Salthill Properties Ltd v Porterridge Trading Ltd

JurisdictionIreland
JudgeMcCracken J.
Judgment Date29 May 2006
Neutral Citation[2006] IESC 35
CourtSupreme Court
Docket NumberRecord No. 2004/492
Date29 May 2006
SALTHILL PROPERTIES LTD, IN RE
IN THE MATTER OF SALTHILL PROPERTIES LIMITED (IN RECEIVERSHIP)

AND

IN THE MATTER OF THE COMPANIES ACTS 1963–2001

[2006] IESC 35

Record No. 2004/492

THE SUPREME COURT

COMPANY LAW:

Insolvency

Receiver - Application to court for directions - Whether lease between plaintiff company and notice party contravened negative pledge clauses in certain indentures of mortgage between plaintiff company and bank -Whether direction sought within provisions of s316 - Whether notice party had actual knowledge of negative pledge clauses - Companies Act 1963 (No 33), s 316 - Appeal dismissed (492/2004 - SC - 29/5/2006) [2006] IESC 35 In re Salthill Properties Ltd (in receivership)

Facts: The receiver sought directions from the High Court pursuant to s. 316 of the Companies Act 1963 as to whether three leases contravened the negative pledge clause contained in three indentures of mortgage between the company and a bank. The lessee appealed the High Court decision that the leases did contravene the prior mortgage debentures.

Held by the Supreme Court (Fennelly, McCracken and Kearns JJ) in dismissing the appeal that the evidence put forward by the lessee did not discharge the onus of proof to show that it did not have actual knowledge of the negative covenants.

Reporter: R.W.

COMPANIES ACT 1963 S316

GOUGH COMPANY CHARGES 2ED 1996 228

COMPANIES ACT 1963 S316(1)

COMPANIES ACT 1990 S171

RSC O.75 r21

McCracken J.
1

By deed of appointment of receiver dated 9th April 2003 Mr Ray Jackson, chartered accountant, (hereinafter called "the receiver") was appointed receiver and manager over all the undertaking property and assets of Salthill Properties Limited (hereinafter called "the company") by First Active Plc (hereinafter called "the bank").

2

By a notice of motion dated the 15th January 2004 the receiver sought certain directions from the High Court pursuant to section 316 of the Companies Act1963 concerning three leases all dated 22nd December 1999 and made between the company

3

and Porterridge Trading Limited (hereinafter called "Porterrridge"). For the purpose of this appeal the relevant direction sought was:-

"(c) Did the purported leases contravene the negative pledge clause contained in the three indentures of mortgage dated the 29th day of October 1999, the 12th day of December 1999 and the 20th day of December 2001 between the company and First Active Plc?"

4

The motion was heard in the High Court before Laffoy J. who held that the leases did contravene clause 6 contained in each of the prior mortgage debentures. Porterridge, which was the notice party to the said application, has appealed that finding to this court.

5

The company was incorporated on 14th January 1998 for the purpose of developing a site at Salthill in Co. Galway, and was one of a group of companies known as the Cunningham Group. The greater part of the site was within a seaside renewal tax designated area which would allow for certain tax reliefs on a development within that area.

6

By a mortgage debenture dated 29th October 1999 and made between the company and the bank the company agreed at clause 6:-

"The company shall not except with the prior consent of the bank

(a) create, extend or permit to subsist any encumbrance over the secured assets or any of them ranking in priority to or pari passu with or after the security hereby created, or

(b) part with, sell, transfer, lend, lease or otherwise dispose of, whether by means of one or of a number of transactions related or not and whether at one time or over a period of time, the whole or any part of the secured assets…"

7

The company entered into two further mortgage debentures with the bank dated respectively 12th November 1999 and 20th December 2001, both of which contained identical clauses.

8

By three leases dated the 22nd December 1999 the company leased three separate commercial units in the development to Porterridge for a term of twenty five years. These leases were created to take advantage of the taxation relief available but to be enabled to achieve this end it was necessary that the leases were created at arms length with an unconnected third party prior to 31st December 1999. The units which are the subject matter of these leases formed part of the property charged by the mortgage debenture, but no consent of the bank was obtained to the creation of these leases.

9

The learned High Court judge held that the proceedings were properly before the court pursuant to section 316 of the Companies Act1963 as amended. She then proceeded to determine the matter on the evidence which was before her, having held as a matter of law that the onus was on Porterridge to prove that it did not have actual notice of the negative covenants in the mortgage debentures. She cited a passage from page 228 of Gough on "Company Charges" (2nd edition 1996), which seems to me to encapsulate the applicable principles. This passage reads:-

"Although creating no more than a negative contractual right, a restrictive clause can affect the quality of, and therefore bind, a subsequent proprietary interest through actual notice of the restriction. In equity it would be unconscionable to permit a subsequent third party to take his interest free of the restrictive right in spite of his actual knowledge that to do so would constitute a breach of a floating charge contract by the charger."

10

The learned trial judge then summed up her findings in this regard at page 22 of her judgment where she said:-

"It was...

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