Highland Finance (Ireland) Ltd v Sacred Heart College of Agriculture

• Jurisdiction: Ireland
• Judge: BLAYNEY J.
• Judgment Date: 01 January 1998
• Neutral Citation: 1997 WJSC-SC 1200
• Court: Supreme Court
• Docket Number: 283/92,[S.C. No. 283 of 1992]
• Date: 01 January 1998

1997 WJSC-SC 1200

THE SUPREME COURT

Blayney J.

Denham J.

Barrington J.

283/92

HIGHLAND FINANCE (IRL) v. SACRED HEART COLLEGE OF AGRICULTURE LTD

BETWEEN/

HIGHLAND FINANCE (IRELAND) LIMITED FORMERLY BARCLAYS MERCANTILE HIGHLAND FINANCE (IRELAND) LIMITED FORMERLY HIGHLAND LEASING (IRELAND) LIMITED

Plaintiff/Appellant

and

SACRED HEART COLLEGE OF AGRICULTURE LIMITED (IN RECEIVERSHIP), EDWARD McELLIN AND THE GOVERNOR AND COMPANY OF THE BANK OF IRELAND

Defendants/Respondents

Citations:

BANK OF IRELAND FINANCE LTD V DALY 1978 IR 79

ORAKPO V MANSON INVESTMENTS LTD 1977 3 AER 1

BOODLE HATFIELD & CO V BRITISH FILMS LTD 1986 PCC 176

PAUL V SPEIRWAY LTD 1976 2 AER 587

NOTTINGHAM PERMANENT BUILDING SOCIETY V THURSTAN 1903 AC 6

GHANA COMMERCIAL BANK V CHANDIRAM 1960 2 AER 865

BURSTON FINANCE LTD V SPEIRWAY LTD 1974 3 AER 735

Synopsis:

EQUITY

Doctrine of subrogation - sale of milk quota - purchase money advanced by plaintiff - whether plaintiff entitled to be subrogated to vendor's lien - Held: Prima facie right to be subrogated to vendor's lien nullified by inconsistent terms of loan - application of doctrine of subrogation not required by justice and reason - (Supreme Court: Blayney J., Denham J., Barrington J. - 27/11/1996) - [1998] 2 IR 180 - [1997] 2 ILRM 87

|Highland Finance (Ireland) Ltd. v. Sacred Heart College of Agriculture Ltd. (In Receivership) & Ors|

1 JUDGMENT delivered on the 27th day of November 1996 by BLAYNEY J. [NEM DISS]

2 By an indenture dated the 15th day of November 1984 the first-named defendant/respondent Sacred Heart College of Agriculture Limited (hereinafter referred to as the college) charged in favour of the third-named defendant/respondent, the Governor and Company of the Bank of Ireland (hereinafter called the bank) all its undertaking property and assets present and future with the payment of all monies thereby secured and gave the bank power to appoint a receiver and manager of the property and assets thereby charged in any of the events therein specified.

3 On the 2nd day of October 1990 the bank appointed the second-named defendant/respondent Edward McEllin (hereinafter called the receiver) to be the receiver and manager of the property and assets charged by the debenture.

4 In April 1988 the college bought from the North Connaught Farmers Co-Operative Society (hereinafter called the Co-Operative) a milk quota of 30,000 gallons for the sum of £30,000, and in September 1988 the college bought from the Co-Operative another milk quota of 28,731 gallons for the sum of £28,731. In the case of each purchase the entire amount of the purchase money was advanced to the college by the plaintiff/appellant Highland Finance Ireland Limited (hereinafter called Highland).

5 Since the commencement of the receivership both milk quotas have been sold by the receiver and the proceeds lodged on deposit to await the outcome of these proceedings.

6 Highland's claim in these proceedings is that they have a charge on the proceeds of the sale of the quotas which is entitled to priority over the bank's debenture. The basis of their claim is that by reason of having advanced to the college the entire amount of the purchase money for the acquisition of the milk quotas they are entitled by subrogation to the vendor's lien which they say the Co-Operative would have had prior to the sale of the quotas being completed.

7 Murphy J. dismissed Highland's claim. He held that the terms of the loan made by Highland to the college were inconsistent with Highland becoming entitled by subrogation to the Co-Operative's vendor's lien. Highland now appeals against that decision.

8 The notice of appeal contains three grounds but in reality the first ground is the sole ground relied on and is as follows:

"1. That the learned trial judge erred in holding that the provisions for the repayment of the debt and interest over a lengthy period by a party who would or should have in his hands monies of the borrower derived from the property acquired with the loan was inconsistent with the security which could have been realised forthwith and that accordingly there was an inference that this transaction did not intend the preservation of the vendor's lien."

9 The bank did not file any cross-appeal. There is no issue, accordingly, as to whether the Co-Operative had a vendor's lien on the milk quotas or as to whether prima facie Highland became entitled to such lien by subrogation. The sole issue on the appeal is whether the learned trial judge was correct in deciding that Highland's prima facie right to be subrogated to the Co-Operative's vendor's lien was nullified by reason of the repayment terms of Highland's loan being inconsistent with the terms for the payment to the Co-Operative of the purchase price. But, while this was the sole issue, it requires an examination of all the authorities with a view to ascertaining the principles on which equity will permit subrogation to a vendor's lien to take place.

10 The case is unusual in that no evidence was given in the High Court. No witness was called; no affidavits were filed. All that the learned trial judge had before him was the pleadings; the debenture of the 15th November 1984; the deed of appointment of the receiver, and the two forms of application by the college to Highland for the respective advances of £30,000 and £28,731. The learned trial judge said in his judgment that it was not necessary to call oral evidence: that the material facts appeared from the admitted documents. He noted that it was not disputed that the purchase price was payable and was paid by the college to the Co-Operative.

11 As the ground on which the learned trial judge decided against Highland was the nature of the relevant provisions of the loans made by Highland to the college, it is necessary to set out these in detail. I start with the loan of £30,000, the form of application for which is dated the 18th April 1988. The form is headed "Application for loan for milk quota purchase". The loan required is stated to be £30,000, the interest £14,100, and the total debt £44,100. It is provided that the total debt shall be repaid by five monthly payments of £1,260 from May to September each year for seven years. There is then an irrevocable authority from the college to the Co-Operative to deduct from the college's milk account, or from any other accounts of the college with the Co-Operative, the relevant five monthly payments of £1,260 for seven years. Finally, one of the conditions of loan printed on the back of the application form is that "the borrower shall only use the loan for the purpose specified over leaf".

12 The application for the loan of £28,371 was in similar form except for the following differences: the interest was £13,503.57 and the total debt £42,234.57. It was repayable by three instalments in 1988 and thereafter by five monthly instalments of £1,206.70 from May to September each year for six years.

13 The performance and observance by the college of the terms and provisions of both loan agreements was guaranteed by Balla Co-Operative Mart but it turned out subsequently that the execution of the guarantees by the mart was invalid. Neither party submitted that the failure of the guarantees had any relevance to the issue to be determined on this appeal.

14 It is clear from the terms on which the loans were made by Highland to the college that the latter was bound to use them for the purchase of the milk quotas. The learned trial judge held, following the decision of MacMahon J. in Bank of Ireland Finance Limited v. Daly 1978 I.R. 79 that the principle of law applicable was the following:

"Prima facie a lender who advances money for the express purpose of those monies being applied in payment of the purchase price of property is entitled to the lien to which the vendor would have been entitled if the purchase price or the balance thereof had not been paid unless there is a bargain between the lender and the borrower which is inconsistent with an intention of the parties that the lender should acquire that right."

15 The learned trial judge then went on to consider whether the arrangement for the repayment of the loans was inconsistent with the parties having intended that the college should be subrogated to the Co-Operative's vendor's lien and he held that they were. He held that the appropriate inference was that the parties did not intend the preservation of a vendor's lien and on that ground he dismissed Highland's claim.

16 The Court had the benefit of very full written and oral submissions from counsel for Highland and counsel for the bank. It would be impossible to set these out in full. What follows is a summary of the principal aspects on which they relied.

17 On behalf of Highland Mr. Finnegan, S.C., adopted as correct the statement of law which I cited earlier from the judgment of the learned trial judge. He submitted that where money was advanced for the purpose of purchasing property the lender was subrogated to the vendor's lien unless there was some circumstance which excluded this happening. He said that the learned trial judge was wrong in following the reasoning of Lord Salmon in his opinion in the case of Orakpo v. Manson Investments Limited 1977 3 All E.R. p.1 and in taking the view that the difference between the terms of payment for the milk quotas and the terms of repayment of Highland's loan excluded Highland from being subrogated to the Co-Operative's vendor's lien.

18 Mr. Finnegan relied on the decision of the High Court in England in Boodle, Hatfield and Company v. British Films Limited 1986 PCC p. 176 where a firm of solicitors who had paid by bank draft part of the purchase price of a property being bought by a client was held entitled to the vendor's lien on the property when the clients" cheque, reimbursing the firm, was dishonoured. The...