Tola Capital Management Llc v Joseph Linders and Another (No.2)

• Jurisdiction: Ireland
• Judge: Mr. Justice Cregan
• Judgment Date: 26 June 2014
• Neutral Citation: [2014] IEHC 324
• Court: High Court
• Date: 26 June 2014

Tola Capital Management LLC v Linders (No 2)

BETWEEN

TOLA CAPITAL MANAGEMENT LLC

PLAINTIFF

AND

JOSEPH LINDERS AND PATRICK LINDERS (NO.2)

DEFENDANTS

[2014] IEHC 324

[No. 4500 P/2014]

THE HIGH COURT

Company – Loans – Bank - Lites Pendentes – Business – Funding – Binding Option Agreement – Identification – Land and Conveyancing Law Reform Act 2009 – Practice and Procedures

Facts: In this application the defendants sought an order vacating two lites pendentes registered against them on 19th May, 2014. The notice of motion was issued on 22nd May, 2014, and was grounded on the affidavit of Mark Heslin sworn on 21st May, 2014, and also on the affidavit of Joseph Linders sworn on 27th May, 2014. The application was resisted in full by the plaintiff who was a limited liability company incorporated under the laws of Delaware in the United States. The principal place of business was in New York. The defendants who were sued in their personal capacities wished to enter into an agreement with Ulster Bank to buy back certain loans which they or their companies owed to Ulster Bank and which were secured on properties which either they, or companies controlled by them, owned. In order to buy back these loans they needed to obtain finance from alternative financiers. One possible financier was the plaintiff and, according to the defendants, the role of the plaintiff in the renegotiations of the defendants” refinancing of their loans with Ulster Bank was that the plaintiff would provide evidence of alternative funding to Ulster Bank. The plaintiff alleged that the parties entered into a Binding Option Agreement on 6th February, 2014 and under the terms of that agreement, the defendants granted the plaintiff an exclusive option to acquire certain properties. The agreement also set out two possible structures to purchase the properties as follows: (1) Method A – Loan Structure; and (2) Method B – Partnership Structure. Paragraph 1 of the option agreement provided that the Linders would negotiate the purchase of the loans from Ulster Bank in return for a full and final release by Ulster Bank of all claims over the companies, the individuals and the properties. Tola agreed to provide the Linders with letters demonstrating proof of funds which the Linders were authorised to present to the bank in connection with negotiating a price for the purchase of the loans. Paragraph 2 of the agreement further provided that for a period of thirty to forty five days after the date in which the Bank provided written notice of its acceptance of the purchase price, the parties would negotiate to reach an agreement for the purchase of the properties under the terms of Method B. Paragraph 3 of the option agreement also provided that, in the event that the parties were unable to reach agreement on the terms of the purchase of the properties under Method B: Partnership Structure, then Tola shall have the right, but not the obligation, to purchase the properties under the terms of Method A: Loan Structure. It also provided that Tola could exercise its option by a notice of intent to purchase to the Linders within seven days of the expiration of the negotiation period. Subsequently, the defendants entered into an agreement with Ulster Bank for the repurchase of their loans on 23rd April, 2014. The terms of this agreement were clearly confidential but were given to the plaintiff by the defendants in good faith. The parties then entered into negotiations to see if they could agree a partnership structure under the Binding Option Agreement. However, these negotiations proved inconclusive and on 18th April, 2014, the defendants (through a Mr. Tuite), sent an email confirming that the defendants were withdrawing from the negotiations. On 22nd April, 2014, the plaintiffs then, by notice, exercised its option to purchase the Tola properties in accordance with Method A. On 28th April, 2014, the defendants gave notice of their intention to decline to proceed with the purchase by the plaintiff of the Tola properties in accordance with Method A; they stated that they had obtained alternative financing comprised entirely of debt with no third party equity participation which would allow them to complete the debt purchase agreement with Ulster Bank and requested the plaintiff”s bank details in order to make a payment of €500,000 pursuant to clause 4(b) of the Binding Option Agreement. By letter dated 28th April, 2014, the plaintiff confirmed receipt of the defendants notice declining to proceed with method A and sought documentary confirmation that the requisite alternative financing ( i.e. entirely debt with no equity participation) had been obtained as required by the option agreement. Further correspondence took place between the parties and on 14th May, 2014, solicitors on behalf of the defendants wrote to the plaintiff stating that the defendants” sole remaining obligation under the option agreement was to make a payment of €500,000 to the plaintiffs, and asserted that the plaintiff had no entitlement to demand further information. However, the plaintiff contended that the defendants were under a contractual obligation to provide specific information to the plaintiff to confirm that the defendants had, indeed, met the precondition for declining the exercise of the plaintiff”s option to purchase. The plaintiff also stated in its affidavit that the defendants” failure to provide this information was unreasonable and that the only conclusion to be drawn from the refusal to supply such information was that the defendants had not complied with clause 4. More importantly, the plaintiff contended that there was a binding agreement for the purchase of the properties under Method A: Loan Structure. Thus, the defendants were of the view that the Option Agreement had been terminated (and that all they needed to do was pay the plaintiff the sum of €500,000); the plaintiff, on the other hand, maintained that it was still entitled to exercise its option to purchase certain properties in accordance with the terms of Method A: Loan Structure.

Held by Justice Cregan that two lites pendentes had been registered by the plaintiff in this matter. The first was against Joseph Linders and the second was against Patrick Linders. It was noted that when reviewing the particulars of the lis pendens that no property was identified in the particulars of the lis pendens. It simply stated the name, place of residence and description of the person whose estate was intended to be affected by the registration of the lis pendens. Moreover, according to Justice Cregan the option agreement defined the Tola properties and that it was clear that the major operative clause of the option agreement was to grant to Tola an exclusive option to acquire the Tola properties in accordance with the terms contained therein and that these terms provided that the Tola properties would be transferred to and retained by Hold Co. In reviewing the pleadings to see what the plaintiff was claiming in respect of these properties, it was noted that in the original statement of claim that it was specifically pleaded by the plaintiff that it was not the defendants who were the owners of the Tola properties, but rather Linders of Smithfield Ltd – as a separate company – or subsidiaries of Linders of Smithfield Ltd. In the amended statement of claim the plaintiff sought to add three named companies as defendants - Linders of Smithfield Ltd, Equipoint Ltd and Equiside Ltd. A separate application was made by the plaintiff for the joinder of these three defendants. This application was opposed by the defendants. The application was heard by Justice Cregan and was the subject of a separate judgment. In that judgment he permitted the plaintiff to join the three companies as co-defendants to the proceedings and the plaintiff agreed to serve an amended statement of claim in the terms produced to the court. At paragraph 10, the plaintiff pleaded that the defendants agreed that in the event that the plaintiff exercised its option to acquire the Tola properties under Method A: Loan Structure, that the Tola properties would be transferred by the third, fourth and fifth defendants to, and retained by, a newly formed Irish limited liability company 100% owned and controlled by the plaintiff. Justice Cregan stated that it was noteworthy that the plaintiff”s case as set out in the option agreement and as formally pleaded in the amended statement of claim, was that in fact the Tola properties as a matter of contract, would be transferred to, and retained by, a newly formed Irish limited liability company 100% owned and controlled by the plaintiff but not to the plaintiff itself. In terms of relief, the plaintiff claimed an order for specific performance of Method A: Loan Structure set out in the Binding Option Agreement directing the transfer of the Tola properties by the defendants to the plaintiff, a declaration that the plaintiff holds the benefit of a contract for the transfer to it of the Tola properties and a declaration that the defendants and each of them hold the properties in trust for the plaintiff. Thus, the original statement of claim and amended statement of claim both plead that the Tola properties are owned by the companies, not by the first and second defendants personally. The plaintiff, according to Justice Cregan had not sought to resile from that plea in any respect. This was accepted by the first and second defendants in their affidavits. In light of and having examined the affidavit evidence Justice Cregan reasoned that the plaintiff was on notice as and from the date of the swearing of the affidavit that the individual defendants were not the registered owners of the Tola properties and that the Tola properties were, in fact, owned by the companies, Linders of Smithfield Ltd or by its subsidiaries. The fact that the plaintiff was on notice of this fact...