Judgment Title: Kinsella & Ors -v- Wallace & Ors
Neutral Citation:  IEHC 112
High Court Record Number: 2013 1915 P
Date of Delivery: 12/03/2013
Court: High Court
Composition of Court:
Judgment by: Laffoy J.
Status of Judgment: Approved
Neutral Citation  IEHC 112
THE HIGH COURT
[2013 No. 1915P]
MICHAEL KINSELLA, GREG KINSELLA, BARBARA KINSELLA, AMANDA KINSELLA FERGUSON, GREG KINSELLA DESIGN STUDIO LIMITED, SOUTHERN CARPETS LIMITED, MICHAEL KINSELLA INVESTMENTS LIMITED
KIERAN WALLACE, PADRAIC MONAGHAN AND BANK OF SCOTLAND PLC
Judgment of Ms. Justice Laffoy delivered on 12th day of March, 2013.
2. The predecessor of the Bank was Bank of Scotland (Ireland) Ltd., which merged with the Bank by a cross-border merger by absorption effective from just before midnight on 31st December, 2010. The reference to the Bank hereafter means Bank of Scotland (Ireland) Limited prior to the merger and Bank of Scotland Plc thereafter.
3. What triggered these proceedings was that on 20th February, 2013 the Bank appointed the first and second named defendants (the Receivers), both of KPMG, to be joint receivers and managers over the assets and undertakings of the three corporate plaintiffs. The relevant deeds of appointment have not been exhibited. Further, on the same day, the Bank appointed the Receivers to be joint receivers over all the assets referred to and comprised in and charged by certain security documents given by Mr. Kinsella and the second, third and fourth plaintiffs to the Bank. It would appear that there were four deeds appointing the Receivers as joint receivers over the assets of Mr. Kinsella and the second, third and fourth plaintiffs. To take one example, one of the deeds of appointment appointed the Receivers as joint receivers over all the assets charged by –
(b) a mortgage and charge dated 8th September, 2006 made between Mr. Kinsella of the one part and the Bank of the other part relating to “amongst other things, a premises known as Green Gables, Parnell Road, Bray, County Wicklow”.
The other deeds of appointment exhibited refer in a like manner to –
(i) 60 Main Street, Bray,
(ii) 9 and 10 School Lane, Bray,
(iii) 63 and 64 Main Street, Bray,
(iv) Eleda House, Brighton Terrace, Bray, and
(v) 32 The Nurseries, Killarney Road, Bray.
4. The factual basis of these proceedings is to be found in the letter of complaint dated 5th March, 2012, apparently on behalf of the plaintiffs to the Bank’s agent. The letter was on the letter heading of Peach Investments Limited with an address in Bray and it was signed by Mr. Kinsella. Although he had an opportunity to do so in his second affidavit sworn on 4th March, 2013, Mr. Kinsella did not explain the relationship of Peach Investments Limited and the plaintiffs. However, for present purposes, I consider it can be assumed that the letter of 5th March, 2012 was written on behalf of the plaintiffs. The addressee of that letter was Mr. Matthew Harvey of Certus. As explained in the replying affidavit of Jonathan Henderson sworn on 1st March, 2013 on behalf of the Bank, Certus is an Irish registered unlimited company which has been engaged by the Bank to provide customer support and administration services to it. In the letter, ten issues were raised in relation to the dealings of the plaintiffs with the Bank in relation to the plaintiffs’ development known as Southpoint, Main Street, Bray, which I understand to consist of a combination of residential and commercial units. The factual basis of these proceedings centres on three of the issues raised in that letter, namely:
(b) It was asserted that after the building contract for the Southpoint development was signed in July 2006 and after the site works had commenced, in September 2006 the Bank demanded additional security from the Kinsellas before it would release part of the loan to be advanced to the Kinsellas to enable them to discharge monies due to the building contractor. It was represented by a named official of the Bank that the requirement for additional security would not be long-term and it was agreed that it would be released when the development reached a certain height. In was on that basis, and under protest, that the Kinsellas gave additional security to the Bank of what are referred to as the “non-core properties”, which are listed in the grounding affidavit of Mr. Kinsella as:
(i) Green Gables, Parnell Road, Bray,
(ii) 32, The Nurseries, Killarney Road, Bray,
(iii) The Gables, Parnell Road, Bray (sic),
(iv) Store at St. Kevin’s Square, Bray,
(v) 55, Main Street, Bray, and
(vi) Shop unit at St. Kevin’s Square, Bray.
The plaintiffs’ complaint is that, not only did the development reach the certain height stipulated, but it has actually been completed and the apartment units are fully occupied and a number of the commercial units are also occupied. However, the Bank has not released the non-core properties, despite the agreement on the part of the Bank to do so. As regards the identity of the non-core properties and the other secured properties, it must be stressed that there is no evidence before the Court as to on what property the Southpoint development was constructed, nor is there evidence as to in which of the plaintiffs the title to the unsold portions of the Southpoint development is vested. I mention this because the non-core properties listed above do not coincide with the properties listed in paragraph 3 over which the Receivers have been appointed.
(c) The complaint, which is referred to as Issue 4 in the letter, has been described in the grounding affidavit of Mr. Kinsella as dealing with “the promises and representations made by the bank in 2008”. He has also averred that after the “selling market” crumbled in 2008, the Kinsellas retained Douglas Newman Good to carry out a valuation of the unsold apartments. That firm produced a document which the Kinsellas produced to the Bank and they pressed the Bank to agree to reduce the selling price to the lower levels suggested by Douglas Newman Good. The reaction of an official of the Bank was that they could not sell at those lower prices. However, they were told not to worry by the official and were told to “hold the line” and the Bank would extend their facilities and roll over the loans. They were specifically instructed by the Bank that they should “wait out the market” and in the interim let out the unsold apartments. On the understanding that the Bank was going to support them, the plaintiffs fitted out the unsold apartments and for that purpose the Bank advanced a loan of €300,000. Their complaint now at the core of these proceedings is that, in appointing the Receivers, the Bank has resiled from their representations.
(b) The author’s understanding of this complaint was that part way through the construction of the Southpoint development additional security was sought from the Kinsellas and it was their understanding that the additional security would be released once the Southpoint development reached a certain height. The answer was to dispute the plaintiffs’ assertion and to state that the intention was that the properties would remain charged to the Bank until either full repayment of the facilities or by formal approval for release by the Bank.
(c) The author’s understanding of this complaint was that the Bank had instructed the Kinsellas to let out the apartments at the Soutpoint development rather than reduce the price and seek a sale. The answer was that the Bank’s understanding was that the income streams and sales proceeds would be insufficient to enable the various loan facilities to be repaid in line with the relevant facility documentation, if the apartments were sold at levels proposed and its commercial units were let at level proposed and it was on that basis that the requests were declined.
7. In fact, on 19th July, 2012, Mr. Kinsella and the second, third and fourth named plaintiffs, through their solicitors, Cullen Tyrrell & O’Beirne, submitted a complaint against the Bank to the FSO. In section (c), in which the complainants were asked to describe the complaint in their own words, they stated that they had ten grounds of complaint with the Bank as detailed in their letter of 5th March, 2012 to Certus and in their letter of 31st May, 2012 to the Bank. In response to a further question as to how they wanted the Bank to put things right, the complainants responded that they requested the FSO to deal “with our complaints, in particular as regards the disclosure of relevant documents, submissions and oral hearing”. They went on to state that their complaints concerned, inter alia, “oral assurances made by the Bank, which the Bank deny and the essence of our complaints cannot be resolved without an oral hearing”. They requested that the Bank should not make any decision, procedural or otherwise, without first hearing from them. In reality they did not answer the question posed, although the clear implication is that they require that the Bank be compelled to abide by its oral assurances. The relevant correspondence commencing with the letter of 5th March, 2012 to the Bank and ending with the letter of 12th July, 2012 from the Bank was attached to the complaint. A further complaint in similar terms in the name of the three corporate plaintiffs was submitted by the plaintiffs’ solicitors to the FSO on 23rd July, 2012.
8. By letter dated 2nd August, 2012 from the Head of Legal Services of the FSO, the plaintiffs’ solicitors were informed that the file had been referred to him to make a determination with respect to the FSO’s jurisdiction to investigate the complaint. It was pointed out that any decisions, determinations or procedural action taken in respect of complaints before the FSO are matters which are entirely within the jurisdiction of that office to make. That position was reiterated in a further letter of 13th August, 2012 from the FSO to the plaintiffs’ solicitors. Despite two requests from the plaintiffs’ solicitors for “an up date” there had been no response to the complaint from the FSO prior to the appointment of the Receivers.
The proceedings and the application
(b) an order setting aside the appointments under the deeds of appointment;
(c) an order restraining the defendants from taking any steps pursuant to the deeds of appointment; and
(d) a declaration that the Bank “has wrongly and improperly sought to take steps likely to prejudice or negate the effect or implementation of a decision by the [FSO] in the plaintiffs’ complaint against the Bank dated 19th July, 2012.”
10. On 25th February, 2013 the plaintiffs were given leave by the Court to issue a notice of motion returnable for 1st March, 2013 seeking the following reliefs:
(b) an order restraining the Bank from taking any further steps likely to prejudice or negate the effect or implementation of a decision of the FSO pending the determination of the plaintiffs’ complaint against the Bank of 19th July, 2012.
11. In his replying affidavit, Mr. Henderson acknowledged that the letter of complaint dated 19th July, 2012 to the FSO had been copied by the plaintiffs’ solicitors to Certus, but he contended that Certus had not received copies of the enclosures, such as the complaint form, with the covering letter. The FSO had not written to either the Bank or to Certus informing them of the making of the complaint. However, on the basis of inquiries made on the days prior to 1st March, 2013, when the replying affidavit had been sworn, on behalf of the Bank with the office of the FSO, the Bank had learned that the FSO had still not reached a decision as to whether he had jurisdiction to entertain the complaint. The correspondence subsequent to the complaint between the plaintiffs’ solicitors and the FSO had not been brought to the attention of either the Bank or Certus.
12. Apropos of the plaintiffs’ response to the question posed on the FSO complaint form as to what the complainants wanted the Bank to do to put things right, Mr. Henderson observed that “the Bank still does not know what relief the plaintiffs seek against it before the FSO” and he asserted that the issue was not at all clarified by Mr. Kinsella’s grounding affidavit.
Judicial review proceedings in relation to FSO complaint
14. In fact, at 10.13am on 5th March, 2013, Mr. Phelan had received a copy of a letter dated 5th March, 2013 from the FSO to the plaintiffs’ solicitors. He exhibited that copy letter in his affidavit. In that letter, the plaintiffs’ solicitors were informed that the FSO had decided not to investigate the plaintiffs’ complaint. While, for the reason which will be obvious shortly, this Court is not concerned with the validity of that decision, nonetheless, I think it is appropriate to record that it was based on two grounds. The first was that, as the financial product or services provided were initially provided by the Bank to the complainants in June 2005, the complaint had not been brought within the time prescribed in s. 57BX (3)(b) of the Central Bank and Financial Services Authority of Ireland Act 2004 (the Act of 2004), which provides that a consumer is not entitled to make a complaint if the conduct complained of occurred more than six years before the complaint is made. Secondly, having analysed the nature of the complaint itself, it was found that the matters which it entailed were beyond the remit of the FSO. It was stated that the investigation of the complaint was more appropriate for a court of law. In this context, the Head of Legal Services referred to s. 57BX(2) of the Act of 2004, which provides that the FSO has sole responsibility for deciding whether a complaint is within his jurisdiction. He also quoted s. 57BZ to the effect that the FSO can decide not to investigate a complaint, or to discontinue an investigation of a complaint, on the ground that there is or was available to the complainant an alternative and satisfactory means of redress in relation to the conduct complained of. It was emphasised in the letter that no determination in respect of any allegations or any aspect of the substantive complaint was being made at that stage. Rather, a determination as to jurisdiction of the FSO to investigate the complaint only was being made.
15. While the interlocutory application was still at hearing, on 6th March, 2013, the plaintiffs obtained an order from the High Court (Cross J.) giving them leave to apply by way of judicial review for an order of certiorari quashing the decision of the FSO of 5th March, 2013 and staying the effect of that decision pending the determination of the judicial review proceedings.
17. There is also a factual controversy as to the state of knowledge of the officials of the Bank in relation to the plaintiffs’ complaint to the FSO. In this connection, an affidavit sworn on 4th March, 2013 by Martin Kavanagh, the father-in-law of the second named plaintiff, was filed on behalf of the plaintiffs. In that affidavit, Mr. Kavanagh, who attended the meetings, made it clear that officials of the Bank were informed at meetings of 24th July, 2012 and 23rd January, 2013 of the plaintiffs’ complaint to the FSO. Mr. Kavanagh’s evidence was that at the meeting of 23rd January, 2013, in response to a request by the Bank’s officials that the complaint to the FSO be withdrawn, it was made clear by the plaintiffs’ representatives that there was no possibility of withdrawing the complaint.
18. In the complaint to the FSO, it was explained, in broad terms, that the property the subject of the Bank loans was held by the corporate plaintiffs, being non-trading companies of which Mr. Kinsella and the second, third and fourth plaintiffs are directors. It was then stated:
19. By way of general observation, I do not get the sense from what has transpired between the plaintiffs and the Bank over the last five years that the Bank has had any serious misgivings that the plaintiffs were not properly accounting for the rents of the properties. The reality of the situation, as Mr. Henderson has averred, is that the indebtedness of the plaintiffs to the Bank is greatly in excess of the value of the secured properties and the Bank’s medium-term objective, if not its immediate priority, is that the Receivers will sell the secured properties and the Bank will receive the proceeds in discharge of the plaintiffs’ indebtedness.
20. The Court was informed, in response to a question to counsel for the plaintiffs, that, with the exception of a small warehouse which is not let, all of the non-core assets are let. All of the unsold apartments in the Southpoint development are let, and of the commercial units in that development, three are let and three are not let.
Authority of corporate plaintiffs to bring these proceedings
22. It was submitted by counsel for the defendants that, in the absence of authority from the Receivers, the directors of the corporate plaintiffs were not entitled to commence these proceedings, given the nature of the reliefs sought, in the name of the corporate plaintiffs. Counsel relied on the following passage from the judgment of the High Court (Keane J.) in Lascomme v. United Dominions Trust (Ireland) Ltd.  3 I.R. 412 (at p. 416):
(b) whether, if the plaintiffs were to succeed at the trial, they would be adequately compensated by an award for damages;
(c) whether, if the defendants were successful at the trial, they could be adequately compensated under the applicants’ undertaking as to damages for any loss which they would have sustained by reason of the grant of the interlocutory relief; and
(d) if there is a question as to whether damages would be an adequate remedy for either party, whether the balance of convenience lies in favour of the award or the refusal of an interlocutory injunction.
Fair bona fide question
26. First, not only did counsel for the defendants submit that the plaintiffs had not established that there is a fair bona fide issue to be tried in these proceedings, but he submitted that it was open to the Court to determine at this juncture that the plaintiffs have not established any issue and, therefore, the matter should be disposed of. In support of that argument, counsel relied on the decision of the House of Lords in Associated British Ports v. T.G.W.U.  1 WLR 939. In particular, he relied on the following observations of Lord Goff at the end of his speech, when, having stated that the plaintiff employers in an industrial relations dispute had not established the existence of any serious issue to be tried, he continued (at p. 979):
28. Secondly, that passage from the judgment of Hardiman J. is a reminder that it is not the Court’s function to attempt to resolve any factual controversies on an application for an interlocutory injunction. Some only of the myriad of factual controversies thrown up by the affidavit evidence have been referred to earlier. To take one example, in the course of outlining the various facility letters issued by the Bank to the plaintiffs, which were so numerous that they cover paragraphs 8 to 24 inclusive of Mr. Henderson’s affidavit, Mr. Henderson drew attention to the fact that a facility granted to the seventh named plaintiff, Michael Kinsella Investments Limited, in October 2008, which was amended in November 2008, was accepted by that corporate plaintiff some time after the oral agreements or understandings alleged by the plaintiffs in their complaint to the FSO. At the outset, I have alluded to the complexity of the arrangements between the plaintiffs and the Bank. The Court has not had sight of any of the facility letters issued to any of the plaintiffs. The Court has not had sight of any of the security documents, whether mortgages, charges, debentures or deeds of guarantee and indemnity, given by any of the plaintiffs to the Bank. As I have already recorded, the Court has not had sight of the deeds of appointment of the Receivers as receivers and managers of the corporate plaintiffs. Not only is the Court not in a position to form a view as to the total amount outstanding of the loans advanced to the primary debtors, but the Court cannot form a view as to how much of the total amount outstanding is secured on property of primary debtors and how much is secured on property of secondary debtors. The purpose of referring to those matters is to emphasise the difficulty which a Court is faced with on an application such as this and the reason why, in the words of Lord Diplock, it is no part of the Court’s function at this stage to try to resolve conflicts of evidence on affidavit as to facts on which the claims of the plaintiffs or the defendants may ultimately depend. I should make it clear that there is no criticism of the Bank for not exhibiting the various facility letters and security documents implicit in those remarks and the logistical difficulties in collating documents within a short time span is understood.
29. Thirdly, this Court has to exercise caution because of the existence of the parallel judicial review proceedings initiated by the plaintiffs against a party who is not before this Court, the FSO, although I understand the Bank is a notice party in the judicial review proceedings. For the purposes of this application, in my view, the proper approach for this Court to adopt is to act on the assumption that no determination has been made by the FSO on foot of the plaintiffs’ complaints and that those complaints are still pending.
30. It is the plaintiffs’ case that there is a fair bona fide question raised in these proceedings as to whether the Bank acted improperly and otherwise unlawfully in appointing the Receivers on 20th February, 2013, while the plaintiffs’ complaint against the Bank to the FSO was still pending, so that the appointment of the Receivers should be set aside. In summary, the plaintiffs’ case is that they have a statutory right to make the complaints which they have made to the FSO and that, assuming the complaint is determined by the FSO in their favour, there is a wide range of options open to the FSO to redress the wrongs they allege. They contend that, in effect, if the Receivers are left in place and obtain control of the secured assets, that will render nugatory such steps as the FSO may decide to take to redress the wrongs of which they complain. Counsel for the plaintiffs referred to a number of decisions of the Superior Courts on the provisions of the Act of 2004 which apply to the investigation of complaints by the FSO: the decision of the Supreme Court in J. & E. Davy t/a Davy v. Financial Services Ombudsman  3 I.R. 324; the decision of the High Court in Koczan v. Financial Services Ombudsman  IEHC 407; the decision of the High Court in O’Hara v. ACC Bank Plc  IEHC 367; and the decision of the High Court in Lyons v. Financial Services Ombudsman  IEHC 454. Having regard to the existence of the parallel judicial review proceedings, I consider that it would be inappropriate to express any view on the merits of the plaintiffs’ complaint or on the application of the provisions of the Act of 2004 to it.
31. The plaintiffs also rely on the provisions of s. 57CP of the Act of 2004, which provides as follows:
(2) The High Court may not grant an application under subs. (1) unless of the opinion that the conduct sought to be restrained is likely to prejudice or negate the effect of the implementation of a decision that the Financial Services Ombudsman might make under this Chapter if that Ombudsman were to find the complaint to which the conduct relates is wholly or partially substantiated.”
32. In a robust response to those arguments, counsel for the Bank contended that the plaintiffs had not pointed to any legal principle under which the Bank could be restrained from exercising its contractual rights to enforce its securities at this point in time. Further, no authority in point had been cited. Counsel for the defendants also sought to rely on the analysis of the complaint procedure under the Act of 2004 by Hogan J. in the Lyons case and also on an opinion expressed in the letter of 1st March, 2013 from the FSO to Mason Hayes & Curran. Because of the judicial review proceedings, I do not consider it appropriate to express a view on either of those points. However, counsel for the defendants also submitted that the jurisdiction conferred by s. 57CP of the Act of 2004 is confined to an application by the FSO and that a complainant has no right at law to “piggy bank” on the jurisdiction conferred by s. 57. It was further submitted that, in any event, in order to determine whether the appointment of the Receivers is “likely to prejudice or negate the effect or implementation of a decision” that the FSO might make, the Court would have to consider what relief the plaintiffs claim from the FSO, which has not been clarified by the plaintiffs on affidavit, notwithstanding that the issue was raised in Mr. Henderson’s replying affidavit. Finally, it was submitted on behalf of the defendants that the plaintiffs’ recourse to this Court is a delaying tactic, particularly in the context that the plaintiffs have not identified the reliefs they are seeking from the FSO.
33. Counsel for the defendants characterised the plaintiffs’ case for interlocutory relief on the basis advanced as “flimsy”. The threshold which has been laid down in the jurisprudence as to the legal basis which must be demonstrated to establish an entitlement to interlocutory relief, whether a fair bona fide issue has been raised by the plaintiff, is generally recognised as being a low threshold. In this case, apart from that, because of the combination of factors which have already been adverted to, namely:
(b) that the complaint to the FSO is subject to the parallel judicial review proceedings in this Court,
Adequacy of damages as a remedy for the plaintiffs
35. As regards the plaintiffs’ complaint outlined at (b) in paragraph 4 above, the position is slightly different, in that the nub of the plaintiffs’ complaint is that the Bank agreed in 2006 to release its security over the non-core properties on the happening of an event, which, apparently, happened around 2008, but the Bank did not release its security. If at the hearing of the substantive action the plaintiffs were to establish that there was such an agreement, and if the Bank’s security over the non-core properties had not been realised, the obvious remedy for the relevant plaintiffs would be to obtain a deed of release in respect of each of the non-core properties from the Bank. However, if at that point in time the security over the non-core properties had been realised, so that the only remedy available would be damages, the question is whether damages would afford an adequate remedy for the plaintiffs. With the one exception which I have outlined earlier, all of the non-core properties are let. In other words, they are all commercial investments which the relevant plaintiff owners own but do not occupy. Therefore, if the relevant plaintiffs were to establish in the substantive action an entitlement to the core properties free of any encumbrance in favour of the Bank, it is difficult to see how they would not be adequately compensated by an appropriate award of damages which compensated them for being deprived of the ability to retain the core properties in specie free from any encumbrance in favour of the Bank.
36. What differentiates the plaintiffs’ case in relation to the non-core properties from their case in relation to the remainder of the secured property and assets is their contention that the Bank has been in breach of the agreement which they allege exists since around 2008 by not having released the securities over the non-core properties in accordance with that agreement. However, what is not clear is how such release would have impacted on the personal liability of the plaintiffs who mortgaged the non-core properties to the Bank. In view of the complexity of the totality of the transactions between the plaintiffs and the Bank it may be that, if the plaintiffs are able to establish the complaint at (b), the only remedy which a court could give to the relevant plaintiffs is an award of damages. However, that is mere conjecture and is for another day. For present purposes, I have come to the conclusion that, even in relation to the non-core properties, an award of damages would be an adequate remedy for the relevant plaintiffs, given that the non-core properties are commercial investments.
Inadequacy of the plaintiffs’ undertaking as to damages
Balance of convenience
40. Finally, it was submitted on behalf of the defendants that, if the Court were inclined to grant an injunction restraining the Receivers from taking any steps whatsoever pursuant to the deeds of appointment, the Court might consider that any prejudice to the plaintiffs could be met by an injunction restraining the Receivers only from entering into binding contracts for the sale of the secured properties pending final determination of the proceedings. In the light of the conclusions I have reached as to the application of the relevant criteria, on the basis of principle, it would not be appropriate to make such an order against the Receivers. However, having regard to the objective of the Bank as set out by Mr. Henderson, it might be in the interest of all of the parties if the Receivers were to give such an undertaking to the Court. However, I am of the view that the Court cannot compel them to do so.