Reynolds v Altomoravia Holdings Ltd

• Jurisdiction: Ireland
• Judge: Mr. Justice Cregan
• Judgment Date: 30 June 2015
• Neutral Citation: [2015] IEHC 482
• Docket Number: [2014 No. 4010P]
• Court: High Court
• Date: 30 June 2015

[2015] IEHC 482

THE HIGH COURT

COMMERCIAL

Cregan J.

[2014 No. 4010P]

BETWEEN

JOHN REYNOLDS

PLAINTIFF

AND

ALTOMORAVIA HOLDINGS LIMITED, THOMAS ANDERSON, COLIN DOLAN, IAN REDMOND AND MICHAEL ORMOND

DEFENDANTS

Contract – Breach of contract – Settlement agreement – Specific performance – Counter claim – Malafide conduct

Facts: Following the order of the Court reflecting a settlement agreement between the plaintiff and the defendants that required the plaintiff to execute the lease of certain premises to the defendants, the plaintiff now came to the Court for the recession of the said agreement and damages for breach of contract. The plaintiff contended that he had bona fide intention to execute the said lease since inception as his sole purpose was to discharge the debt that he owed to the bank; however, he could not do so due to the bad faith and conduct of the defendants.

Mr. Justice Cregan held that the plaintiff would be entitled to a declaration that the defendants were in breach of contract and court order. The Court granted an order for the recession of the settlement agreement between the plaintiff and the defendants. The Court found that the remedy of specific performance was equitable and discretionary and it would not be available for a party who had displayed bad conduct such as delay, acquiescence and other factors amounting to breach of contract. The Court refused to grant an order of specific performance to the defendants. The Court observed that the defendants had deliberately made attempt to frustrate the contract by devising strategies such as delay, planning objections and request for documents in blatant disregard of the orders of the Court and hence, they would be liable to pay damages to the plaintiff.

JUDGMENT of Mr. Justice Cregan delivered on the 30th day of June, 2015

PART ONE – THE FACTS

Introduction

1 The plaintiff in this case is the owner of a premises known as ‘The Pod’ on Harcourt Street, Dublin 2. On or about 12th April, 2012, the plaintiff entered into an agreement with the defendants to lease the premises to the defendants. The draft form of the lease and a guarantee were attached to the agreement for lease. Subsequent to the agreement to enter into the lease, but before the lease was actually signed, various difficulties arose between the parties. As a result, the lease was never executed by all parties. In the circumstances, the defendants in these proceedings issued proceedings (as plaintiffs) against Mr. Reynolds in 2013 seeking specific performance of the agreement for lease dated 12th April, 2012. These proceedings opened before the High Court (Barrett J.) on 4th March, 2014 and, after one and a half days of opening speeches and evidence, the parties settled the proceedings. The terms of the settlement agreement (which were reflected fully in a court order) were that the parties agreed to sign and execute the lease by 26th March, 2014. This settlement and court order were made on the 5th March, 2014.

2 Subsequently however further difficulties arose between the parties and the agreement was not executed on the 26th March, 2014. The plaintiff maintains that he was at all times anxious to enter into the lease with the defendants but the defendants persistently delayed matters to extract further concessions from him. Moreover the plaintiff was of the view that the defendants were not ready, willing and able to execute the lease, sign the guarantees and provide the funds. As a result therefore, he instituted these proceedings seeking specific performance of the agreement of 5th March, 2014 or in the alternative seeking rescission of the settlement agreement entered into between the parties and seeking damages for breach of contract. Subsequently he elected to sue only for rescission and damages. The defendants have resisted this claim and have counterclaimed also seeking specific performance of the agreement and the court order of 5th March, 2014. It is therefore an unusual case in that at various stages in these proceedings both parties have claimed specific performance of the agreement of 5th March, 2014.

Background to these proceedings

3 The plaintiff, Mr. Reynolds, purchased part of The Pod premises in Harcourt Street, Dublin 2 in 1993. In 1998 he purchased the balance of the premises and as and from that date he was the owner of the entire premises. He owns the freehold of these premises in his own name. In 1998 he leased the premises to a company owned and controlled by him called Pod Entertainment Limited and the premises were used as a successful nightclub venue for many years. However, as Mr. Reynolds himself said in his evidence, he was caught in the downturn in 2008. Business declined, revenues decreased and Mr. Reynolds was left with substantial borrowings of approximately €10 million secured on the premises. These monies were owed to AIB and AIB eventually appointed a receiver to Pod Entertainment Limited (the company which owned the lease to the said premises). Mr. Reynolds' clear and consistent evidence was that AIB began to put significant pressure on Mr. Reynolds to reduce his debt to AIB. At that time he was making repayments on an interest only basis but he was making no repayments of principle. The options therefore available to Mr. Reynolds were to either sell the premises or to lease them to another tenant.

4 Mr. Reynolds then received an approach to indicate to him that Altomoravia Holdings Ltd (‘Altomoravia’) and the other defendants might be interested in taking a lease of his premises. Mr. Reynolds informed AIB of this approach and AIB was keen that Mr. Reynolds would enter into a lease with these persons because this would ensure that proper repayments would be made on the loan. The plaintiff therefore entered into the agreement for lease with the defendants as this would be a reasonable deal for him, would reduce his financial difficulties with AIB as long as the lease lasted and would, as he put it, ‘get AIB off my back’. Thus the parties entered into the agreement for lease on 12th April, 2012.

5 Mr. Reynolds' evidence was that he then did whatever he could to assist the defendants in ensuring that the premises could be handed over to them in an appropriate manner. However it was at this time that various difficulties began to emerge.

The sky walk and fire exit

6 Mr. Reynolds gave evidence that the building at the Pod was a Grade One listed structure. It was an unusual building as it consisted of old vaults and adjoining premises. It was, he said, an idiosyncratic building but he had been looking after it for over twenty years and was aware of its difficulties. One of the difficulties was that - given that the premises were a nightclub - fire safety precautions were at a premium. One of the fire exits which the plaintiff had at the premises was a rear staircase and sky walk which was a corridor which ran between the plaintiff's building and the adjoining building. However the rear staircase and sky walk were not in fact owned by the plaintiff but were owned by the owners of the adjoining premises - Clancourt Properties Limited and a Mr. Kenny. Mr. Reynolds apparently enjoyed a good relationship with his neighbours and he had their consent to use the rear staircase and sky walk as a fire exit and this was approved by the fire safety authorities. However, in agreeing to lease the premises to the defendants, Mr. Reynolds made it clear at all times that Clancourt Properties/Mr. Kenny might not consent to the continuation of this arrangement with the new lessees (i.e. the defendants). As a result, Mr. Reynolds arranged an introduction meeting between himself, Clancourt Properties/Mr. Kenny and a number of the defendants including in particular, Mr. Ormond. This was, as Mr. Reynolds described it, effectively a hand-holding exercise to try and ensure a smooth transition to the new tenant.

7 However it soon became clear that Clancourt Properties/Mr. Kenny were not prepared to continue this arrangement with the new lessees. This had significant implications for the lessees because one of the fire exits was now closed off to them and therefore they had to create another fire exit to comply with fire safety regulations.

8 What happened next was that the defendants submitted a planning application to Dublin City Council without the knowledge or consent of Mr. Reynolds. When Mr. Reynolds learned of their plans - and indeed saw their plans - he was very taken aback as the plan, in his view, proposed serious alterations to the fabric of the building. They appeared to envisage a staircase running down through a part of the building into the vaults (and various ancillary alterations). Apart from the fact that Mr. Reynolds was concerned that such an alteration might not obtain planning permission because it would, or might, interfere with the structural integrity of the vaults, he was also concerned that the proposed plans would reduce the value of the premises as a whole. This was a major concern to him as he was the freehold owner of the premises and had a loan of €10 million secured on the premises to AIB. He was also concerned because if the defendants' business venture in the Pod was not successful and if they surrendered the lease back to him, he would be left with a building which had significantly diminished in value. As a result, Mr. Reynolds repeatedly asked for copies of these plans from the defendants but they were never furnished to him. Eventually Mr. Reynolds decided to lodge an objection with the planning authority in respect of this application. However the defendants either obtained planning permission or obtained a certificate that the building was exempt from such requirements. Mr. Reynolds appealed this decision to An Bord Pleanala. That appeal was still before An Bord Pleanala when the first set of proceedings came on before the High Court.

The...