McCormack v McCormack

• Jurisdiction: Ireland
• Judge: Mr. Justice Keane
• Judgment Date: 05 December 2017
• Neutral Citation: [2017] IEHC 733
• Docket Number: [2005 No. 1749P]
• Court: High Court
• Date: 05 December 2017

[2017] IEHC 733

THE HIGH COURT

Keane J.

[2005 No. 1749P]

BETWEEN

ORLA McCORMACK

PLAINTIFF

AND

JOHN McCORMACK

DEFENDANT

Contract – Rescission of agreement – Undue influence – Fraudulent misrepresentation – Duress – Unconscionable bargain – Validity of agreement – Underpayment

Facts: The parties were husband and wife though living separately. The parties had executed an agreement whereby the plaintiff/wife agreed to relinquish her share in the nursing home business for consideration. The plaintiff now sought a declaration that the said agreement was void. The plaintiff contended that the defendant/husband and his family induced her to enter into the said agreement so that they could eliminate her from that profitable business. The defendant also sought the declaration to the effect that the said agreement was valid.

Mr. Justice Keane dismissed the plaintiff's claim and granted the relief sought by the defendant. The Court held that there was no evidence to show that the defendant made fraudulent misrepresentations to the plaintiff. The Court noted that the nursing home business was running into financial difficulties and the defendant devised a way to refinance that business. The Court held that the impugned transaction was not disadvantageous to the plaintiff as she received a huge amount in cash plus debt relief as the defendant had indemnified the plaintiff against all liabilities including the taxation liabilities.

JUDGMENT of Mr. Justice Keane delivered on the 5th December 2017

Introduction

1 Orla McCormack (“the plaintiff”) challenges an agreement that she entered with her estranged husband John McCormack (“the defendant”) on 2 December 2004, whereby she agreed to relinquish her share in the fledgling nursing home business that they then operated as a partnership in exchange for both a payment of €350,000 and an indemnity against her liability for the existing borrowings and debts of that business (“the agreement”).

2 The parties remain husband and wife, although they have been effectively separated since 2003. There are three children of the marriage: John Junior, born in 1989; James, born in 1995; and Amy, born in 1996.

3 The parties acquired the lands on which the nursing home is now situated at Newpark, the Ward, County Dublin at auction on 4 April 2001 for €926,908.80 (IR£730,000). At the time they were acquired, the lands comprised a bungalow residence and farmyard on 18.5 acres of agricultural land that had been used for growing vegetables.

4 The parties took on substantial borrowings and incurred significant debts in developing the property and financing the nursing home business. The partnership borrowed large sums from Allied Irish Banks plc (“the bank”) and significant sums from the defendant's parents, Jim and Mary McCormack (together,“the McCormacks”). The parties had little or no capital of their own to invest in the business.

5 In 2003, the partnership retained the firm of Doody Crowley & Company, as its accountants, and Mr Mark Hutch of that firm began advising the partners.

6 The defendant left the family home in June 2003 and, since then, the parties have been estranged as husband and wife.

7 Mr Stephen Noonan, solicitor, of O'Gradys, Solicitors, attended upon the plaintiff for the first time on 15 March 2004 and from then on provided her with legal representation and advice in relation to her partnership share or interest in the business and, in particular, the negotiation and execution of the agreement. Mr Noonan also provided the plaintiff with legal representation and advice at the material time concerning the family law issues between the parties.

8 The nursing home opened in May 2004 with a small number of residents and, hence, a limited cash flow. It was by then apparent that, due to a number of financial over-runs, the partnership business required additional funding in order to survive. The circumstances of that lack of funding and the manner in which it was addressed are central issues between the parties.

9 On 2 November 2004, a firm of solicitors wrote to the parties on behalf of the McCormacks, asserting that the balance due to their clients from the partnership then stood at €630,000. The letter expressed the understanding that things were then “quite progressed with regards to a change in the ownership” of the partnership business, before asserting that no such change could take place before the McCormacks were repaid the debt due to them from the existing partnership.

10 On 15 November 2004, the bank wrote to the parties noting that it had received no proposals for the repayment of the partnership's borrowing in response of its letter of five days previously, and demanding repayment of all sums due by close of business on 17 November 2004. The partnership overdraft then stood at €28,254.42, against a €30,000 limit; it principal loan account was €2,940,151.37 in debit, against a limit of €2,900,000; a separate bridging loan account was in debit right up to its limit of €80,000; and a further balance of €366,921 was outstanding in respect of lease finance that had been provided. In short, quite apart from its obligations to its other creditors, the partnership (and, thus, each of the partners) was then in debt to the bank in an amount well in excess of €3 million.

11 The agreement was executed on 2 December 2004. The plaintiff received the sum of €350,000 in cash, less her legal costs, immediately afterwards and has received the relevant indemnities in relation to the partnership's debts, borrowings and Revenue liabilities.

12 Immediately after the execution of the agreement, the defendant formed a new partnership with his brothers Tom and Matthew, which assumed ownership of the property and took control of the nursing home business. That partnership was a success and the business quickly became, and remains, a profitable one.

The plaintiff's claim

13 A plenary summons issued on behalf of the plaintiff on 19 May 2005. In it, and in the statement of claim subsequently delivered on 28 June 2005, the plaintiff's principal claim is for rescission of the agreement on grounds of undue influence or misrepresentation, or on the ground that it was an unconscionable bargain. The plaintiff also seeks: an order setting aside the agreement on the ground of duress; a declaration that the agreement is void; a declaration that the plaintiff still holds a legal and beneficial interest in the nursing home property; an order for the taking of accounts and enquiries; and an order for damages.

(i) fraudulent misrepresentation

14 The plaintiff pleads that she was induced to enter the agreement by the fraudulent misrepresentation of the defendant, his servants or agents, that: (a) the value of the partnership business was less that it was; (b) that there was an urgency to the repayment of the McCormacks that there was not; (c) that the plaintiff's home was at risk in light of the partnership's debts, when it was not; (d) that the plaintiff's credit rating was similarly at risk, when it was not; (e) that the bank was likely to move on its security over the nursing home property, thereby terminating the partnership business, when it was not; and (f) that the defendant would transfer his legal and beneficial interest in the family home to the plaintiff as part of the consideration for the agreement, although he did not.

15 Under this heading, the plaintiff further claims that the defendant is liable for false representations or fraudulent misrepresentation, or both, while under a duty to act with the utmost good faith towards her, in not disclosing: (a) the value of the nursing home property and of the partnership business, against its liabilities; (b) that the McCormacks were prepared to invest further money in the business (and later did so), rather than being anxious to be repaid; and (c) that the defendant wished to retain the business but to deprive the plaintiff of any interest, or involvement, in it.

(ii) undue influence

16 The plaintiff claims that the agreement resulted from the exercise over her by the defendant, his servants or agents, of unfair and unreasonable mental control or domination, which actions amount to unfair and improper conduct, coercion, over-reaching and cheating, which negated the plaintiff's independent judgment and caused her to enter into a transaction disadvantageous to her. The plaintiff continues that these were fraudulent and wrongful acts from which the defendant obtained a substantial benefit.

17 More particularly, the plaintiff pleads that she made the agreement without the benefit of proper and effective legal advice as a result of pressure she could not resist.

18 The plaintiff further pleads that the facts of the case and the nature of the relationship between the parties (that of husband and wife) give rise to a presumption of undue influence, in circumstances where the plaintiff relied entirely on the advice of the defendant's accountant; the defendant's bankers; and the defendant's “business partners”.

19 The plaintiff next claims that those persons – the defendant, the bank, Mr Hutch and “the [d]efendant's business partners, who are related to the defendant” – “conspired as the servants or agents of the [d]efendant to exercise undue influence on the [p]laintiff resulting in a transaction which [was] manifestly disadvantageous to her.” This is a significant plea because, while conspiracy is a tort (and, indeed, a crime) in its own right, the plaintiff does not plead it as a separate head of claim and has not brought suit against any of the persons that she alleges conspired with the defendant. An allegation that a person's servants or agents have conspired with him is a claim of a different order to the mere attribution to a person of liability for the acts or omissions of his servants or agents, as a matter of law....