Harrington v Gulland Property Finance Ltd No.2

• Jurisdiction: Ireland
• Judge: Ms. Justice Baker
• Judgment Date: 25 July 2018
• Neutral Citation: [2018] IEHC 445
• Court: High Court
• Docket Number: [2016 No. 2445 P]
• Date: 25 July 2018

BETWEEN

MICHAEL HARRINGTON

AND

ANTHONY (O/W TONY) HARRINGTON

PLAINTIFFS

AND

GULLAND PROPERTY FINANCE LIMITED

AND

STEPHEN TENNANT

DEFENDANTS

No. 2

[2018] IEHC 445

Baker J.

[2016 No. 2445 P]

THE HIGH COURT

Damages – Breach of contract – Trespass – Plaintiffs seeking damages for breach of contract and for trespass – Whether letters of demand were validly served

Facts: The plaintiffs, Mr M Harrington and Mr A Harrington, applied to the High Court claiming damages for breach of contract against the first defendant, Gulland Property Finance Ltd, and for trespass against both defendants, Gulland and Mr Tennant, in relation to the appointment of a receiver, the alleged unlawful call in of two loan facilities by the first defendant, and in respect of the counterclaim of the first defendant for monies due on foot of those loan facilities, interest and costs.

Held by Baker J that, having referred to Haggart Construction Ltd v The Canadian Imperial Bank of Commerce 1998 ABQB 5, the plaintiffs were entitled to damages for trespass. Having regarded the fact the receiver was in practical terms able to operate as receiver for a period of approximately five weeks, Baker J was satisfied that the correct measure of damages to express her disapproval of the careless actions of Gulland was to award the plaintiffs each the sum of €20,000. In considering whether Gulland was entitled in the circumstances to call in the Harrington loans, Baker J was satisfied that the letters of demand were not validly served; there being no other basis of default in payment, the counterclaim failed.

Baker J held that the plaintiffs were awarded €20,000 each for trespass and, as she was satisfied that the error was the responsibility of Gulland, this was to be awarded against Gulland only.

Relief granted.

JUDGMENT of Ms. Justice Baker delivered on the 25th day of July, 2018.

1 This judgment is given in respect of the plaintiff's claim for damages for breach of contract against the first defendant, and for trespass against both defendants in relation to the appointment of a receiver and the alleged unlawful call in of two loan facilities by the first defendant, and in respect of the counterclaim of the first defendant for monies due on foot of those loan facilities, interest and costs.

2 In my previous judgment on this matter, Harrington v. Gulland Property Finance Ltd. [2016] IEHC 447, the second defendant was restrained from acting as receiver pending the determination of these proceedings, on the basis that the power to appoint a receiver was not vested in the first defendant at the date of the deed of appointment.

Material uncontroverted facts

3 The plaintiffs, retired bakers and confectioners, are brothers ('the Harringtons') and shareholders in a company, Harrington Confectioners Limited ('the Company'), which ran a successful business in Cork City until 1999. The Company had been founded by the father of the Harringtons and, in turn, his two sons took over the business and became directors. The Company owed the factory premises and surrounding lands ultimately developed into industrial units after the business closed.

4 Tony Harrington, the second plaintiff, described the difficult times after the business closed and said that he and his brother worked hard to discharge all debts of the Company, which they succeeded in doing. The buildings from which the Company traded, commercial units and lands at Churchfield Industrial Estate, comprised in Folio 118347F and Folio 152304F, Co. Cork, were purchased by the brothers as tenants-in-common from the Company and developed into light industrial units to provide an income and to make pension provision for each of them.

5 The purchase of the units and land from the Company was financed by a loan in the amount of IR£600,000 (€761,842) agreed to be advanced pursuant to an agreement entered into between Anglo Irish Bank Corporation Plc. ('Anglo') and the plaintiffs made on 18 October 2000 ('the first facility'), and secured by way of first legal charge of 17 October 2000 registered as a burden on the respective Folios in favour of Anglo.

6 The purpose of the loan outlined in clause 2 of the facility letter was 'the restructure of finances along with development funds to construct seven warehouse units at Churchfield'.

7 At the time of that loan, by facility letter dated 18 October 2000, the Company borrowed the sum of IR£400,000 on terms which were materially different and which provided for an interest only payment for an initial two years. On 16 February 2016 the Company debt was redeemed in full and the evidence is that the last payment was made close to the time the personal loans the subject matter of this judgment were called in.

8 By later facility letter dated 27 November 2003 ('the second facility'), the further amount of €465,797 was advanced to the brothers, and secured over the Folio lands as a 'continuing security for all the obligations of the Borrower to the Bank'. The purpose of the loan outlined in clause 2 of the facility letter was to purchase land and buildings from the Company.

9 The first facility provided for repayment on an interest only basis. 'Without prejudice to the demand nature of the Facility', it was to be cleared 'within two years from full sale proceeds of sale of each warehouse unit as they are released from [Anglo's] charge.' In 2005 one unit, 'Unit 2', was sold and Anglo agreed to unconditionally release its security. The net proceeds of sale were approximately €385,000.00, and were used by the brothers as income for the following years. A deed of partial discharge, bearing the date 4 April 2008 was provided by Anglo. No other units have been sold.

10 The second facility was 'made in addition to and not in substitution of' the plaintiffs" existing facilities, and was an interest only facility up to May 2004, when principal and interest repayments were due to commence. From a memo dated 22 June 2004 obtained from Anglo by the plaintiffs under a Data Protection Act request, an extension of further 12 months of the interest only repayment regime was granted to the plaintiffs by Anglo. Further extensions were agreed informally thereafter.

11 The second facility was stated to be repayable in full 'on or before July 2012'.

12 At that stage the brothers" income was as follows: Income from the rentals, and directors" salary from the Company, the income of which derived wholly from rents and the total joint income before tax was somewhere short of €200,000 a year. The evidence is that the brothers enjoyed a 'comfortable living', but no more than that.

The transfer of the loans and of the securities

13 Anglo was nationalised in 2009 and merged into Irish Bank Resolution Corp. ('IBRC') in 2011.

14 In February 2013 IBRC went into special liquidation.

15 By agreement made on 17 December 2014 the special liquidators of IBRC, as successor in title of Anglo, sold to the first defendant, Gulland Property Finance Ltd. ('Gulland'), the benefit of the loan facilities of the plaintiffs.

16 Gulland notified the plaintiffs of the transfer of the loans through its agent, Pepper Finance Corp. (Ireland), trading as Pepper Asset Servicing, by their 'hello' letter dated 16 February 2015, IBRC having written a 'goodbye' letter on 6 February 2015.

17 No argument is made that the transfer of the debt was not effective, nor that the charge was not effective to create a security in favour of Anglo and, as noted above, the charge was registered as a burden on each of the Folios. The assurance of the security interest is, however, an issue in the case.

18 The securities were transferred by 'Irish Law Deed of Transfer – Form 56 (Registered Property)' of 6 October 2016, and as will be apparent Gulland had purported to appoint a receiver in February 2016 before it had taken the benefit of the security interest by which it was entitled to so appoint.

19 After Anglo was wound-up, the Harringtons continued to pay the interest only amount to IBRC and, after it purchased the loans from the special liquidators, to Gulland. The loans were repaid by direct debit, and the undisputed evidence is that there had been a small overpayment in 2017. At the date of the hearing, the payments on an interest only basis were up to date to the end of the current quarter.

The issues in the case

20 The primary issues for determination on the claim relate to the appointment of a receiver by Gulland in February 2016, and whether Gulland was entitled to call in the loans. If no valid demand was made, the counterclaim fails.

Interlocutory proceedings

21 Proceedings were commenced by plenary summons on 18 March 2016. On that date, having regard to the fact that the application was heard on the last day of term before the Easter vacation, an interim injunction was granted ex parte, by which the receiver was restrained, until after 11 April 2016 or further order, from acting as receiver over the relevant assets. Because the order was made ex parte, a further order was made that any rent collected in respect of the properties would be retained by the solicitor for the plaintiffs until further order. That arrangement continued to operate until the matters herein complained of.

22 An interlocutory injunction was made in similar terms on 29 July 2016 and was finally vacated on 6 February 2017 after Mr. Tennant was formerly discharged as receiver over the assets comprised in the two folios on 13 December 2016. The deed discharging Mr. Tennant as receiver is undated, but the evidence is that it was executed at 15.30 on 13 December 2016 and Mr. Tennant was discharged as receiver from that time.

23 Contrary to what was understood by all parties at the hearing of the interlocutory application to remove Mr. Tennant as receiver it transpired that, at the time of the purported appointment, Gulland had not, in fact, taken the interest in the...