High Court of Ireland Decisions

1. The factual background to the two applications to which this judgment relates is as follows:-

2. Two applications are before the Court.

3. The first is the Receiver's Motion under Section 316 of the Companies Act, 1963 ("the 1963 Act") for directions in relation to the contract with Astra seeking, if necessary,

4. At the time this Motion was initiated, it was perceived that the Receiver, on his own, could not give Astra title to the unregistered strip, which was included in the sale to Astra. Since the Receiver's application was initiated, the Receiver has been advised by Senior Counsel that he has power under the Debenture to sell the unregistered strip to Astra and to make title thereto without the concurrence of the Liquidator. Moreover, in an Affidavit sworn on 20th June, 1997, the Managing Director of Astra has averred that, even if the Receiver cannot make title to the unregistered strip, he is anxious to proceed with the transaction and, if necessary, he will enter into negotiations with the Liquidator to acquire to the unregistered strip. In the light of these developments, at the hearing of the Receiver's application, Counsel for the Receiver indicated that all the Receiver requires is an Order directing the Liquidator to cooperate with the Receiver in completing the sale to convey the unregistered strip, if the Receiver requests such cooperation.

5. The second application is brought by Denis Barrett, who was a director of and a 25% shareholder in the Company, under Section 316 of the 1963 Act seeking directions. A number of specific reliefs are claimed which, in essence, seek -

6. The attitude evinced by the various Notice Parties, who have been put on notice of the two applications, in the Affidavits filed by them and the stance they adopted at the hearing of the applications is as follows:-

7. It is clear from an Affidavit sworn by the Liquidator on 13th May, 1997 that he is acutely aware of the commercial realities of the entire matter. Nonetheless, in that Affidavit, he criticised the Receiver's handling of the sale and, in particular, the stringent time limits he imposed on interested parties other than Astra and the lack of clarity of the notice sent to and the paucity of information given to other interested parties. He also criticised the Receiver's tardiness in relation to the Stormdust appeal and in bringing his own application. He disclosed in an Affidavit sworn on 17th June, 1997 that the amount due and owing to the unsecured creditors of the Company at this time is £352,523. The stance adopted by the Liquidator before the hearing was that he was not prepared to consent to the sale to Astra unless this Court is satisfied, having reviewed the evidence on Affidavit, that the sale complies with Section 316A of the 1963 Act. At the hearing, when on all the Affidavit evidence was in place, it was argued on his behalf that, if to complete the contract would constitute a breach of the Receiver's duty of care, the Court has power, and even a duty, to intervene and prevent completion of the sale. It was further argued that the Receiver was in breach of his duty in being involved in the arrangement whereby £100,000 was paid to Stormdust to buy off the appeal and no provision was made to recover the costs of the Stormdust proceedings from Stormdust. It was submitted that the Court should direct the Receiver not to complete the sale to Astra and that, having heard further submissions as to the mode of a resale, the Court should direct the form of the resale.

8. Mr. Barrett has filed a long Affidavit, sworn on 7th May, 1997, in response to the Receiver's application and to ground his own application, in which he is highly critical of the conduct of the sale by the Receiver and the disposal of Stormdust's appeal. Mr. Barrett averred in his Affidavit that he is a guarantor of the Company's indebtedness to the Bank and of " £135,000 capital to unsecured creditors together with interest thereon ".

9. As I have already indicated, in the Affidavit of its Managing Director, Stephen McCarthy, Astra has evinced an eagerness to complete the sale and a willingness to negotiate with the Liquidator for the unregistered strip, if he is constrained to do so. Astra's Counsel submitted that Astra is an innocent party who contracted with the Receiver in good faith and has part performed its agreement with the Receiver in paying £100,000 to Stormdust to buy off the appeal, which sum, in all likelihood, is irrecoverable. If the Receiver is directed not to complete the sale to Astra, Astra is facing an almost incalculable loss - the loss of the opportunity to develop the lands.

10. In an Affidavit sworn by Denis O'Sullivan, a director and the principal shareholder in Anglo Eire, the conduct of the sale by the Receiver is criticised, It is averred that Anglo Eire made an offer for the lands as long ago as March 1996 and, at all times, had a genuine and real interest in purchasing the lands. By a letter dated 18th December, 1996, from its solicitors, Messrs. Ronan Daly Jermyn, to the Liquidator's solicitors, Anglo Eire offered the sum of £1.8 million for the Carrigaline lands " subject to title and on the basis that the Court proceedings affecting the lands have been discharged ". This letter was headed " subject to contract / contract denied ". At the hearing, Counsel for Anglo Eire contended that the provisions of Section 316A are mandatory and that the Court could not make an Order which would have the effect of condoning a breach of Section 316A.

11. Mr. O'Brien, jointly with his wife, Margaret (otherwise Maeve) O'Brien, owned 49% of the issued shared capital of the Company. He filed a long Affidavit sworn on 23rd June, 1997. The overall thrust of that Affidavit and of the submissions made on his behalf by Counsel is that the transaction whereby the Company acquired the registered lands at Carrigaline from Mr. and Mrs. O'Brien, in whose names the title to the lands was previously vested, was in breach of Section 60 of the 1963 Act, that the Bank's Debenture is invalid, that the Bank had no right or power to appoint the Receiver and that the Receiver has no right to sell the lands. As I made clear at the hearing of the applications, the validity of the Debenture and of the Receiver's appointment cannot be impugned on these applications, to which the Bank is not a notice party. Counsel for the Liquidator intimated that the Liquidator cannot, on the basis of the averments made by Mr. O'Brien, form a view as to whether there was a breach of Section 60, but that the Liquidator will look at any evidence which is submitted to him on this issue and will take appropriate steps. Counsel for Mr. O'Brien supported the objections of the other Notice Parties to the Court sanctioning the completion of the sale to Astra.

12. In an Affidavit sworn on 21st July, 1997, Mrs. O'Brien criticised the Receiver's involvement in the transaction whereby £100,000 was paid to Stormdust to buy off the appeal and the conduct of the sale by the Receiver. It was submitted on her behalf that the Receiver did not achieve the best price for the Carrigaline lands and that he was at fault not selling by tender or by open advertisement.

13. Section 316A of the 1963 Act, which was inserted by Section 172 of the Companies Act, 1990, provides in subsection (1) thereof as follows:-

14. That provision is merely a statutory restatement of the common law duty of care owed by a receiver in relation to the sale of property charged by the debenture under which he is appointed.

15. There are a number of situations analogous to the situation of a receiver selling property charged by a debenture on foot of the powers contained in the debenture. One is the situation of a mortgagee selling as such and his situation was considered by the Supreme Court in Holohan -v- Friends Provident and Century Life Office [1966] I.R. 1. In that case, the defendant mortgagee, in exercise of its power of sale as legal mortgagee, entered into a contract for the sale to a Mr. Sweeney of certain property of which the plaintiff was mortgagor. In negotiating the sale and the purchase price to be paid, the defendant offered the premises for sale on an investment basis without attempting to disturb the occupying tenants and refused to consider an alternative mode of offering the premises for sale, notwithstanding the advices of auctioneers and house agents that a sale with vacant possession would realise an enhanced purchase price. The plaintiff mortgagor sought an order restraining the defendant from completing the sale. In his judgment, O'Dalaigh C.J. stated at page 21 that the test to be applied was whether the defendant acted as a reasonable man would in selling the plaintiff's property and he held that it did not. The significant point for present purposes which emerges from the judgment of O'Dalaigh C.J. is that an issue arose after the appeal to the Supreme Court had been argued but before judgment as to whether, in the absence of Mr. Sweeney, the purchaser under the contract, as a party to the proceedings and in the light of the provisions of Section 21(2) of the Conveyancing Act, 1881 and Section 5(1) of the Conveyancing Act, 1911, the plaintiff's remedy, if any, should lie in damages only. The matter was relisted for argument on this point before judgment was given. In his judgment, O'Dalaigh C.J. said at page 26:-

16. It was submitted by Counsel on behalf of the Receiver that, even if the sale to Astra was not at " the best price reasonably obtainable " as at 25th November, 1996, the appropriate remedy to be pursued by any person who was owed a duty of care by the Receiver is an action for damages. The Receiver does not deny that a duty of care was owed by him to Mr. Barrett. Mr. Barrett can be compensated for any loss incurred by reason of the sale to Astra by an award for damages and, in fact, Mr. Barrett has already instituted proceedings in this Court (1997 No. 6128p) on 25th May, 1997 claiming a declaration that the contract with Astra was in breach of the Receiver's duty of care to him and damages. Similarly, the remedy of the Liquidator for any breach of Section 316A is an action for damages. It was contended that none of the Notice Parties is entitled to upset the contract for sale with Astra, which the Receiver was entitled to enter into under his powers in the Debenture. That contract is binding on the Receiver and must be completed and Notice Parties, if they so wish, can bring an action for damages against the Receiver.

17. By virtue of Section 316A, the Receiver was under a duty to exercise all reasonable care to obtain the best price reasonably obtainable for the Carrigaline lands as at 25th November, 1996. If he was in breach of that duty in entering into the contract for sale with Astra, then on the authority of the judgment of the Supreme Court in Holohan -v- Friends Provident and Century Life Office , that contract was not properly made and the completion of it must be restrained by injunction.

18. In his grounding Affidavit, the Receiver has averred that he was advised by the auctioneers and estate agents he had retained, Mr. Ryan and Mr. Chesser, to sell to Astra and that he took the following factors into account:-

19. When the Astra offer materialised in mid-November 1996, the Receiver's joint agents had been endeavouring to sell the Carrigaline lands for some time. In fact, Mr. Ryan had been in negotiations with Anglo Eire for over six months. It is true that the other interested parties were given rather peremptory notice on 21st November, 1996 to make their final offer. Nonetheless, in my view, the Receiver could not be regarded as acting unreasonably in not giving more time and in not waiting longer to see if further offers were forthcoming, given the time limit imposed by Astra for acceptance of its offer, assuming the Astra offer was an offer which could properly be accepted by him. The Receiver had to have regard to commercial realities and, in particular, to the fact that if he allowed the Astra offer to lapse, he might have had to wait some time, while interest was accruing on the Bank's debt, before getting any further offer which matched or bettered the offers he already had, including Astra's offer.

20. The issue I have to decide is whether, on evidence adduced, the Receiver exercised all reasonable care to obtain the best price reasonably obtainable for the Carrigaline lands as at 25th November, 1996. The fact that Anglo Eire made an offer of £1.8 million, subject to contract, on 18th December, 1996 cannot influence that decision. There was an offer from Anglo Eire before the Receiver on the relevant date, 25th November, 1996, and it must be assumed that that offer reflected the "best price" which Anglo Eire was prepared to pay for the Carrigaline lands at that date.

21. A comparison of the offers which the Receiver had on 25th November, 1996 reveals the following:-

22. The two offers, in my view, are no more comparable than "apples and oranges". Given the dual conditional nature of the Anglo Eire offer, it would have been difficult, if not possible, for the Receiver to evaluate its worth and I do not think the Receiver could be regarded as being unreasonable in concluding that the Astra offer was the more attractive offer of the two.

23. But that is not the end of the matter. It is quite clear that Astra was a very eager purchaser and that the Carrigaline lands were worth £1.6 million to Astra, which was the aggregate amount which Astra was prepared to outlay to get the lands, albeit free from the encumbrance created by the Stormdust appeal. There is no evidence whatsoever that the Receiver gave any consideration to whether paying £100,000 out of the £1.6 million, which was available to acquire the lands, to Stormdust to procure the withdrawal of the appeal at that juncture was a reasonable and prudent course. While it is undoubtedly the case that the appeal gave rise to a number of imponderables -

24. Accordingly, I will direct the Receiver not to complete the contract with Astra and to return to Astra the deposit paid by it thereunder. I will hear submissions from the Receiver and the Liquidator as to the mode of resale.

25. I am not deciding the issue raised by Mr. Barrett as to whether the Receiver is entitled to deduct £105,000 in respect of the costs of the Stormdust proceedings from the proceeds of any sale, as I consider that this aspect of the matter was not sufficiently argued before me. I will adjourn this issue generally with liberty to re-enter.