Tola Capital Management LLC v Joseph Linders and Another

• Jurisdiction: Ireland
• Judge: Mr. Justice Cregan
• Judgment Date: 05 June 2014
• Neutral Citation: [2014] IEHC 316
• Court: High Court
• Date: 05 June 2014

[2014] IEHC 316

THE HIGH COURT

[No. 4500 P/2014]

Tola Capital Management LLC v Linders

BETWEEN

TOLA CAPITAL MANAGEMENT LLC

PLAINTIFF

AND

JOSEPH LINDERS AND PATRICK LINDERS

DEFENDANTS

(NO.1)

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OKUNADE v MIN FOR JUSTICE & ORS 2012 3 IR 152 2013 1 ILRM 1 2012/37/10891 2012 IESC 49

GORRINGE v LAND IMPROVEMENT SOCIETY 1899 1 IR 142

DUGGAN v ALLIED IRISH BUILDING SOCIETY UNREP FINLAY 4.3.1976 1976/3/894

BUCKLEY & ORS SPECIFIC PERFORMANCE IN IRELAND 2012 PARA 7.23

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AMERICAN CYANAMID CO v ETHICON LTD 1975 1 AER 504 1975 AC 396 1975 2 WLR 316 1975 FSR 101 1975 RPC 513

WESTMAN HOLDINGS LTD v MCCORMACK & CO 1992 1 IR 151 1991 ILRM 833 1991/10/2491

B & S LTD v IRISH AUTO TRADER LTD 1995 2 IR 142 1995 2 ILRM 152 1995/1/201

O MURCHU T/A TALKNOLOGY v EIRCELL LTD UNREP SUPREME 21.2.2001 2001/20/5410 2001 IESC 15

SHERIDAN v LOUIS FITZGERALD GROUP LTD & BURSTON LTD UNREP CLARKE 4.4.2006 2006/52/11155 2006 IEHC 125

Injunction – Mandatory Injunction – Damages – Balance of Convenience – Loans – Property – Finance – Binding Option Agreement.

Facts: The defendants had sought to buy back loans owed to Ulster Bank which had been secured on properties owned by them or the companies which they controlled. In order to do so they needed alternative finance. The plaintiff agreed to be a financier and to provide the requisite evidence to Ulster Bank that they could provide funding to the defendants. Subsequently, the plaintiff and the defendants entered into a Binding Option Agreement which provided for the acquisition of property by the plaintiff from the defendants under either Method A, the loan structure, or Method B, the Partnership Structure. After deciding not to proceed with the purchase the defendants invoked a clause in the agreement which provided that the defendants were permitted to not proceed with a purchase under Method A or B on the condition that they found alternative finance with no third party equity participation and paid €500,000 to the plaintiff within 30 days. As a result the plaintiff brought these proceedings in order to otain the following injunctive relief; an order preventing the defendants from completing the debt purchase agreement with Ulster Bank unless the property in question be held on trust for the plaintiff and ‘an order restraining the defendants from selling, transferring, assigning, disposing or otherwise dealing with the property except in accordance with the terms of Method A.’

Held by Cregan J., that the injunctions sought by the plaintiff where not prohibitive but were in fact mandatory and as such, in addition to choosing a course which would result in the least injustice, it was necessary for the plaintiff to show that it had a strong case that was likely to succeed at trial. Cregan J. came to the conclusion that a strong case had not been made out as the plaintiff was ultimately looking for a loan agreement to be specifically performed and it was generally accepted that courts would not grant specific performance for these types of agreements.

As regards damages, although the the plaintiff had conceded that they would be an adequate remedy, it was argued that the defendants would not be able to meet any damages that may be awarded to the plaintiff at a full hearing. The judge held that the burden of proof was on the plaintiff to establish that the defendant would not be in a position to meet an award of damages. He stipulated that the plaintiff had failed to satisfy this burden by not giving a figure of what the damages may be which resultantly prevented the defendants from arguing that they could meet such an amount.

Finally, after taking into account the following; the mandatory nature of the injunction, the concession that damages were an adequate remedy, the distrust and lack of confidence between the parties and the consequences for both parties in the event that an injunction was granted or refused, Cregan J. came to the conclusion that the balance of convenience necessitated the refusal of an injunction.

1 JUDGMENT of Mr. Justice Cregan delivered on the 5th day of June, 2014

Introduction

2 1. In this case the plaintiff seeks the following interlocutory injunctive reliefs against the defendants:-

3 (1) An order restraining the defendants from completing a debt purchase agreement with Ulster Bank in respect of the properties the subject matter of these proceedings otherwise than in trust for the plaintiff.

4 (2) An order restraining the defendants from placing on the market, selling, transferring, assigning, disposing of, charging or otherwise dealing with the properties the subject matter of these proceedings save in accordance with the terms of Method A: Loan structure of the Binding Option Agreement between the parties dated 6 ^th February, 2014;

5 (3) An order directing the defendants to provide evidence confirming that the defendants alternative financing for the debt purchase agreement entered into with Ulster Bank consisted entirely of debt with no third party equity participation.

Factual Background to the Application

6 2. The plaintiff is a limited liability company incorporated under the laws of Delaware United States. It has its principal place of business at 299 Park Avenue, 16 ^th Floor, New York in the United States.

7 3. The defendants are sued in their personal capacities. However, at para. 8 of the grounding affidavit of Ronan Dodd, solicitor for the plaintiff, it is averred that:-

"The defendants or companies controlled by them are the owners of the following properties (hereafter collectively referred to as the "properties ") described in the Binding Option Agreement as: [The details of certain properties are then set out]."

8 4. The defendants wished to enter into an agreement with Ulster Bank to buy back certain loans which they 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.

9 5. The plaintiff alleges that the parties entered into a Binding Option Agreement on 6 ^th February, 2014.

10 6. Under the terms of the option 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 (the subject of the option) as follows:-

11 (1) Method A - Loan Structure

12 (2) Method B - Partnership Structure

13 7. 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.

14 8. Paragraph 2 of the agreement 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: Partnership Structure" set out in the agreement.

15 9. It was also agreed that if the Linders terminated negotiations for the purchase of the properties prior to the expiration of the negotiation period and prior to the execution by the parties of a legally binding contract, "then the Linders shall pay the sum of €500,000 to Tola within thirty days of the Linders' notice to terminate the negotiations or at the time of the closing of the transaction with the bank, whichever occurs earlier".

16 10. Paragraph 3 of the option agreement 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" as set out in the agreement. 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.

17 11. However, the critical clause in the contract and one which is at the heart of the dispute between the parties is at para. 4 which provides as follows:-

"Notwithstanding the foregoing, the Linders may, within seven days of receipt of the notice from Tola exercising the option to purchase, elect not to proceed with a purchase pursuant to the terms of Method A: Loan Structure by notice of intent to decline the Loan Structure purchase to Tola so long as all of the following conditions are met:"

(a) The Linders shall have obtained alternative financing comprised entirely of debt with no third party equity participation. sufficient to allow the Linders to effect the purchase of the loans from Ulster Bank, and

(b) The Linders...