Kerr and Others v Conduit Enterprises Ltd

• Jurisdiction: Ireland
• Judge: Ms. Justice Finlay Geoghegan
• Judgment Date: 22 July 2010
• Neutral Citation: [2010] IEHC 300
• Docket Number: [2009 No. 3496 P]
• Court: High Court
• Date: 22 July 2010

[2010] IEHC 300

THE HIGH COURT

[No. 3496 P/2009]

[No. 134 COM/2009]

Kerr & Ors v Conduit Enterprises Ltd

COMMERCIAL

BETWEEN

SABINA KERR, LIAM YOUNG, MICHAEL TUNNEY, LIAM LENEHAN AND LAURENCE K. SHIELDS

PLAINTIFFS

AND

CONDUIT ENTERPRISES LIMITED

DEFENDANT

COMPANIES ACT 1990 S29(1)

COMPANIES ACT 1990 S29(2)

COMPANIES ACT 1990 S29(3)

COMPANIES ACT 1990 S29(9)

COMPANIES ACT 1990 S25(4)(C)

COMPANIES ACT 1990 S25(5)

COMPANIES ACT 1990 S29(3)(B)

COMPANIES ACT 1990 PART III

ULTRAFRAME (UK) LTD v FIELDING 2005 EWHC 1638 CH 2006 FSR 17

COMPANIES ACT 1985 S320 (UK)

COMPANIES ACT 1990 S29(2)

BUCHANAN LTD v MCVEY LTD 1954 IR 89

GREENDALE DEV, IN RE NO 2 1998 1 IR 8

PMPA GARAGES LTD 1992 IR 315 1992 ILRM 337 1991/10/2314

DUOMATIC LTD, IN RE 1969 2 CH 365

EXPRESS ENGINEERING WORKS LTD, IN RE 1920 1 CH 466

PARKER & COOPER LTD v READING 1926 CH 975

GEORGE NEWMAN COMAPANY LTD, IN RE 1895 1 CH 674

NBH LTD v HOARE 2006 EWHC 73 CH

DEMITE LTD v PROTEC 1998 BCC 638

COMPANIES ACT 1963 S143

INTERPRETATION ACT 2005 S5

COMPANIES ACT 1990 S29(1)A

COMPANIES ACT 1990 S29(1)B

ARTICLES OF ASSOCIATION ART 2(D)

LANDLORD AND TENANT

Commercial lease

Validity of lease - Block owned by shareholders and directors of defendant - Occupation by defendant - Ownership changes - Due diligence - Proposal to treat lease as void and surrender property based on absence of resolution approving lease - Whether lease non-cash asset of requisite value - Whether defendant in breach of s. 29(1) when lease entered - Whether lease voidable - Whether defendant estopped from avoiding lease - Onus on defendant to establish section applied - Value of non-cash asset - Capital value of lease to lessee - Assignment value of lease - Authorisation by shareholders - Duomatic principle - Honest and intra vires informal agreement of all shareholders not requiring formal resolution - Purpose of section - Intention of Oireachtas - Protection of shareholders - Absence of time limit on right to avoid arrangement - Multiple changes of ownership - Compliance with obligations under lease - Rent reviews - Existence of preferential shareholder with right to attend meeting without voting - Ultraframe (UK) Ltd v Fielding [2005] EWHC 1638(Ch) [2006] FSR 17; Buchanan Ltd v McVey [1954] IR 89; Re Greendale Developments (In Liquidation) No 2) [1998] 1 IR 8; Re PMPA Garages Ltd [1992] IR 315; Re Duomatic Limited [1969] 2 Ch 365; Re Express Engineering Works Ltd [1920] 1 Ch 466; Parker and Cooper Ltd v Reading [1926] Ch 975; Re George Newman & Company Ltd [1895] 1 Ch 674; NBH Limited v Hoare [2996] EWHC 73 (Ch) and Demite Ltd v Protec [1988] BCC 638 considered - Companies Act 1990 (No 33), s 29 - Declaration that lease valid and binding (2009/3946P - Finlay Geoghegan J - 22/7/2010) [2010] IEHC 300

Kerr v Conduit Enterprises Ltd

1 JUDGMENT of Ms. Justice Finlay Geoghegan delivered on the 22nd day of July, 2010

2 1. The first named plaintiff is the daughter and residual legatee of the will of Edward B. Kerr, deceased ("Mr. Kerr"). The estate of Mr. Kerr and the second, third, fourth and fifth named plaintiffs (collectively hereinafter "the Landlords") are the owners of a property known as Block V, East Point Business Park, East Wall Road, Dublin 3 ("Block V").

3 2. By lease dated 5 ^th December, 1997, the Landlords demised Block V to the defendant for a term of 25 years at an annual rent of IR£240,785 (€305,797) payable quarterly in advance ("the Lease"). On the date of execution of the Lease, Mr. Kerr and Mr. Young were both shareholders and directors of the defendant. There were two other persons who were also both directors and shareholders, namely, Ms. Christine Donaghy and Mr. Jeremiah McCarthy.

4 3. The defendant went into occupation of Block V and until December 2008 occupied Block V and complied with all relevant terms of the Lease including in relation to rent reviews and payment of rent.

5 4. The defendant entered into a lease of Block P1 East Point on 3 ^rd August, 2000, which it continues to occupy.

6 5. Between 1997 and 2008, there were multiple ownership changes of the defendant, several of which included due diligence. In May 2006, the defendant was sold to Infonxx Inc., a US registered company.

7 6. By letter dated 4 ^th December, 2008, the defendant indicated that it proposed to treat the Lease as void and that it would accordingly surrender the property on 3 ^rd January, 2009. The stated basis for the proposed avoidance was that at the time the Lease was entered into Mr. Kerr and Mr. Young were directors of the defendant and from a review of the Company's books and records no resolution was passed either then or subsequently by the members of the defendant approving the Lease. Hence pursuant to s. 29 of the Companies Act 1990, the transaction was voidable at the instance of the defendant and the defendant was electing to treat the Lease as void.

8 7. By plenary summons issued on 20 ^th April, 2009, the plaintiffs seek a declaration that the Lease of 5 ^th December, 1997, of Block V is valid and binding on the defendant and certain consequential relief.

Issues

9 8. The relevant facts and submissions in the proceedings all relate to the proper construction of s. 29 of the Companies Act 1990 and its application to the facts herein. Section 29, insofar as relevant, provides:

10 2 "29(1) Subject to subsections (6), (7) and (8), a company shall not enter into an arrangement-

11 (a) whereby a director of the company or its holding company or a person connected with such a director acquires or is to acquire one or more non-cash assets of the requisite value from the company; or

12 (b) whereby the company acquires or is to acquire one or more non-cash assets of the requisite value from such a director or a person so connected;

13 unless the arrangement is first approved by a resolution of the company in general meeting and, if the director or connected person is a director of its holding company or a person connected with such a director, by a resolution in general meeting of the holding company.

14 (2) For the purposes of this section a non-cash asset is of the requisite value if at the time the arrangement in question is entered into its value is not less than €1,269.74 but, subject to that, exceeds €63,486.90 or ten per cent of the amount of the company's relevant assets, and for those purposes the amount of a company's relevant assets is-

15 (a) except in a case falling within paragraph (b), the value of its net assets determined by reference to the accounts prepared and laid in accordance with the requirements of section 148 of the Principal Act in respect of the last preceding financial year in respect of which such accounts were so laid;

16 (b) where no accounts have been prepared and laid under that section before that time, the amount of its called-up share capital.

17 (3) An arrangement entered into by a company in contravention of this section and any transaction entered into in pursuance of the arrangement (whether by the company or any other person) shall be voidable at the instance of the company unless-

18 (a) restitution of any money or any other asset which is the subject-matter of the arrangement or transaction is no longer possible or the company has been indemnified in pursuance of subsection (4) (b) by any other person for the loss or damage suffered by it; or

19 (b) any rights acquired bona fide for value and without actual notice of the contravention by any person who is not a party to the arrangement or transaction would be affected by its avoidance; or

20 (c) the arrangement is, within a reasonable period, affirmed by the company in general meeting and, if it is an arrangement for the transfer of an asset to or by a director of its holding company or a person who is connected with such a director, is so affirmed with the approval of the holding company given by a resolution in general meeting

21 ...

22 (9) In this section-

23 (a) 'non-cash asset' means any property or interest in property other than cash, and for this purpose 'cash' includes foreign currency;

24 a (b)any reference to the acquisition of a non-cash asset includes a reference to the creation or extinction of an estate or interest in, or a right over, any property and also a reference to the discharge of any person's liability other than a liability for a liquidated sum; and

25 (c) 'net assets', in relation to a company, means the aggregate of the company's assets less the aggregate of its liabilities, and for this purpose 'liabilities' includes any provision for liabilities or charges within paragraph 70 of the Schedule to the Companies (Amendment) Act, 1986."

26 9. The defendant relied, in its submissions, on the proper interpretation of s. 29 on s. 25(4)(c) and (5) which provide:

27 2 "25(4) For the purposes of this Part, the value of a transaction or arrangement is-

28 ...

29 (c) in the case of a transaction or arrangement, other than a loan or quasi-loan or a transaction or arrangement within paragraph (d) or (e), the price which it is reasonable to expect could be obtained for the goods, land or services to which the transaction or arrangement relates if they had been supplied at the time the transaction or arrangement is entered into in the ordinary course of business and on the same terms (apart from price) as they have been supplied or are to be supplied under the transaction or arrangement in question;

30 ...

31 (5) For the purposes of subsection (4), the value of a transaction or arrangement which is not capable of being expressed as a specific sum of money (because the amount of any liability arising under the transaction is unascertainable, or for any other reason) shall, whether or not any liability under the transaction has...