Tennant v McGinley

• Jurisdiction: Ireland
• Judge: Mr. Justice David Keane
• Judgment Date: 14 June 2016
• Neutral Citation: [2016] IEHC 325
• Docket Number: [2015 No. 3053P]
• Court: High Court
• Date: 14 June 2016

[2016] IEHC 325

THE HIGH COURT

Keane J.

[2015 No. 3053P]

BETWEEN:

STEPHEN TENNANT

PLAINTIFF

AND

HUGH MCGINLEY

AND

MCGINLEY CONSTRUCTION LIMITED

DEFENDANTS

Banking & Finance – Non-payment of loan – Assignment of loan – Appointment of receiver – Interference in receivership – Interlocutory injunction – Balance of convenience – Breach of fair procedures

Facts: The plaintiff/receiver sought an interlocutory injunction against the defendants for restraining them from interfering with the functions of the receiver. The plaintiff was appointed by the assignor of the defendants' loan by the successor-in-interest of the bank from whom the defendants had taken loan. The plaintiff claimed that the defendants had obstructed the plaintiff in taking possession and disposition of the relevant properties for payment of debt owed by the defendants to the bank. The defendants, while challenging the appointment of the receiver, contended that the assignment of loan by the bank without giving them an opportunity of hearing was breach of fair procedures.

Mr. Justice David Keane granted the interlocutory injunction sought by the plaintiff. The Court held that the party objecting to the grant of an interlocutory injunction must prove that there existed bona fide issue for being litigated at trial. The Court found that it was apparent on the face of the record that the appointment of the receiver was within the confines of law and that the substantial indebtedness of the defendants, the dishonour of guarantees executed by the first named defendant, and the non-payment of loan on demand were the factors that contributed to the appointment of the receiver. The Court found that the loss, if any, would be adequately compensated by the plaintiff to the defendants, but not vice versa. The Court observed that the balance of convenience lay in favour of the plaintiff who promptly made the present application for discharge of duties assigned to him and thus, the present case was fit to grant interlocutory injunction.

JUDGMENT of Mr. Justice David Keane delivered on the 14th day of June 2016

Introduction

1 This is an application for an interlocutory injunction restraining any interference with the conduct of a receivership or with the exercise of a receiver's functions, or both

Background

2 The plaintiff is a partner in a professional services firm. He was appointed as receiver over a number of properties owned by the defendants on the 31st March, 2015.

3 The first named defendant Mr McGinley is a businessman and property developer and is a director and sole shareholder of the second named defendant (‘the company’).

4 In 2005, the defendants acquired a site at East Road, East Wall, Dublin 3 for the purpose of developing an apartment complex and retail units. Construction of the development, which became known as Alexandra Place, was completed in 2008 and 15 of the apartments were sold.

5 On foot of a facility letter dated the 27th February 2008 Bank of Ireland (‘the bank’) renewed a number of the company's existing loan facilities and extended a further loan facility to it, which combined facilities amounted to just under €28 million in aggregate. Those facilities were expressed to be repayable on demand or, in the absence of such a demand, were to be repaid from the net sale proceeds of the relevant properties, including those at Alexandra Place, by way of a single repayment on the anniversary of the original draw down date.

6 The loans were secured by mortgages over a number of properties owned by the company, including the apartment complex and an adjacent site at East Wall. Mr McGinley provided guarantees in respect of those facilities in his personal capacity.

7 As is by now well documented, the property market was then entering a downturn, which later became a collapse. A number of proposed sales fell through and the majority of the apartments in the development were left unsold.

8 The loan facilities and attendant security interests associated with the properties were subsequently transferred to National Asset Loan Management Limited (“NALM”), a subsidiary of the National Asset Management Agency (“NAMA”) in 2010.

9 It seems clear that the loan facilities were drawn down and that they were not repaid on the anniversary of that event. Instead, it would appear that discussions ensued between the defendants and their relationship manager in the bank following which, in 2009 and 2010 the defendants set about completing works on the vacant apartments so that they might generate a rental income stream until such time as market conditions improved and they could be sold. The defendants were responsible for the expenditure necessary to fit out the apartments for rental and for the day to day management of the apartment complex. The defendants were to remit the net rental income from the apartments to the bank to be applied against the defendant's indebtedness or, at least, against the interest accruing upon it.

10 The defendants later had to expend a further €328,690.96 on the works required to bring the underground car-park of the apartment complex into compliance with the applicable fire safety regulations. The bank subsequently contributed €112,590.61 towards that sum with the approval of NALM/NAMA. No explanation has been provided concerning how the apartment complex came to be constructed in such a manner that almost a third of a million euro had to be expended on the remedial works necessary to bring it into conformity with the applicable fire safety regulations.

11 On the 1st December 2011, following receipt by the bank of a business plan submitted by the defendants, it wrote to them in its capacity as manager of the relevant debts on behalf of NALM/NAMA, stating that the said plan was not acceptable. The letter identified a number of issues which had to be addressed as a matter of urgency if the lender's support for the defendants was to continue. The letter went on to state, in material part, that neither its issue and acceptance, nor any of the discussions leading up to it, constituted a waiver or amendment of the rights of the parties and that all such rights, including the right to enforce any security held by NALM/NAMA, were expressly reserved and capable of being exercised without further notice.

12 On the 29th May, 2012, the bank again wrote to the defendants in the same capacity, stating that its letter was to be read in conjunction with, and was to be deemed part of, the letter of the 1st December, 2011 just described. In particular, the second letter stated that all terms and conditions detailed in the first letter were to remain unchanged and would continue to apply. An appendix to the second letter sets out a ‘property strategy approved by NAMA’ to be pursued by the company, which includes, among other things, the rental by it of the ‘full scheme’ at Alexandra Place, the provision of monthly rental reconciliations in that regard and the marketing of the properties for sale in 2015.

13 By a loan sale agreement dated 20th June, 2014 made between the bank, NALM and a company named Promontoria Eagle Ltd (‘PEL’), PEL purchased the company's loans. PEL appointed Capita Asset Services (Ireland) Limited (‘Capita’) to provide loan administration services in relation to the defendants' loans, amongst others.

14 Upon its appointment as asset manager, Capita wrote to the defendants on the 5th September, 2014 requesting a meeting and the provision of a cash flow projection. The requested meeting took place on 11th September, 2014, attended by Mr McGinley; his son; staff from Capita; and staff from an entity called Cerberus European Servicing Limited (‘Cerberus’), which acts as an advisor to PEL. At that meeting, the defendants were asked to furnish a debt repayment proposal. The company submitted one on the 26th September, 2014. By letter dated the 21st October, 2014, Capita advised the defendants that the company's proposal had been deemed unacceptable to PEL.

15 A number of meetings and further correspondence followed. Settlement negotiations continued into 2015. No agreement was reached. On the 12th March, 2015, PEL issued letters of demand to the company as borrower and to Mr McGinley as guarantor. Those letters identify an aggregate sum then due from the company in excess of €27 million and an aggregate sum then due from Mr McGinley on foot of various guarantees in respect of those borrowings in excess of €3.6 million. It appears to be common case that, in response to those demands, the relevant loans were not repaid and that no payment was made by Mr McGinley on foot of the various guarantees he had provided in respect of those loans.

16 On 31st March 2015, PEL appointed the plaintiff as receiver over certain assets of the defendants comprising the property at Alexandra Place and six other properties including land, a commercial unit, and investment properties in counties Tyrone, Donegal, and Dublin. The plaintiff avers that, in respect of the Alexandra Place property, the receivership encompasses 57 apartments and one occupied commercial unit. Mr McGinley avers that the Alexandra Place development comprises 73 apartments, of which 16 have been sold, together with three commercial units and a crèche facility.

17 In turn, on 31st March, 2015, the receiver appointed Chartered Assets Property Limited (‘Chartered Assets’) as property management agents for the Alexandra Place property.

The underlying proceedings

18 A plenary summons issued on behalf of the receiver on 21st April, 2015, seeking an order for possession of, amongst others, the Alexandra Place property; injunctions restraining the defendants from interfering with the receivership or the functions of the receiver, from interfering with the receipt of rents by the receiver, from...