Ulster Investment Bank Ltd v Euro Estates Ltd

• Jurisdiction: Ireland
• Judge: Miss Justice Carroll
• Judgment Date: 01 January 1982
• Neutral Citation: 1981 WJSC-HC 2119
• Docket Number: No. 750 Sp./1979
• Court: High Court
• Date: 01 January 1982

ULSTER INVESTMENT BANK LTD. v. EUROESTATES LTD.

BETWEEN:

ULSTER INVESTMENT BANK LIMITED

Plaintiff

and

EURO ESTATES LIMITED AND DRUMKILL LIMITED

Defendants

1981 WJSC-HC 2119

No. 750 Sp./1979

THE HIGH COURT

1 Judgment of Miss Justice Carroll delivered the 30th day of July 1981

2 The defendant companies are two property development companies. The second named defendant, ("Drumkill") was incorporated on the 9th June, 1972. The promoters of Drumkill, Brendan Flynn, Francis A. Clarke and Eugene Brady were also involved with an English company, Lane Fox and Company Limited ("Lane Fox") in the promotion and incorporation of the first named defendant ("Euro Estates") on the 14th of June, 1973. The three Irish associates own a 49% interest in Euro Estates and the remaining 51% interest is owned by Lane Fox which carried on the same field of activity in England.

3 The companies became involved in a major development project at Percy Place and Haddington Road, Dublin, divided into four phases. Some of the property was owned by Drumkill and some by Euro Estates. In addition, Euro Estates had other property in Pearse Street and also at the Airport Industrial Estate at Santry.

4 Originally Drumkill and Euro Estates derived finance from the Lane Fox group of companies. The company which advanced the money directly was Sandhurst Builders (Bedford) Limited, a wholly owned subsidiary of Lane Fox, which in turn derived finance from Barclays Bank in England.

5 It was decided early in 1974 to try to finance the development in Ireland. Ulster Investment Bank Limited the plaintiff, ("U.I.B.") gave facilities to clear the indebtedness to Sandhurst Builders (Bedford) Limited which paid off Barclays Bank. The direct advance was made to Euro Estates. Drumkill are involved by way of guarantee for Euro Estates" liability.

6 Euro Estates granted three mortgages to U.I.B., all of which were expressed to be a continuing security to secure all monies owing to U.I.B. on any account. On the face of them all three deeds were validly executed by the company in accordance with the requirements of the Articles of Association by the seal being affixed and being signed and countersigned by two directors.

7 The first mortgage is dated the 7th June, 1974 and comprises the property described in Parts 1 to 7 of the first schedule to the amended special summons.

8 The second mortgage is dated the 6th of November, 1974 and comprises the property described in Part 9 of the said schedule.

9 The third mortgage is dated the 15th October, 1975 and comprises the properties described in Parts 11 to 14 of the said schedule.

10 Drumkill granted three mortgages to U.T.B., all of which refer to the monies advanced to Euro Estates and the agreement by Drumkill to guarantee such advance and its agreement to mortgage the property comprised in the mortgages as further and collateral security for the said guarantees. Each of these three mortgages is on its face validly executed in accordance with the Articles of Association by having the seal affixed and being signed and countersigned by two directors.

11 The first Drumkill mortgage is dated the 7th of June, 1974 and comprises the property described in Part 3 of the first schedule to the amended special summons. The second Drumkill mortgage is dated the 23rd of December. 197-1 and comprises the property described in Part 10 of the said schedule. The third Drumkill mortgage is dated the, 25th of November, 1975 and comprises the property described in Part 15 of the said schedule.

12 Euro Estates defaulted in payment of monies due on foot of their Mortgages. By the 30th November, 1979 U.I.B. were owed £597,889.87 for principal and £707,821.34 for interest, that is an aggregate amount of £1,305,711.21, after allowing credit for the Pearse Street property which has beer sold.

13 This action to realise the securities was commenced on the 10th of December, 1979. Since that date both companies have been put into liquidation. Mr. John Connolly has been appointed liquidator of Euro Estates by Order of the Court dated the 20th of January, 1980 and Kr. Laurence Crowley has been appointed liquidator of Drumkill by Order of the Court dated the 22nd of April, 1980. After the appointment of the liquidators this action has continued with the sanction of the Court.

14 There had been an earlier action in this matter entitled The High Court No. 2758P/1979 Between Brendan M. Flynn and Euro Estates Limited Plaintiffs and Ulster Investment Bank Limited Defendant. Brendan Flynn, one of the promoters, and Euro Estates challenged the validity of the mortgages granted by Euro Estates. The principal ground relied on was that the money advanced was not for the purchase of property bit to lend money to the Lane Fox group and that this was ultra vires Euro Estates. Also included in the relief sought was a declaration that the mortgage of the 6th of November, 1974 was void because it was not properly executed in accordance with the articles. The summons was issued on the 3rd of May, 1979 and on the 20th of June, 1979 a notice of discontinuance was served by Brendan N. Flynn.. U.I.B. brought a motion for the 23rd of July, 1979 to have the lis pendens registered by the plaintiffs in the action vacated and the proceedings struck out. Mr. Justice Cannon made an order on the 51st July, 1979 staying the proceedings on the basis that there had never been a valid resolution by Euro states authorising the bringing of the proceedings.

15 In this action Mr. Donnolly as liquidator of Euro Estates has raised issues concerning the validity of two of the Euro Estates" mortgages. He does not challenge the calculation of the amounts claimed due by U.I.B. on foot of the mortgages. This claim relates solely to their validity and is based on a consideration of the Articles of Association and relevant correspondence and minutes. Mr. Donnolly has not been able to obtain or trace the minute books of Euro Estates but there are copy/extracts from the minutes available.

16 The relevant provisions in the Articles of Association of Euro Estates relate to "A" and "B" directors.

17 The articles provide as follows:

"Article 7 (ii). No business shall be transacted at any general meeting unless a quorum of members is present at the time when the meeting proceeds to business. Two members shall be sufficient to form a quorum provided that a quorum shall contain a member holding "A" ordinary shares and a member holding "B" ordinary shares. Such members may be present in person or by proxy or being a corporation represented in accordance with Regulation 74 of Part 1 of Table A.

Article 8 (ii) The number of directors shall not be lees than three and; more than six of whom not more than three shall be "A" directors and not more than three shall be "B" directors.

Article 9 (i) The holders of a majority in nominal value of the issued "A" ordinary shares shall be entitled at any time and from time to time to appoint any person as a "A" director (but so that the maximum number of "A" directors fixed in accordance with these regulations is not exceeded)to determine the period for which such person is to hold office and to remove any "A" director from office.

(ii) The holders of a majority in nominal value of the issued "B" ordinary shares shall be entitled at any time and from time to time to appoint any person a "B" director (but so that the maximum number of "B" directors fixed in accordance with these regulations is not exceeded)to determine the period for which such person is to hold office and to remove any "B" director from office.

Article 10 (iii) Two directors shall be sufficient to form a quorum provided that a quorum shall contain at least one "A" director and one "B" director.

Article 11. The Chairman of the directors shall be chosen by the "A" directors from among the "A" directors.

11 (a) The directors may exercise all the powers of the company to borrow and secure money without any limit as to amount and regulation. 79 of Part 1 of Table A shall be modified accordingly."

18 Another relevant provision concerns the affixing of the seal of the company. The articles incorporate regulation 115 of Part 1 of Table A which provides as follows:-

"The seal shall be used only by the authority of the directors or of a committee of directors authorised by the directors in that behalf, and every instrument to which the seal shall be affixed shall be signed by a director and shall be countersigned by the secretary or by a second director or by some other person appointed by the directors for the purpose".

19 Shortly after the incorporation of Euro Estates there was a shareholder agreement dated the 11th (9th?) August, 1973 between Lane For of the one part and Messrs. Clarke Flynn and Brady of the other part. This made several provisions in relation to an increase in the authorised share capital and amending the articles so that there would be four "A" directors and four "B" directors and providing that the number of "B" directors entitled to vote at a meeting should not exceed the number of "A" directors. These proposals were never implemented but the shareholders agreement shown that the "A" ordinary shares were to be allocated to Lane Fox and the "B" ordinary shares to Messrs Flynn Clarke and Brady. A copy of this shareholders agreement was sent to U.I.B. by Euro Estates with a letter dated the 5th February, 1974.

20 Following preliminary negotiations an offer of loan facilities to Euro Estates by U.I.B. was made by letter dated the 17th April, 1974. This specifies that the amount of the loan is to be £450,000 and that its purpose is as a revolving facility to be used for property investment. It also specifies a list of the properties on which a first legal charge is to be given as security for the loan.

21 These are:-

22 (1) Haddington Road (phase two)

23 (a) First legal charge on...