Merrow Ltd ((in Liquidation)) v Bank of Scotland Plc & O'Connor

• Jurisdiction: Ireland
• Judge: Mr Justice Ryan
• Judgment Date: 31 January 2014
• Neutral Citation: [2014] IEHC 36
• Court: High Court
• Docket Number: [2012 No. 695 COS]
• Date: 31 January 2014

[2014] IEHC 36

THE HIGH COURT

[695 COS/2012]

Merrow Ltd (in liquidation) v Bank of Scotland PLC & O'Connor

No Redaction Needed

IN THE MATTER OF THE BELOHN LTD (IN RECEIVERSHIP AND IN LIQUIDATION) AND

IN THE MATTER OF AN APPLICATION PURSUANT TO S. 316 OF THE COMPANIES ACTS 1963 AND

IN THE MATTER OF AN APPLICATION PURSUANT TO S. 3 OF THE LEGAL PRACTITIONERS (IRELAND) ACT 1876

BETWEEN

THE MERROW LTD (IN LIQUIDATION)

APPLICANT

AND

BANK OF SCOTLAND PLC AND DAVID O'CONNOR

RESPONDENTS

COMPANIES ACT 1963 S316

LEGAL PRACTITIONERS (IRL) ACT 1876 S3

LISMORE BUILDINGS LTD (IN RECEIVERSHIP) v BANK OF IRELAND FINANCE LTD & ORS (NO 2) 2000 2 IR 316 1999/16/4763

SCHOLEY v PECK 1893 1 CH 709

MOUNT KENNETT INVESTMENT CO & GREENBAND INVESTMENTS v O'MEARA & ORS UNREP CLARKE 29.3.2012 2012/29/8517 2012 IEHC 167

Banking law- Practice & procedure- Charge- Mortgagee- Leapfrog- Discretion- Proceeds of sale- Winding up- Whether claim could trump mortgagee interest

Facts: The proceedings concerned a licenced premises and restaurant business and the High Court had made orders in respect of the companies. Orders were sought to charge specific premises and the proceeds of sale or orders preserving the proceeds of sale. The Court considered efforts to recover or preserve property by the applicant for his clients with regard to s. 3 Legal Practitioners Act 1876 and whether the court would make a declaration and order charging the mortgaged property in favor of the applicant.

Held by Ryan J. that the application failed as the solicitor had not satisfied the requirement of the statute and even if he had, it was within the remit of the Court to refuse the application. It would be unconscionable to allow the applicant to trump the interest of the mortgagee and leapfrog in a position that was superior to any interest or claim that his client might have been able to assert. Any assertion of recover or preserved property was subject to the mortgagees prior interest.

1 JUDGMENT of Mr Justice Ryan delivered the 31st January 2014

2 This case concerns a public house and restaurant premises and business located at the corner of Merrion Row and Upper Merrion Street, Dublin 2 and known as Foleys Bar/O'Reillys. The company that owned and operated the business is The Belohn Ltd. Merrow owns all the shares in The Belohn Ltd. The shareholders of Merrow Ltd are Sean Foley, the applicant on this motion, and his wife.

3 The business premises comprise two separate buildings and titles and the Belohn entered into separate mortgages for these premises. A mortgage dated the 7 ^th August, 1981 exists over 1 Merrion Row and there is a mortgage debenture of the 3 ^rd April, 2008, over 17 Upper Merrion Street. The first respondent bank is now the holder of those mortgages and its predecessor in title, Bank of Scotland (Ireland) Ltd, also provided a facility of euro;3.75m on the 12 ^th May, 2006. Merrow borrowed from BOSI to purchase the shares in The Belohn and there is a debenture/floating charge dated the 12 ^th November 2007. In the result, the premises comprising two buildings are mortgaged and the business is also charged with the monies that were owed.

4 On the 10 October, 2012, the bank appointed the second named respondent David O'Connor to be the receiver and manager. On the 20 ^th December, 2012, the company namely Merrow Ltd brought proceedings under s. 316 of the Companies Act challenging the appointment of the receiver on a number of grounds. One of the challenges succeeded. In one of the mortgages there was a requirement that a receiver be appointed by a formal document under the seal of the company. By an order of this Court (Gilligan J) of the 22 ^nd March, 2013, the court declared that the appointment of Mr. O'Connor was invalid, void and of no effect. Although the frailty in the appointment of the receiver applied only to one of the mortgages and therefore only one of the premises, the court decided that it was impossible in the circumstances of the business being operated as a unit to make separate orders and to unscramble the tile and the appointment of the receiver and it declared the appointment under each of the mortgages to be void.

5 Following the court's decision, the bank made new demands on the two companies in respect of the monies owed and they successfully applied to the court for examinership but that process collapsed and on the 17 ^th July, 2013 Finlay Geoghegan J made an order winding up the two companies.

6 In the proceedings to unseat the receiver, Gilligan J made an order for costs in favour of Merrow Ltd but they have not yet been taxed or ascertained. By letter of the 15 ^th June, 2013, Mr. Sean Foley, solicitor, the applicant, sent a letter headed "Re: Merrow Ltd v. Bank of Scotland and David O 'Connor (2012 No. 695 COS)" to himself and his wife at 1 Merrion Row, in which he enclosed a schedule of costs and outlay in regard to the s. 316 proceedings amounting to euro;223,921.50.

7 The solicitors acting against the bank in the court action were originally Sean Costello amp; Co but in early 2013, prior to the hearing date, Mr Foley replaced that firm and took over as solicitor for the applicant. He had not been working as a solicitor for a number of years but shortly before taking over the case he obtained a practising certificate from the Law Society and came on record for Merrow Ltd on 28 ^th January 2013.

8 On the 22 ^nd June, 2013, Mr. Foley wrote to Mr Gavin Simons of AMOSS, Solicitors for the bank. Mr. Foley deposes that he sent a second letter on the same day to the same recipient, but Mr. Simons denies having received that second letter. Each of the letters has an endorsement saying that it was hand delivered at 11.45 am on Saturday the 22 ^nd June, 2013.

9 The matter now comes before the court by way of notice of motion dated the 15 ^th August, 2013, seeking:

10 1. An order pursuant to s. 3 of the Legal Practitioners (Ireland) Act 1876 to charge premises at No. 1 Merrion Row and No. 17 Upper Merrion Street;

11 2. Alternatively an order under the same section charging the proceeds of sale of the said two premises;

12 3. Alternatively an order pursuant to the inherent jurisdiction of the court preserving the proceeds of sale of the said two premises;

13 4. In the further alternative and if necessary an order restraining the receiver David O'Connor from distributing or dissipating any proceeds of the sale of lands comprised in a mortgaged debenture dated the 7 ^th august, 1981, between The Belohn Ltd and the Industrial Credit Corporation and in a mortgaged debenture dated the 3 ^rd April, 2008, between The Belohn Ltd and Bank of Scotland (Ireland) Ltd.

14 Mr Foley's case on the motion is as follows. He was the solicitor acting for Merrow Ltd, the sole member of The Belohn Ltd, (which owns the properties at No. 1 Merrion Row and No. 17 Upper Merrion Street) in the s.316 proceedings, which were successful. (It may have some relevance that the decision of this court is under appeal to the Supreme Court.) The applicant in that case was Merrow Ltd and it was awarded costs on a party and party basis in the normal way of litigation. Independently, Mr Foley is entitled to bill his own client or clients for his fees and he has done so. The bill may or may not be referred to taxation but that is not a matter for today or this court. By his efforts in the action, he has affected the retention or preservation of valuable property for his client or clients. Even if the actual owner of the property whose retention or preservation he has secured is not his client, his right to charge it with his costs still subsists because the Act does not restrict his entitlement to a client. He has, in a word, fulfilled all the requirements of section 3.

15 In opposition to the application, the bank's solicitor Mr Simons in his affidavit accepts that he did receive one hand delivered letter dated 22 ^nd June 2013, which related to the proceedings issued in the name of The Belohn, but says that he did not receive any letter from Mr Foley referring to the initiation of the section 3 of the Legal Practitioners Act 1876 action. Further, the copy of the letter from Mr. Foley delivered by hand on 22 ^nd June 2013 that he did receive differs from the copy exhibited by Mr. Foley to the court. Mr. Simons' copy states "By Hand Delivery Only" whereas the exhibited copy reads "By Recorded Post Only".

16 Mr. Simons deposes that the fees owed to Mr. Foley relate to Merrow Ltd but the property over which he is seeking the charge is owned by The Belohn Ltd. While Mr. Foley, as solicitor for Merrow Ltd, was successful in securing a declaration that the receiver and manager were not validly appointed, that does not mean that Merrow Ltd recovered property for which Mr. Foley can now secure a charge. At most, Merrow Ltd only recovered a shareholding in The Belohn and the associated rights that accompany such a shareholding.

17 Mr. Simons queries the level of fees claimed by Mr. Foley. Between January and March 2013 Mr. Foley swore two affidavits totalling 21 pages and received five replying affidavits totalling twelve pages. Counsel for Morrow Ltd prepared the legal submissions which were 21 pages long. The case was heard on the 1 ^st March 2013 and judgment...