63A, r. 6(1)(ii) RSC provides:

‘Without prejudice to the generality of rule 5 of this Order, a Judge may, at the initial directions hearing –

(a) of his own motion and after hearing the parties, or

(b) on the application of a party by motion on notice to the other party or parties returnable to the initial directions hearing,

give any of the following directions to facilitate the determination of the proceedings in the manner mentioned in that rule:

…

(ii) fixing any issues of fact or law to be determined in the proceedings;…’

3.3 On a procedural note, the applicants contended that the Bank ought to have brought the application pursuant to Order 25 and/or Order 34(2) RSC, rather than Order 63A. Order 25 RSC provides:

‘1. Any party shall be entitled to raise by his pleading any point of law, and any point so raised shall be disposed of by the Judge who tries the cause at...