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Cite as: [2002] 2 ILRM 513, [2002] IEHC 4

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Bula Ltd. (In Receivership) v. Crowley [2002] IEHC 4 (1st February, 2002)

THE HIGH COURT

1986 No. 6624P

BETWEEN

BULA LIMITED (IN RECEIVERSHIP), BULA HOLDINGS, THOMAS C. ROCHE, THOMAS J. ROCHE, RICHARD WOOD AND MICHAEL WYMES

PLAINTIFFS

AND

LAURENCE CROWLEY, NORTHERN BANK FINANCE CORPORATION LIMITED, ULSTER INVESTMENT BANK LIMITED AND ALLIED IRISH INVESTMENT BANK LIMITED AND MACKAY AND SCHNELLMANN LIMITED

DEFENDANTS

JUDGMENT delivered by Mr. Justice Barr on the 1st day of February, 2002

1. As already stated in my reserved ruling made on 20th February, 2001, there is a protracted, intricate history of litigation between the parties to the present action and other parties regarding or relating to lands the property of the first named plaintiff company (Bula) which has continued for upwards of fifteen years. A broad outline of that history is set out in the ruling to which I have referred and I do not purpose to elaborate on it herein. Suffice to state that the fifth and sixth plaintiffs are directors of Bula and of Bula Holdings. They act in consort and the sixth plaintiff is the moving party in the litigation. The third plaintiff (now deceased) and his son, the fourth plaintiff, have taken no part in the action. They were directors of Bula. The first defendant is the Receiver appointed by the other defendants (the Banks) over the assets of Bula. It was the intention of Bula and its directors to engage in major mining operations on it’s lands and to that end large sums of money were borrowed from the Banks and duly secured by a number of mortgages and debentures, which entitled the relevant bank holding security to appoint a Receiver over the property of the company in the event of default being made by Bula in its obligations to the bank in question.

2. Bula’s commercial intentions were not realised and major financial difficulties ensued in consequence of which the Banks called in their loans by formal demands dated respectively 25th June; 28th July and 5th August, 1982.

3. The latest dates for uncontested repayments in respect of the sums borrowed are 19th February, 1986 as to NBFC; 31st October, 1984 as to UIB and 19th October, 1983 as to AIIB. Regarding UIB; there is a contested payment made on 23rd May, 1986. There are also contested issues as to whether certain alleged acknowledgements were made by or on behalf of Bula which would have the effect of extending respective commencement dates for the running of time under the Statute of Limitations, 1957 (the Statute).

4. On 8th October, 1985 the Banks appointed the first defendant as Receiver over Bula’s secured property and it is contended by the Banks that he thereupon entered into possession of the property.

5. On 4th April, 1997 each of the Banks issued proceedings seeking the recovery of principal and interest due by Bula to the respective banks.

6. On 22nd April, 1997 each of the Banks brought well charging order proceedings against Bula. None of the summonses relating to these actions were served until 30th March, 1998.

7. It is not in dispute that the purpose of the Banks in appointing the Receiver was that he would take control of the company's assets and arrange for the sale of it’s lands, including the purposed mine, in discharge of the debts owing by Bula to the Banks. The Receiver has actively pursued that objective since appointment but has been frustrated in his efforts by persistent unsuccessful litigation orchestrated by the sixth defendant who has demonstrated that he is implacably opposed to the sale of the potential Bula mine in any circumstances and is determined to place every possible obstacle in the way of the Banks obtaining the benefit of their securities through such a sale.

8. The issues remaining for determination all relate to the Statute of Limitations and are as follows:-

Whether time has run against the Banks.
Whether the title of the Banks has been extinguished.
Whether the Banks are entitled to recover six years interest on capital monies due to them under the securities.
Whether the summonses issued in 1997 have the effect of stopping time running for the purposes of the statute. (I have already held that the NBFC summonses were served within time)
Whether the monies paid to the Banks relating to the Bula debts are repayable.
Whether the Receiver is entitled to pay a statute-barred debt.
Whether, in the light of findings on the foregoing matters, the Banks are obliged to return to Bula the title documents to its property.
Whether the sale of the Orpheus Mining shares in 1986 was a part-payment for the purposes of the Statute.
Whether there have been any acknowledgements of debt by or on behalf of Bula which affects time under the Statute.
Whether the Statute can run in the face of an active Receiver.

9. The following provisions in the Statute will be referred to in course of the judgment:-

“Section 2(1) In this Act ....

“Action to recover land” includes - ....

(b) proceedings by a mortgagee for the delivery of possession of land by a mortgagor,

Section 2(6) In this Act - ....

(a) references to a right of action to recover land shall include references to a right to enter into possession of the land....

(b) references to the bringing up an action to recover land shall include references to the making of an entry into possession of the land....

Section 13(2) The following provisions shall apply to an action by a person to recover land -

“(a) subject to paragraph (b) of this subsection, no such action shall be brought after the expiration of twelve years from the date on which the right of action accrued to the person bringing it or, if it first accrued to some person through whom he claims, to that person;...

Section 18(1) No right of action to recover land shall be deemed to accrue unless the land is in the possession (in the section referred to as adverse possession) of some person in whose favour the period of limitation can run.

Section 18(3) Where a right of action to recover land has accrued and thereafter, before the right of action is barred, and the land ceases to be in adverse possession, the right of action shall no longer be deemed to have accrued and no fresh right of action shall be deemed to accrue unless and until the land is again taken into adverse possession....

Section 20 - For the purposes of this Act -

(a) no person shall be deemed to have been in possession of any land by reason only of having made a formal entry thereon....

Section 24 - Subject to section 25 of this Act and to section 52 of the Act of 1891, at the expiration of the period fixed by this Act for any person to bring an action to recover land, the title of that person to the land shall be extinguished.

Section 32(2) The following provisions shall apply to an action by a person (other than a State Authority) claiming the sale of land which is subject to a mortgage or charge:-

(a) subject to paragraph 4(b) of this subsection, no such action shall be brought after the expiration of twelve years from the date on which the right of action accrued to the person bringing it, or, if it first accrued to some person through whom he claims, to that person;

Section 33 - At the expiration of the period fixed by this Act for a mortgagee to bring an action claiming sale of the mortgaged land, the title of the mortgagee to the land shall be extinguished.

Section 37 - No action shall be brought to recover arrears of interest payable in respect of any principal sum of money secured by a mortgage or charge of land .....or to recover damages in respect of such arrears after the expiration of six years from the date on which the interest became due.

Section 38 - At the expiration of the period fixed by this Act for a mortgagee of land to bring an action to recover the land or for a person claiming as mortgagee or chargeant to bring an action claiming sale of the land, the right of the mortgagee or such person to the principal sum and interest secured by the mortgage or charge shall be extinguished.

Section 53 - Where -

(a) the right of an incumbrancer of land to bring an action claiming sale of the land has accrued, and

(b) the person in possession of the land or the person liable for the debt secured by the incumbrance acknowledges the debt. The right of action shall be deemed to have accrued on and not before the date of the acknowledgement.

Section 63 - Where -

(a) the right of an incumbrancer of land to bring an action claiming sale of the land has accrued, and

(b) the person in possession of the land or the person liable for the debt secured by the incumbrance makes any payment in respect thereof, whether of principal or interest. The right of action shall be deemed to have accrued on and not before the date of the payment.”

The essence of the plaintiffs’ primary claim against the defendants:-

10. Bula, having failed to discharge it’s indebtedness consequent upon the formal demands for payment made on it, the Banks had three remedies open to them:-

(a) an action claiming the sale of the land;

(b) proceedings under section 62(7) of the Registration of Title Act, 1964 as owners of charges on registered land for possession of the property;

(c) appointment of a Receiver on foot of the debentures for the purpose of taking control of the company with a view to arranging the sale of it’s assets in discharge of Bula’s indebtedness to the Banks. It is not in dispute that on appointment the Receiver took de facto control of the company and since then has actively endeavoured to arrange a sale of its assets in the interest of the Banks in accordance with the primary objective of his appointment by them.

Under section 32(2) of the Statute each of the Banks had twelve years to bring an action claiming the sale of the land from the respective dates upon which that right of action accrued to them. In the case of NBFC the accrual date is 19th February, 1986. Subject to an alleged payment to UIB and disputed acknowledgements of debt, the UIB accrual date is 31st October, 1984 and that of AIIB is 19th October, 1983. In short, NBFC issued its proceedings within the twelve year period but each of the other Banks were apparently out of time.

11. It is contended on behalf of the plaintiffs that having regard to the provisions of sections 33 and 38 of the Statute, the title of the Banks to Bula’s lands became extinguished and the right of the mortgagees to principal and interest secured by the mortgages and debentures have also become extinguished. It was submitted that both sections are clear and unambiguous in their wording and must be interpreted in accordance with the plain ordinary meaning of the words used, however harsh, incongruous, contrary to common sense or even absurd the result may be. It is for the legislature to remedy any error or unintended consequence emerging from legislation. I have no difficulty in accepting that, subject to long established tenets of construction, words in a statute should be construed in accordance with their plain, ordinary meaning. The Court has no function in remedying error in circumstances where legislation, though clear in its terms, is found to be defective.

12. It will be noted that the phrase which is the kernel of respectively sections 33 and 38 are almost identical. In the first it is “...to bring an action claiming sale of the mortgaged land...” and in the second it reads “...to bring an action to recover the land...”. It is submitted on behalf of the plaintiffs that “to bring an action” means not merely the issuing of a summons to commence judicial proceedings but the successful conclusion of the action within the statutory time limit - including the final successful outcome of any appeal which might be brought against the judgment of the court of first instance. No authority has been furnished in support of that far-reaching proposition, but it is contended that if the mere issuing of a summons was regarded as sufficient to satisfy the sections then that should be made clear in the Statute as, for example, by including in the definition section what was intended by the phrase “to bring an action”. If the foregoing constructions of sections 33 and 38 are correct then all three banks are out of time as they have not done any more than to issue and serve their respective summonses.

13. A crucial issue facing the plaintiffs is whether there is a requirement under section 18(1) to establish that there was possession of the lands adverse to the interest of the Banks. In that regard a distinction is sought to be drawn between “an action to recover land” where adverse possession is required and “an action claiming sale of the mortgaged land” for which proof of adverse possession is not necessary. It was contended that they are not the same and reliance in that regard was placed on Re Lloyd deceased Waters -v- Lloyd [1911] IR 153 . In the alternative it is contended that adverse possession against the Banks is in fact established in that the receivership, though it dis-empowered the directors of the company and substituted control by the Receiver, it did not dislodge Bula’s possession of the lands which remained undisturbed after the appointment of the Receiver in 1985. The judgment of Kenny J. in Murphy -v- Murphy [1980] IR 183 at p202 is relied upon as establishing that adverse possession entails possession inconsistent with the title of the true owner and that this necessarily involves an “intention to exclude the true owner” i.e. the Banks “from enjoyment of the estate or interest being acquired” i.e. the estate in possession.

14. Counsel for the plaintiffs also submitted that the appointment of the Receiver did not bring about a change in occupation of the lands. Reliance was placed on the judgment of Costello J. in W. and L. Crowe Ltd and Another. -v- ESB ICLR 571 at p579 and that of Rigby LJ. in Gaskell -v- Gosling [1896] IQB 669 at p697 (a dissenting judgment which was subsequently affirmed by the House of Lords). It was contended that the appointment of the Receiver had two consequences. First, the putting of Bula under his managerial control and, secondly, the dis-empowerment of the directors of the company. It did not bring about possession of the assets by the Receiver to the exclusion of the company.

15. The plaintiffs further submitted that the Banks had no authority to issue instructions to the Receiver and he had no authority to accept such instructions or act on them. It was contended that the Receiver derived his powers solely from the debentures under which he was appointed to be the agent of the company and not of the Banks. Furthermore, the debentures did not empower the Receiver to act as agent for the mortgagees and they had no authority to give instructions to him amounting to an interference with the conduct of the receivership. [It must be appreciated, of course, that there is a clear distinction between performance by a Receiver of the functions for which he was appointed (i.e. taking control of the company and arranging for the sale of its assets in the interest of the mortgagees) and interference in the conduct of the receivership]. The conclusion advanced by counsel for the plaintiffs was that in the context of adverse possession as defined in section 18(1) it was, strictly speaking, irrelevant whether Bula or the Receiver was deemed to be in possession of the lands as in either case such possession was to the exclusion of the Banks and the actual possession under section 18(1) was adverse to the mortgagees.

The response of the Receiver and the Banks to the plaintiffs’ primary argument.

16. Reduced to its ultimate simplicity, the defendants submit that the Receiver, having been lawfully appointed by the mortgagees under the debentures and having taken effective possession and control of Bula within time for the purpose of achieving the objective of the Banks in appointing him (i.e. arrangement of the sale of its land in discharge of debts owing by Bula to them) the receivership is outside the scope of the Statute which in the premises plays no part in the relationship between Bula, the Banks and the Receiver inter se. It is contended that the essence of the Statute in the context of property rights is adverse possession i.e. for the statutory limitation period to apply there must be (per section 18(1), possession of the relevant land which is adverse to the interest of the true owner or the person (in this instance the Banks) who claims the right to de facto ownership thereof.

17. The primary argument relied upon by the defendants is succinctly stated in the following passage from the Receiver’s first submission at pp 19 et seq.

“The running of the Statute of Limitations as against an active Receiver and the principles of adverse possession .

General

The particular issue arises in the following way. As with any claim under the Statute of Limitations, the first critical issue to be determined by the Court is the date upon which the causes of action which are alleged to be statute barred, accrued. It is only from that point of time that the Limitation period begins to run. Specifically, in this case, that issue presents itself in the form of the question as to whether debenture holders, who have exercised their powers to appoint a receiver, which receiver is empowered to and has, taken possession of land comprised in the assets subject to the mortgage or charge, have during the period of the receivership and while the receiver remains in possession, lost their right to sue to recover possession of the land and proceed to sell same and apply the proceeds in discharge of the debts owing to them.

At the level of generality, that argument boils itself down to the following; the Banks and Receiver would assert that it makes little sense to say that a debenture-holder who has taken the steps to protect it’s interests in a debt or security, by appointing a Receiver, has in some sense lost the right to bring proceedings in Court in respect of those interests. Specifically, the Receiver’s possession of the lands (whether it is his own possession, or the possession of the company, as necessarily altered following the commencement of the receivership) - it would be argued - are not and cannot be said to be adverse to those of the person who appointed him. At a general level, a Receiver owes duties to the debenture-holder, and those duties are derived from his over-riding obligation to dispose of the assets subject to the charge, in discharge of the creditors' debt. This is particularly the case in a context where the Supreme Court refused to facilitate the winding up of Bula Limited because the powers of the Receiver were as great as those of a Liquidator - see Re Bula Limited [1990] 1 IR 440 at 451....

The plaintiffs will point to the fact that the Statute of Limitations prescribes a strict code which must be complied with; the fact that in a particular case it operates in an apparently unjust or unreasonable manner, is not relevant. Further, they will say that the Receiver is the agent of the company, therefore his possession of the lands is the possession of the company, and is indeed thus adverse to that of the Banks who make the appointment.

The Relevant Provisions;

It is submitted that the plaintiffs’ claim in this issue stands or falls on section 32(2) of the Statute... . That states... “....no such action shall be brought after the expiration of twelve years from the date on which the right of action accrued to the person bringing it...”

18. The central phrase in this provision is “the date on which the right of action accrued”. Even on the assumption (... not accepted...) that the right of the Banks to claim a sale of the land first accrued more than twelve years ago, the plaintiffs cannot rely upon this provision because of the terms of section 18 of the 1957 Act.

Section 18(1) provides as follows:-

“No right of action to recover land shall be deemed to accrue unless the land is in the possession (in this section referred to as adverse possession) of some person in whose favour the period of limitation can run”

Section 2(1) of the Act defines “action to recover land” as including inter alia; “Proceedings by a mortgagee for the delivery of possession of land by a mortgagor”.

19. Even on the assumption (... not admitted...) that Bula was in possession of the lands at the time the right to seek a sale first accrued, it has not been in adverse possession of those lands for the past twelve years. The lands, instead, have been in the possession either of the first named defendant or of Bula Limited at a point in time when the Receiver was the directing mind and will of the company in so far as the charged assets were concerned. In this regard section 18(3) is of importance... [See p4 above] The effect of this provision is clear. There must during the period in which it is alleged that the limitation period has expired, be a person in possession of the land which is adverse to that of the mortgagee seeking a sale. That, it is submitted, cannot be the case where the Receiver is in possession of the land appointed by the same mortgagee or the land is in the possession of a company managed and operated by the Receiver.

The meaning of “Adverse Possession”.

In Murphy -v- Murphy [1980] IR 183, 202 Kenny J. defined adverse possession as that phrase is used in the Statute... He said:-

“In section 18 of the Act of 1957 adverse possession means possession of land which is inconsistent with the title of the true owner; this inconsistency necessarily involves an intention to exclude the true owner and all other persons, from enjoyment of the estate or interest which is being acquired. Adverse possession requires that there should be a person in possession in whose favour time can run.”

20. It is submitted that in the instant case whether the Receiver or the plaintiffs are in possession of the land, that possession cannot be “adverse” to the Banks. If nothing else this follows from the obvious fact that a person having possession of lands so as to defeat the operation of the Statute must establish animus possidendi on his part (see Seamus Durack Manufacturing Limited -v- Considine [1987] IR 677). It is simply impossible to see how it could be said that a Receiver could be said to be possessed of this intent vis-à-vis the debenture-holder who appointed him. If Bula Limited remains in possession of the lands it is the Receiver’s intention which conditions the state of mind of the company in so far as those lands are concerned. He is the person in charge of the management of these assets.

21. In relation to the first of these questions - whether the Receiver is in possession of the lands - it must be noted initially that (as stated by Kenny J. in Murphy at page 203) the question of whether there is adverse possession is “ultimately a question of fact”. It is highly significant as a matter of fact that in the instant case from his appointment the Receiver was in possession of the lands and that possession was, and was acknowledged by the plaintiffs to be, exclusive of the possession of the company. This is clear, in particular, from the correspondence issuing from the solicitors for the directors of Bula in 1986 in which they sought access to the lands....

22. In seeking to determine the appropriate approach to the question of whether possession of one person (here the receiver or the company) of lands, is adverse to that of another (here the Banks), it is respectfully submitted that the Court should have regard to the analysis suggested by Costello J. In Murphy -v- Murphy [1980] IR at 195. This judgment of the High Court was affirmed by the Supreme Court. Costello J., as he then was, asserted as follows:-

“Turning then to the nature of the defendant’s possession, I think the test I should apply is this. Was the defendant’s possession inconsistent with and in denial of the widow’s rights as legal owner of the lands... If it was, then the defendant would be “a person in who’s favour the period of limitation could run” within the meaning of section 18 of the Act of 1957 and his possession would be adverse. In considering a problem of this sort, the relationship between the owner of the lands and the person in possession and the nature of the lands in controversy are highly relevant matters to be taken into account. If a person is in possession of lands with the consent or licence of the owner, then his possession is not adverse...”

23. This has reflection in the judgment of the Chief Justice also. He said (at page 199) “the period would not run in favour of a person in possession as a licensee or as an agent or as a trustee...”

24. The application of this approach to the instant question, with the Receiver being the occupant/defendant and the Banks standing in the position for the purposes of the provision, as the owner, demands that the Court focus on whether the Receiver’s possession of the land was intended to be inconsistent with, and a denial of, the rights of the Bank. It is simply impossible to see how this could be said to be the case. The pithy formulation of the meaning of animus possendi by one English Court [ Powell -v- McFarlane 38P and CR 452, 471] requires an analysis of whether the person in possession had the intention “in one’s own name and on one’s own behalf to exclude the world at large including the owner with paper title if he be not himself the possessor, in so far as reasonably practicable and so far as the processes of the law will allow”. It is (it is submitted) inconceivable that a receiver could have such intention inconsistent with the duties owed by him to the debenture-holder who appointed him. He cannot have, as a matter of law and consistent with the duties owed by him to the mortgagee, the requisite intention to possess the land to the exclusion of the Banks [this accords with the test as expressed in Oughton and Lowry Limitation of Actions (1998) at page 384].

25. It is extremely important to note that it matters not in this regard whether the Receiver is deemed to be in possession of the lands for these purposes, or whether the company remains in possession with the Receiver as the person managing the assets. If the possession is that of the Receiver, then his intention cannot be adverse to the Banks. If the possession is that of the company, then where the Court seeks to divine the company’s intention (whether to dispossess the Banks or not) it is from the Receiver who is in charge of the company for these purposes. The directors of a company in receivership have no power to take any act that would deprive the Banks of their security, and it is the Receiver who controls the assets charged. This point was aptly made by Murphy J. in the context of this very case, in the course of his judgment in Wymes -v- Crowley (1963 - 1993) ICLR 610, 613 (a judgment which is also significant in that it seems clearly to reflect the view of the Court that as between the plaintiffs here and the Receiver, the later was in possession of the lands);

“I have no doubt but that the directors of Bula Limited retain their power to institute proceedings in an appropriate case. The limitation on their powers is that they must not deprive the debenture-holders of the security granted to them....”

26. In the light of submissions made on his behalf the following conclusion was expressed on behalf of the receiver and supported by counsel for the Banks:-

“Where the Banks have appointed a Receiver over the lands, the effect is to precluded it being contended that the time for bringing either proceedings seeking delivery of possession or proceedings seeking orders for sale has accrued. Therefore, there is no basis for the contention that the Banks’ title to the lands has been extinguished under either section 24 or section 33. Similarly, the claims to principal and interest are not extinguished by section 38”

MY CONCLUSIONS

27. The objective of statutory limitation of actions is to bring order into practical situations which otherwise could be chaotic and might lead to injustice. For example, it is recognised that a person claiming damages for personal injury caused by the negligence of another should not be allowed to remain inert indefinitely before launching his/her action against the wrongdoer. A limitation period of three years for instituting such proceedings from the happening of the event which gave rise to the injury is prescribed by the Statute, after which such a claim (subject to certain exceptions) is statute barred. In the area of property rights there are even stronger reasons for regulating the practical ownership of land. It has long been recognised through a series of Statutes of Limitation over the centuries that it is contrary to the ordered regulation of property rights that the owner of land in the unlawful occupation of another may sleep on his rights indefinitely and do nothing, (perhaps for generations after the original wrongful occupation), to recover the land by action from the trespasser or his successors. Accordingly, it is provided by the Statute that where there is adverse possession of land against the interest of the true owner (or other person having analogous rights such as the Banks in the instant case) the later must bring proceedings to recover possession within twelve years from the date when the right of action first accrued.

28. The problems of land ownership which the Statute is intended to regulate concern unlawful occupation and do not arise in circumstances where there has been a change in the possession or control of land pursuant to a relationship (such as that created by mortgages and debentures) between the original owner and occupier of the land and those in whose favour the change in possession and/or control has come about. No adverse possession in the context of section 18(1) arises where such change occurs consequent upon an activation of rights in particular circumstances as provided for in the mortgages and debentures the terms of which were accepted by the debtor prior to default. In short, the activation of rights under the debentures which arose when, consequent upon default by the company in paying its debts, the Banks appointed the Receiver to take control of the company and to arrange the sale of its secured assets for the benefit of the mortgagees, does not create a situation of adverse possession within the meaning of section 18(1) because there is no possession without right or authority which is the essence of “adverse possession” within the meaning of the Statute.

29. Counsel for the plaintiffs has placed much emphasis on the judgment of the Court of Appeal in Lloyd deceased, Waters -v- Lloyd [1911] IR 153. However, that judgment is not concerned with a definition of “an action for sale” as that phrase had no materiality in law when Waters -v- Lloyd was decided. I do not regard it as being of assistance in the interpretation of the Statute.

30. Another contention strongly urged by counsel for the plaintiffs is that the debentures specifically state that the Receiver is the agent of the company and not of the mortgagees. On that premise it is argued that his possession in reality is that of the company. It cannot be regarded as adverse to the later and, therefore, it must be interpreted as being adverse to the Banks. I do not regard that argument as well founded.

31. The relationship between a receiver, the mortgagee who appoints him and the debtor company which owns the secured assets is exceptional, if not unique. The appointment of a receiver is one of the remedies open to a debenture-holder in respect of a defaulting company whose assets are secured by the debenture. There are two distinct relationships involved. As between the mortgagee and the debtor company, the duty of the receiver is to take control of the later with a view to realising its assets in discharge of debt owing by the company to the mortgagee. This is the fundamental objective of the receivership. The appointment of the receiver entails taking possession of the company lands and in practical terms vis-à-vis the Banks and Bula in the instant case it amounts to possession by the mortgagees. In short, the Banks’ purpose for the appointment of the Receiver is to put him into control and effective possession of the company assets so as to realise the mortgagees’ security by sale of the lands. The fact that under the terms of the debentures the Receiver is stated to be the agent of the company does not detract from the foregoing relationship as between the Receiver, the Banks and Bula. The agency as stated in the debentures is one which is relevant to third party claims on the company. It is a long-standing practice in financial and commercial life that debenture holders (commonly banks or other such institutions) generally prefer not to become directly involved in the conduct of receiverships with consequent risk of liability to third parties, and so, in the context of dealings between a Receiver on behalf of a company and third parties who make claims upon it, the debenture normally provides that the former is agent of the company. In short, a receivership, such as that in the instant case, involves two distinct relationships. First, that between the appointing mortgagee and the Receiver which relates to the fundamental objective of the receivership, being entry into possession of the company’s assets for the purpose of sale in the interest of the mortgagee. In practical terms vis-à-vis mortgagee and mortgagor the control over the company’s assets exercised by the Receiver amounts to possession of the debtor’s secured assets by him which in turn in practical terms is possession by the mortgagee who appointed him.

32. The second relationship is that between the Receiver and third parties arising out of the receivership. Debentures normally provide, as in the instant case, that such dealings are conducted by the Receiver as agent of the company in receivership. The mortgagees have no right to interfere in the receivership in that regard. In my view there is no inconsistency between the foregoing relationships which represent long established commercial good sense.

33. Both aspects of a Receiver’s function are explained by Hoffmann J. as he then was in Gomba Holdings -v- Homan [1986] BCLC 331 at 334 as follows:-

“A Receiver is an agent of the company and an agent ordinarily has a duty to be ready with his accounts and provide his principal with information relating to the conduct of his agency. But these generalisations are of limited assistance because a Receiver and manager is no ordinary agent. Although not only the agent of the company, his primary duty is to realise the assets in the interest of the debenture-holder and his powers of management are really ancillary to that duty.”

34. In that case it was held that a receiver was not under an obligation to disclose information to a company whose agent, he, in theory, was, where disclosure of that information would be contrary to the interests of the debenture-holder who appointed him, in realising that security. This judgment is also authority for the proposition that the receiver’s possession is not “adverse” to the debenture-holder who appointed him.

35. The same point was made by Fox LJ in Gomba Holdings -v- Minories Finance [1989] BCLC 115 at 117 as follows:-

“Whilst the receiver is the agent of the mortgagor he is the appointee of the debenture-holder and, in practical terms, has a close association with him. Moreover, he owes fiduciary duties to the debenture-holder, who has a right, as against the receiver, to be put in possession of all the information concerning the receivership available to the receiver.”

36. In a subsequent judgment in the High Court of England and Wales in Rottenberg -v- Monjack [1993] BCLC 374 Cooke J. observed:

“It is quite clear both from these powers and from the purpose for which receivers are appointed and the job they are called on to do, that their duty must be to the secured creditor. They cannot be put in the position, negligence and dishonesty apart, of having to weigh discretion's between the secured creditor and the debtor. If they behave efficiently and honestly, the secured creditor must come first.”

37. The approach in this jurisdiction is similar to that in England. The issue was raised in Irish Oil and Cake Mills -v- Donnelly [ICLR (1963-1990) 564] in connection with a question as to whether a receiver was under a duty to account to the company and to provide it with information relating to a particular transaction. If the receiver had been in the normal sense an agent of the company he would have been obliged in ordinary course to provide such information to his principal. However, it was determined by the Court that because of the nature of the agency orders compelling the provision of such information were not possible. The judgment of Costello J. contains the following passage pp567/568:

“The receiver derives his appointment and his authority from the contract entered into between the parties. In this case, as is usual, the parties agreed that he is to be treated as the agent of the mortgagors, the plaintiffs herein. The provision protects the debenture-holders from liability as mortgagees in possession and establishes the relationship between the receiver and company. The contract is silent as to the nature of his duties and the plaintiffs here submit that there is to be employed an obligation to account as claimed in the February letter. The agency here is of course very different from the ordinary agency arising every day in commercial transactions. Here the receiver has been appointed by the owner in equity of these companies’ assets with the object of realising their security and for this purpose to carry on the companies’ business. The exceptional nature of his status is to be seen from the fact that notwithstanding his appointment as agent he is to be personally liable under the contracts entered into by him....”

38. The exceptional nature of a Receiver’s agency relationship was also recognised in Lascomme Limited -v- UDT Bank [1993] 3 IR 412 at 416. This case concerned the question of whether the directors of a company in receivership retained the right to bring proceedings in the name of the company against the financial institution which had appointed the receiver. It was held by Keane J. (as he then was):-

“It is clear that when a receiver is appointed by a debenture-holder under the powers in that behalf in the debenture, the powers vested by law in the directors of the company are not thereby terminated. They may not, however, be exercised in such a manner as to inhibit the receiver in dealing with and disposing of the assets charged by the debenture or in a manner which would adversely effect the position of the debenture-holders by threatening or imperilling the assets which are subject to the charge.”

39. In the light of this judgment the Receiver urges that even if the company remains in possession of the lands, and even if the directors of the company are persons whose knowledge and intention are relevant, the effect of the appointment of a receiver is that the company may not thereafter adversely affect the secured assets. As and from that point, therefore, there can be no adverse possession. It seems to me that that interpretation is well founded.

40. The relationship between mortgagee and receiver was also considered by Evershed MR in Re Johnson and Co. [1955] 1Ch 634 in the following terms at p. 644:-

“It has long been recognised and established that receivers and managers so appointed are, by effect of statute law, or of the terms of the debenture, or both, treated, while in possession of the company’s assets and exercising the various powers conferred upon them as agents of the company, in order that they may be able to deal effectively with third parties. But, in such a case as the present at any rate, it is quite plain that a person appointed as receiver and manager is concerned, not for the benefit of the company but for the benefit of the mortgagee Bank, to realise the security; that is the whole purpose of his appointment and the powers which are conferred upon him and which I have, to some extent recited, are .... rarely ancillary to the main purpose of the appointment which is the realisation by the mortgagee of security in this case (as commonly) by sale of the assets.”

41. Jenkins LJ in course of his judgment at p. 622 stated:-

“Again his power of sale is in effect that of a mortgagee, and he therefore commits no breach of duty to the company by a bona fida sale, even though he might have obtained a higher price and even though from the point of view of the company, as distinct from debenture-holders, the terms might be regarded as disadvantages.”

42. The foregoing decision of the English Court of Appeal in Johnson and Co. was approved and followed by McLoughlin J. in Ardmore Studies (Ireland) Limited -v- George Lynch and Others [1965] IR 1.

43. It is of interest that in Kerr on Receivers (16th edition) at p304 it is observed that:-

“The receiver’s agency for the company is, of course, one with some very peculiar incidents. Thus the principal may not dismiss the agent, and his possession of his principal assets is really that of the mortgagee who appointed him. He owes no prior duty to the principal other than that of a mortgagee in possession.”

44. In the light of the foregoing I conclude that the plaintiffs have failed to establish the fundamental requirement of adverse possession of the lands under section 18(1) which is essential to the operation of the Statute. Furthermore, as already stated, the relationship between Bula, the Banks and the Receiver is one derived from the debentures and mortgages. It is not within the realm of the Statute. In arriving at my decision I have also come to the conclusion that the arguments advanced by the defendants to which I have referred herein are well founded.

45. In the light of this judgment other issues argued in course of the trial have become moot and it is unnecessary to address them.