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You are here: BAILII >> Databases >> Supreme Court of Ireland Decisions >> O'Donnell & ors v Governor & Company of the Bank of Ireland & ors [2014] IESC 77 (19 December 2014)
URL: http://www.bailii.org/ie/cases/IESC/2014/S77.html
Cite as: [2014] IESC 77
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Judgment
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THE SUPREME COURT [Appeal No. 418/2013] Denham C.J. Murray J. Hardiman J. MacMenamin J. Laffoy J.
BETWEEN ALEXANDRA O’DONNELL, BLAISE O’DONNELL, BLAKE O’DONNELL AND BRUCE O’DONNELL PLAINTIFFS/APPELLANTS AND THE GOVERNOR AND COMPANY OF THE BANK OF IRELAND, BANK OF IRELAND PRIVATE BANKING LIMITED AND TOM KAVANAGH DEFENDANTS/RESPONDENTS Judgment of Ms. Justice Laffoy delivered on 19th day of December, 2014
The appeal and its background 2. The High Court proceedings had been initiated by a plenary summons which issued on 30th July, 2012. In essence, the reliefs sought in the High Court related to the property referred to in the order, which hereafter will be referred to as Gorse Hill. The primary objective of the appellants is discernible in the following elements of the reliefs as claimed in the statement of claim:
(b) a declaration that the appellants are entitled to the beneficial ownership of Gorse Hill; (c) alternatively, a declaration that the rights of the first and second respondents over Gorse Hill are held by way of constructive trust to the benefit of the appellants. 3. The appellants, who are the four children of Brian O’Donnell (Mr. O’Donnell) and Mary Patricia O’Donnell (Mrs. O’Donnell), resided with their parents in Gorse Hill from around 2000 to 2011. Since 2011, three of the appellants have continued to reside in Gorse Hill. With the exception of the first appellant (Alexandra), each of the appellants had attained full age before 2006. Alexandra did not attain full age until March 2010. 4. The prime movers in relation to the acquisition of Gorse Hill for re-development and use as a family residence were Mr. O’Donnell and Mrs. O’Donnell. In 1997 they devised and put in place a very complex legal structure in relation to the ownership of Gorse Hill and their other assets. Before considering the legal and equitable bases on which the appellants claim that they are entitled to the reliefs claimed in the proceedings, which have varied since the judicial process started, it is necessary to outline the evidence as to -
(b) the terms of a discretionary trust (the Discretionary Trust) created by Mr. O’Donnell and Mrs. O’Donnell and the assets the subject of that trust at the relevant times, and (c) the guarantees given by Vico Limited to, and the related securities held by, the first and second respondents over Gorse Hill, 5. As regards the respondents, all the guarantees and indemnities and the related securities over Gorse Hill which are the subject of these proceedings were given to the first respondent. The second respondent is a separate corporate vehicle within the Bank of Ireland Group. It is not clear on the evidence that it was necessary to join the second respondent as a respondent in the proceedings to achieve the appellants’ objective, although, to take one example, in the first facility letter issued to Mr. O'Donnell and Mrs. O'Donnell in 2006, which was dated 10th May, 2006, the loan offer was expressed to be made by the first respondent through its subsidiary, the second respondent. For convenience, the first and second respondents will be collectively referred to as “the Bank”, although, in reality, it is against the first respondent that the claims for the declaratory reliefs sought by the appellants in relation to the guarantees and the related securities outlined earlier require to be addressed, so that each reference to the “Bank” as a party to such deeds is a reference to the first respondent. 6. The third respondent was appointed by the Bank as receiver over assets which included Gorse Hill by deed of 8th June, 2012. As is recited in the order of the High Court dated 12th September, 2013, the Court had been “informed that by agreement the third [Respondent] would not be participating in the trial of the action”. The third respondent did not participate on this appeal. Accordingly, the adversaries on the appeal are the appellants and the Bank. 7. In outlining the evidence as to the title to Gorse Hill, the terms of the Discretionary Trust and its implementation and the guarantees and indemnities obtained by the Bank from Vico Limited and the related securities over Gorse Hill, the primary focus will be on the documentary evidence adduced in the High Court, comprising title documents, contractual documents, security documents and contemporaneous legal opinions and advice and internal memoranda and correspondence. Insofar as it is necessary, other evidence adduced in the High Court will be referred to. In summary, the evidence in the High Court was given by the following witnesses:
(ii) Rory O Beirn (Mr. O Beirn) an accountant, who is a brother of Mrs. O’Donnell, and whose role will be explained later, and (iii) Timothy Mann (Mr. Mann), a lawyer qualified and practising in the Isle of Man, who was called as an expert witness on Isle of Man law, and
(ii) Robert Antony Eugenuisz Jelski (Mr. Jelski), a lawyer qualified and practising in the Isle of Man and a member of the firm of Dickinson Cruickshank Ramsey, Advocates and Notaries, formerly Dickinson Cruickshank & Company (Dickinson Cruickshank), which firm had advised the Bank in connection with the guarantees, indemnities and related securities obtained by the Bank from Vico Limited in 1998 and subsequently, and (iii) Kevin Edward O’Riordan (Mr. O’Riordan), a lawyer qualified and practising in the Isle of Man, who was called as an expert witness on Isle of Man law. 8. Before embarking on the task of outlining the evidence, however, it is appropriate to refer to the limited role of this appellate court in relation to findings of fact made, inferences of fact drawn, and conclusions reached from a combination of primary fact and proper inference by the trial judge at first instance, which role is set out in the unanimous judgment of this Court delivered by McCarthy J. in Hay v. O’Grady [1992] 1 I.R. 210, with particular reference to the five principles outlined at pp. 217 and 218. Title to Gorse Hill 10. The first acquisition was under a contract dated 27th May, 1997 made between John J. Sharpe and Irene Sharpe (the Sharpe Vendors), as vendors, and Lorraine Hayes (in trust), as purchaser, which was registered in the Registry of Deeds on 30th September, 1997. Lorraine Hayes was a solicitor in William Fry and, at the time, Mr. O’Donnell was a solicitor in the same firm. It is clear that Lorraine Hayes executed the contract in trust at the behest of Mr. O'Donnell and Mrs. O'Donnell. The purchase price was IR£1,055,000 (equivalent to €1,399,574). The purchase was not completed in the ordinary way by the purchaser paying the purchase money to the vendors and getting a possession of the property together with a deed of assignment of the title from the Sharpe Vendors on the closing of the sale. Instead, a scheme for avoiding or deferring stamp duty was utilised. Under the scheme, instead of a deed of assignment of the property in sale being executed by the Sharpe Vendors in favour of the purchaser when the purchase price was paid to them, the Sharpe Vendors furnished a power of attorney dated 4th February, 1998, which was addressed to, inter alia, Mr. O’Donnell and Mrs. O’Donnell, Vico Limited and the Bank. In the power of attorney the Sharpe Vendors appointed each of those parties to be their attorney with various powers to sell and transfer the property the subject of the contract dated 27th May, 1997, including power to execute a deed in the name and on behalf of the Sharpe Vendors. 11. The Bank had become aware of the intention of Mr. O'Donnell and Mrs. O'Donnell to utilise the stamp duty scheme towards the end of 1997. It obtained advice from Michael O’Connor, a solicitor in William Fry, and the advice was recorded in a fax sent by Mr. O’Connor to the Bank on 19th December, 1997. Mr. O’Connor explained that Mr. O’Donnell had arranged for the power of attorney to be issued in the Bank’s name and he stated that any power of attorney which Mr. O’Donnell held would be handed over to the Bank as security, so that, if the need arose, the Bank would be in a position to offer the property for sale to a purchaser and to complete the sale in the name of the original vendors and of Mr. O’Donnell, thus giving the purchaser good title. 12. Mr. O’Connor’s advice in that fax only addressed the stamp duty issue and it did not take cognisance of the fact that by December 1997 the complex legal structure in relation to the assets of Mr. O'Donnell and Mrs. O'Donnell referred to earlier had been proposed to the Bank by Mr. O Beirn, the accountant acting for them at the time, and, in particular, the title structure intended in relation to Gorse Hill had been outlined. As was recorded in a note, to which counsel for the appellants attached particular significance on the appeal, which was made on 11th December, 1997 by Mr. Moriarty, who was then head of Private Banking in the Bank, and which was faxed to Mr. O Beirn on the same day, the Bank was aware of the proposed arrangements. As regards Gorse Hill, it was recorded in the note that Vico Limited would own a residence at Gorse Hill. It would have no direct borrowings from the Bank but it would provide a “capped” guarantee to the Bank for liabilities of two other companies which were identified, which were to be part of the structure devised by Mr. O Beirn, and the guarantee would be “counter-covered” by an equitable deposit of the title deeds of Gorse Hill. It was also noted that, as part of the security, Vico Limited would give a letter of undertaking to exercise the power of attorney, if required by the Bank in a default situation. Vico Limited was to be a company incorporated in the Isle of Man, which, like each of the two other companies in respect of which it would give the Bank a guarantee, would be a wholly owned subsidiary of another company incorporated in the Isle of Man, Tabasco Limited, which, in turn, would be wholly owned by “Aunryd Trust” (obviously a typographical error), which was also a company incorporated in the Isle of Man. In due course, the corporate structure became less complicated, in that the evidence was that Tabasco Limited “fell away”, so that Vico Limited became a direct wholly owned subsidiary of Aundyr Trust Company Limited, which was the original trustee of the Discretionary Trust to be discussed later. To avoid unduly complicating what is already a very complex ownership plan, it may be assumed that at all material times the issued share capital of Vico Limited was held directly by the Trustee of the Discretionary Trust. The structure as outlined explains why the power of attorney dated 4th February, 1998 was in favour of Vico Limited, as well as in favour of Mr. O’Donnell, Mrs. O’Donnell and the Bank. 13. The evidence established that the purchase of Gorse Hill from the Sharpe Vendors was completed on 4th February 1998. On completion the purchaser got possession of the property and obtained the power of attorney which, in due course, would enable a deed of assignment to be executed in the names of the Sharpe Vendors in favour of the purchaser or a sub-purchaser. It is quite clear on the evidence that the purchaser, which was obviously nominated by Mr. O'Donnell and Mrs. O'Donnell, was Vico Limited, which had been incorporated in the Isle of Man on 11th December, 1997. The evidence established that Vico Limited did give an equitable mortgage by deposit of title deeds to the Bank in February 1998. There are two contemporaneous documents which corroborate that. First, on 21st January, 1998, Vico Limited gave a company, Lower Mount Limited, a power of attorney to complete “a deposit of title deeds of our property at Gorse Hill . . .” to the Bank. Secondly, and more importantly, there is a certificate of registration of a mortgage or charge issued by the Isle of Man Companies Registry and dated 20th February, 1998, which was issued pursuant to a statutory provision in force in the Isle of Man. The certificate records that a record of deposit of deeds dated 4th February, 1998 created by Vico Limited “for securing the sum of all monies due and owing and passed to” the Bank was registered. It is reasonable to assume that such registration involved compliance with a statutory provision similar to s. 99 of the Companies Act 1963 (the Act of 1963) in this jurisdiction. 14. Having regard to the title documents, in my view, it cannot be doubted that, prima facie, Vico Limited became the beneficial owner of Gorse Hill as acquired from the Sharpe Vendors in February 1998, but the legal estate remained outstanding in the Sharpe Vendors. The legal estate was got in by Vico Limited by a deed of assignment dated 8th May, 2006 expressed to be made between the Sharpe Vendors, as vendors, of the one part and Vico Limited, as purchaser, of the other part. That deed, which was executed on behalf of the Sharpe Vendors by Mr. O’Donnell as their attorney, vested the legal estate in Vico Limited. Apart from the fact that it was executed some eight years later pursuant to a power of attorney dated 4th February, 1998, that deed of assignment was no different in effect from a deed of assignment which would have been taken in the name of Vico Limited, if the purchase from the Sharpe Vendors had been completed in the ordinary way in February 1998. It cannot be doubted that after the execution of that deed in 2006, prima facie, Vico Limited was the legal owner, as well as the beneficial owner, of the property acquired from the Sharpe Vendors, as was found by the trial judge in his judgment, as will be outlined later. 15. Turning to the second acquisition, in 2000 Mr. O’Donnell contracted to purchase land adjoining the property which had been acquired from the Sharpe Vendors. The land in question was registered on Folio 211 of the Register of Freeholders, County Dublin. The contract was dated 2nd April, 2000 and was made between Karenina Morrison-Bell, as vendor, and Mr. O’Donnell (in trust), as purchaser. The purchase price was IR£1.2m (equivalent to €1,523,686). Once again, the scheme to avoid or defer stamp duty was utilised. The relevant power of attorney given by Karenina Morrison-Bell was dated 28th June, 2000, when, it is reasonable to assume, the purchase was completed. Once again, the title to the registered land was regularised in 2006, when by a deed of transfer dated 8th May, 2006, executed in the name of Karenina Morrison-Bell by Mr. O’Donnell and Mrs. O’Donnell pursuant to the power of attorney, the lands registered on Folio 211 were transferred to Vico Limited. On the documentary evidence, it is clear that from June 2000, prima facie, Vico Limited was the beneficial owner of the land registered on Folio 211 and that, on the execution of the transfer dated 8th May, 2006, it became the legal owner as well as the beneficial owner thereof, as was also found by the trial judge in his judgment. Vico Limited was registered as full owner with absolute title on Folio 211 on 13th July, 2006. It is clear on the evidence that, as and from the acquisition of the beneficial ownership of the lands registered on Folio 211 by Vico Limited in June 2000, that land was treated as part of Gorse Hill. Accordingly, references to Gorse Hill hereafter are to both the unregistered property acquired from the Sharpe Vendors and the property registered on Folio 211. 16. The house originally located on the Gorse Hill property was demolished and the site was re-developed as a residential property around 2000 by Mr. O'Donnell and Mrs. O'Donnell. The appellants and their parents lived there from completion of the residence. 17. The foregoing outline of the title to Gorse Hill in 2006 is primarily based on the documents of title which were put in evidence in the High Court. As already observed, prima facie, the documents of title establish that Vico Limited was the beneficial owner of each portion of Gorse Hill from the completion of the purchase thereof and it became the legal owner of each portion of Gorse Hill in 2006. 18. Some factual matters emerged on the evidence which I consider it is appropriate to record at this juncture. First, the consideration for the purchase from the Sharpe Vendors in 1998 was advanced by Mr. O'Donnell and Mrs. O'Donnell to Vico Limited and Vico Limited issued a Promissory Note dated 4th February, 1998 under seal to Mr. O'Donnell and Mrs. O'Donnell promising to repay the consideration (IR£1,055,000) to them on demand. However, in a covering letter dated 4th February, 1998 to Mr. O'Donnell and Mrs. O'Donnell, Vico Limited stated that, as Mr. O'Donnell and Mrs. O'Donnell were aware, Gorse Hill was the only asset of Vico Limited, so that the ability of Vico Limited to repay the Promissory Note was dependent on that fact and was subject to other obligations of Vico Limited of which they were aware, which, presumably, was a reference to the obligations of Vico Limited to the Bank. Secondly, the accounts for Vico Limited for the year ended 31st December, 2008, which were prepared by Mr. O Beirn, were put to Mr. O Beirn in cross-examination in the High Court. Those accounts disclose that the only fixed asset of Vico Limited was Gorse Hill, which was ascribed a value of €30m, which in a note was stated to be “based on a professional valuation report issued by CBRE”. The only liabilities of Vico Limited were stated to be “a Settlors’ Subordinated Loan” in the amount of €14,816,774. In a related note it was stated that the “subordinated loans are subordinated to the repayment of any facilities granted by any financial institutions to the company from time to time”. Thirdly, the accounts in relation to the Discretionary Trust for 2009 and subsequent years put in evidence before the High Court were consistent with the property Gorse Hill not being settled by the Discretionary Trust The Discretionary Trust 20. The first point to be made about the Discretionary Trust is that it expressly provided that the proper law of the settlement thereby established was to be the law of the Isle of Man, subject to an express power given to the Trustee to change the proper law. The initial property settled by the Discretionary Trust was Stg. £10. That was the “Trust Fund”, which, as defined, would include all monies, investments or other property thereafter paid or transferred by any person or persons to or under the control of and accepted by the Trustee as additions to the Trust Fund. 21. Two definitions in the interpretation clause are of particular relevance to the appellants’ case. First, the term “Beneficiaries” was defined as meaning “all or any” of the persons specified in the second schedule, the persons named in the second schedule being the four appellants, and also any persons constituted a “Beneficiary” pursuant to Clause 10.1. That clause conferred on the Trustee “power . . . to add to the class of Beneficiaries such one or more persons (not being an Excluded Person or Excluded Persons)” as the Trustee should in its absolute discretion determine and the addition was to be made by a declaration in writing. While the Trustee did not exercise the power to add to the class of Beneficiaries at any time, it could have done so. That being so, the appellants were not the sole beneficial owners of the assets settled under the Discretionary Trust when these proceedings commenced. Secondly, the expression “Excluded Persons” was defined as meaning all or any of the persons specified in the third schedule, namely, Mr. O’Donnell and Mrs. O’Donnell, and any person declared in writing by the Trustee, who might otherwise be a Beneficiary, to be excluded, and any person for the time being resident in the Isle of Man. 22. In broad terms, the Trustee was given an absolute discretion as to the appropriation or application of the income and capital of the Trust Fund for the benefit of all or one or more of the “Beneficiaries”. Insofar as the Trust Fund was not so appropriated or applied before the expiration of the Trust Period as defined, the Trust Fund would be held in trust “for such of the [appellants] as shall then be living in equal shares absolutely”. The “Trust Period” was defined as the period of (i) eighty years from 16th December, 1997 or (ii) until such day, if any, before the date specified at (i) as the Trustee might in its discretion appoint by deed. The Discretionary Trust was expressed to be irrevocable. 23. Clause 19 of the Discretionary Trust contained the provisions as to “Excluded Persons”, who were not to be capable of taking any benefit of any kind by virtue or in consequence of the Discretionary Trust. It was specifically provided that no part of the capital or income of the Trust Fund should be paid or lent or applied for the benefit, either directly or indirectly, of the Excluded Persons in any manner or in any circumstances whatsoever. 24. Mr. Mann in his evidence emphasised that the provisions in the Discretionary Trust in relation to “Excluded Persons” were typical provisions in an Isle of Man discretionary trust and he pointed to the fact that those provisions specifically excluded Mr. O’Donnell and Mrs. O’Donnell from all benefit under the Discretionary Trust and from taking any benefit in the future. 25. As one would expect, after the creation of the Discretionary Trust Mr. O’Donnell and Mrs. O’Donnell each furnished what is commonly referred to as a “letter of wishes” to the Trustee, in each case the letter being dated 14th January, 1998. In each letter, it was recognised that the settlors did not have any legal right to interfere with the trust powers and the discretion given to the Trustee but the hope was expressed that the Trustee would deal with the Trust Fund and would exercise its powers and discretions in accordance with the settlors’ wishes and would consult with each during his or her lifetime and from and after the death of the survivor with their proposed executors, who were named. A further letter was written by Mr. O’Donnell and Mrs. O’Donnell to the Trustee on 20th October, 2000. In that letter they confirmed and assured the Trustee that they would “at all times care & support the beneficiaries”, namely, the appellants. The letter also contained the following statement:
26. There was no evidence before the High Court that, aside from the replacement of the Trustee in October 2006 and the acceptance by the Trustee of one asset, namely, the shares in Vico Limited, as an addition to the Trust Fund, the Trustee had exercised any of the discretions or powers conferred on it by the Discretionary Trust, and, in particular, the discretion in relation to determining who was or would be beneficially entitled to the Trust Fund prior to the initiation of the proceedings in the High Court. In response to a question raised in this Court as to what evidence there was that the appellants were actually the sole beneficiaries of the Discretionary Trust, as distinct from potential beneficiaries, counsel for the appellants referred the Court to minutes of three meetings of the board of directors of the Trustee (then Chancery Trustees Limited) held on 17th July, 2012, 18th July, 2012 and 13th August, 2012, which, apparently, were in the books of documents put before the High Court and were in the books of documents lodged in the Supreme Court in connection with the appeal. The minutes in question were discovered in an affidavit of discovery sworn by Gethin James Taylor on behalf of the Trustee on 28th May, 2013 on foot of an application for third party discovery by the appellants. This Court was told that the documents in question had not been presented in evidence in the High Court. That is not quite accurate. In fact, the third appellant, Blake, who was the only one of the appellants who gave oral evidence in the High Court, was questioned about the minute of the first meeting held on 17th July, 2012. What emerged from the evidence was that the minute was correct in recording the Trustee’s attitude to separate proceedings, which had been taken by the Bank in the High Court in relation to the contents of Gorse Hill and to which the appellants were defendants and in which the Trustee had “become embroiled”. What the minute recorded was that the solicitors “acting for the settlor” in those proceedings, when they had been “formally advised that they had not been instructed by the Trustee”, had “withdrawn from the case”. 27. Although the remainder of the minute of the meeting of 17th July, 2012 was not addressed in the evidence in the High Court, it recorded that “the sole asset of the trust” created by the Discretionary Trust was “the shares in Vico Limited, the sole asset of which was a residential property”, which had been occupied by the beneficiaries and the settlors and which had been seized by a receiver appointed by the Bank. It also recorded that Vico Limited was potentially insolvent. The board of the Trustee resolved to consider any request which might be received by it “to exercise [its] discretion to make a distribution in specie of the issued share capital as to one quarter each to each of the four beneficiaries”. The minutes of the meetings held on 18th July, 2012 and 13th August, 2012 were not put in evidence in the High Court. However, it was clear on the evidence in the High Court that the issued share capital of Vico Limited, which constituted the Trust Fund of the Discretionary Trust, consisted of two ordinary shares of Stg. £1 each. There was no evidence before the High Court that those shares had actually been transferred to or had become vested in the appellants after July 2012. 28. Therefore, there was no satisfactory evidence before the High Court that after these proceedings were commenced the appellants had become the actual sole beneficiaries of the Trust Fund settled by the Discretionary Trust, as distinct from potential beneficiaries thereof. While there was undoubtedly a evidential deficit as to the appellants’ status as the sole beneficiaries, as distinct from potential beneficiaries, of the Trust Fund, the standing of the appellants to maintain their claim against the Bank was not challenged on that basis. However, it remains an unsatisfactory aspect of the prosecution of the appellants’ case in the High Court and on this appeal. 29. Another unsatisfactory aspect of the prosecution of the appellants’ case is that just four weeks before the proceedings were due to be heard in the High Court, the appellants brought a motion seeking leave to join the Trustee as a defendant in the proceedings. While the notice of motion also sought leave to join Vico Limited as a defendant, that aspect of the motion was not proceeded with. On 12th June, 2013 the High Court (Cooke J.) delivered an ex tempore ruling on the application, in which the Court refused the application for the primary reason that the party which the appellants sought to have joined did not come within the scope of Order 15, rule 13 of the Rules of the Superior Courts. That decision was not appealed. The guarantees and securities given by Vico Limited to the Bank. 31. That arrangement was given effect to in June, 2006 when -
(b) a guarantee and indemnity of the same date was executed by Vico Limited in favour of the Bank in respect of the liabilities of Hibernia to the Bank; (c) a deed of mortgage (the 2006 Mortgage), which appears on its face to be dated 14th June, 2006 but was probably executed on 1st June, 2006, made between Vico Limited of the one part and the Bank of the other part, whereby the Bank got a legal mortgage over the unregistered portion of Gorse Hill in respect of all liabilities of Vico Limited to the Bank, was executed under the seal of Vico Limited, which was affixed in the presence of two of its directors; and (d) a deed of charge dated 1st June, 2006 (the 2006 Charge) was executed by Vico Limited, again under the seal of Vico Limited affixed in the presence of two of its directors, in favour of the Bank charging the lands registered on Folio 211 with all liabilities of Vico Limited to the Bank. 33. In general, and as will be outlined in more detail later, in these proceedings the appellants’ case as pleaded is that they are entitled to have the guarantees and securities listed above and all other guarantees and securities in favour of the Bank in relation to or over Gorse Hill declared void and of no effect on the grounds that they were procured by the unconscionable application of undue pressure and influence and breach of trust, negligence and breach of duty and were ultra vires the powers of Vico Limited. 34. After the guarantees, indemnities and securities given to the Bank in June, 2006 were put in place the arrangement between Mr. O'Donnell and Mrs. O'Donnell and the Bank was varied and the maximum liability covered by the guarantees and indemnities given by Vico Limited was increased from €17m to €25m. After June 2006 Vico Limited gave the following further guarantees and securities to the Bank:
(b) a deed of guarantee and indemnity dated 19th October, 2006 guaranteeing sums due by Mr. O'Donnell and Mrs. O'Donnell to the Bank; and (c) a deed of confirmation dated 15th June, 2007 made between Vico Limited and the Bank, whereby Vico Limited acknowledged and agreed that the obligations guaranteed by it would include all monies due and owing by Mr. O'Donnell and Mrs. O'Donnell under a guarantee and indemnity dated 11th June, 2007 executed by them as guarantors and in favour of the Bank and that the guarantee should continue in full force and effect as a continuing guarantee for all obligations thereby expressed to be guaranteed.
(i) confirm on or before Wednesday, 9th March, 2011 the identity of each person or company having any beneficial interest in the property at Gorse Hill, Vico Road, Killiney, County Dublin (the “Gorse Hill property”); (ii) deliver to the Bank, on or before 16th March, 2011, full unencumbered security from each person or company having a legal and/or beneficial interest in the Gorse Hill property, such security to:
(B) be executed within two days of receipt from the Bank of the form of documents required by it, without comment or negotiation on the part of the Debtors or any other person . . ..”
(b) on 24th March, 2011, Vico Limited executed a deed of guarantee and indemnity in favour of the Bank in respect of the liabilities of Mr. O'Donnell and Mrs. O’Donnell and the liabilities of the three companies. 37. Unfortunately for the appellants, the Bank found it necessary to re-enter the Summary Summons Proceedings later in 2011 and on 12th December, 2011 it obtained judgment in the sum of €71,575,991.29 plus interest at the rate of 8% per annum from 12th December, 2011 against Mr. O'Donnell and Mrs. O'Donnell. 38. A relief specifically sought by the appellants in the statement of claim is that the statutory declarations made on 16th March, 2011 and any other document executed by the appellants which purports to affirm, agree or consent to the mortgages, guarantees and indemnities referred to in the statement of claim were, as alleged, procured by the unconscionable application of undue pressure and influence and by breach of trust, negligence and breach of duty. 39. The foregoing outline of the evidence in relation to the various guarantees, indemnities and securities created by Vico Limited over Gorse Hill is based primarily on the documentary evidence which was before the High Court. 40. It is necessary now to consider the evidence as to what the Bank knew about the ownership of and the title to Gorse Hill from its investigation of title when it took the securities, guarantees and indemnities from Vico Limited in 2006, 2007 and 2011. It will be recalled that the Bank had obtained a mortgage by equitable deposit of title deeds from Vico Limited in 1998, but that security had been released in 2002. Counsel for the appellants has relied on what the Bank knew about the title to Gorse Hill in the period from 1997 to around 2002. That evidence will be outlined after consideration of the evidence as to the Bank’s investigation of the title to Gorse Hill in 2006 and in connection with the Settlement Agreement in 2011. Evidence as to the Bank’s investigation of title of Gorse Hill in 2006 42. In a letter dated 15th May, 2006, Gartlan Furey set out the Bank’s requirements and those requirements were addressed in a response dated 18th May, 2006 from Brian O’Donnell & Partners. Gartlan Furey sought confirmation that no person other than Vico Limited had made or would make any direct or indirect financial contribution towards the purchase of Gorse Hill or had been or would be the beneficiary of any agreement or arrangement whereby that person had acquired or would acquire any interest in the property or any part thereof. Such confirmation was given in the response. Gartlan Furey also sought that Brian O’Donnell & Partners should reply to “a standard set of Requisitions on Title” as raised by the Bank, as lender, and as replied to by Brian O’Donnell & Partners on behalf of their clients, as borrowers, their clients being Mr. O'Donnell and Mrs. O'Donnell. The response suggested that completed Requisitions on Title were enclosed with the letter of 18th May, 2006. In fact, there were two sets of Requisitions on Title produced in evidence, one in relation to the unregistered property and the other in relation to the property registered on Folio 211 and each bore the date 2nd June, 2006, which was the day following the date which appears on the guarantees and indemnities given by Vico Limited to the Bank and the date of the 2006 Charge. However, I am satisfied that no significance should be attached to the peculiarity in relation to the dating of the requisitions and replies, because it is quite clear that the Bank was relying on the replies in relation to the facilities being afforded to Mr. O'Donnell and Mrs. O'Donnell, which were drawn down on 6th June, 2006. 43. Some of the replies given to the requisitions raised, which were in the standard form published by the Law Society of Ireland, were canvassed in evidence and in submissions. The reply to Requisition 14 in relation to encumbrances disclosed that there was only an equitable charge in favour of Anglo Irish Bank Corporation Plc, which would be discharged. In relation to Requisition 15, in which it was required that, if there was a voluntary disposition on title, the borrowers’ solicitors should furnish various documents, the response was that the requisition was not applicable. In the context of a series of requisitions on taxation in Requisition 16, in response to a query whether the property or any part of it was the subject of a discretionary trust, the response was that it was “not to the borrowers’ knowledge”. 44. It was made clear in the letter of 15th May, 2006 from Gartlan Furey that, as Vico Limited was an Isle of Man company, they would require an opinion from an Isle of Man lawyer “confirming the good standing of the company and confirming that the security documents have been duly executed, do not breach Isle of Man law and are valid and enforceable in the Isle of Man”. Gartlan Furey was aware that Dickinson Cruickshank had previously advised in relation to security given by Vico Limited to the Bank in 1998 and it was suggested that an opinion be sought from that firm. On 17th May, 2006, Brian O’Donnell & Partners sent a letter by fax to Mr. Jelski, who was then a partner in Dickinson Cruickshank. There were two statements in that letter which were not accurate. First, having stated that Brian O’Donnell & Partners acted for Vico Limited, it was stated that that company was “ultimately owned” by Mr. O’Donnell, which was not correct. Secondly, it was stated that Brian O’Donnell & Partners were then arranging “for re-financing of certain properties that are owned by” Vico Limited with Bank of Ireland, which was not strictly speaking correct either. However, the letter also stated:
45. Dickinson Cruickshank provided the required opinion by letter dated 2nd June, 2006, which was addressed to the Bank, on the basis that their instructions had come from the Bank. In the opinion, having alluded to the relevant provisions of the Isle of Man legislation in relation to companies and the incorporation details of Vico Limited, Dickinson Cruickshank set out their opinion that -
(b) it had unlimited powers of borrowing and it had power to purchase property; (c) it had power to charge its property and assets as security for repayment of monies borrowed, subject to the requirement to register particulars of charge in the Isle of Man Companies Registry in accordance with the requirement of Isle of Man law, which I assume is similar to s. 99 of the Act of 1963; (d) it had power to issue guarantees and indemnities for the payment of liabilities of others and to charge its undertaking and property as security for its liability as guarantor, subject to the requirement in relation to registering particulars of the charge; and (e) a document executed by Vico Limited would be duly executed when executed by it and signed as a deed by a director and a secretary thereof or a second director. 46. Having recorded earlier in the opinion of 2nd June, 2006 that the exercise of the powers of Vico Limited was delegated to its directors, it was stated in the opinion that there was an express provision in the Articles of Association of Vico Limited enabling its directors to borrow money without limit as to amount and upon such terms and in such manner as they should think fit and to grant any mortgage or charge of its undertaking and property. It was further stated that, in exercising those powers, the directors “must act in the best interests of” Vico Limited and “for the commercial benefit” of Vico Limited. In his evidence Mr. Jelski, who prepared the opinion of 2nd June, 2006, explained that what he referred to as “a restriction on the exercise by the directors of their powers” did not affect the legal capacity of Vico Limited to enter into the guarantees with, and give the securities to, the Bank in 2006. Further, his evidence was that it is well established as a matter of Manx law that ratification or approval of a transaction by a company’s shareholders cures any potential defect in the directors’ authority to enter into the transaction on behalf of the company. His evidence was that it was clear from the minute of the meeting of the board of directors of Vico Limited held on 1st June, 2006 referred to later and the resolutions passed at that meeting that the sole shareholder of Vico Limited had consented and expressly approved of the giving of the guarantees and securities to the Bank. He expressed the opinion that as a matter of Manx law the transactions were legally binding on Vico Limited. 47. Returning to the text of the opinion dated 2nd June, 2006, Dickinson Cruickshank also confirmed that they had examined the guarantees to be given to the Bank in respect of the liabilities of Mr. O'Donnell and Mrs. O'Donnell and Hibernia and that they also had examined the proposed 2006 Mortgage and the proposed 2006 Charge, and it was confirmed that Vico Limited had power to execute those documents. It was also confirmed that Dickinson Cruickshank had examined copies of resolutions passed by Vico Limited, which authorised the execution, delivery and performance of the foregoing documents. It was also confirmed that those documents had been executed by the persons authorised by the resolutions and constituted legal, valid and binding obligations of Vico Limited. 48. The minute referred to in the opinion of Dickinson Cruickshank, which the Bank obtained in June 2006, also recorded what happened at the meeting at which the resolutions were passed, the meeting of the board of directors of Vico Limited held in the Isle of Man on 1st June, 2006. What is recorded in the minute as having been told by the chairman of the meeting to the directors present was an accurate description of the proposed re-financing arrangement, in that it was recorded that Mr. O'Donnell and Mrs. O'Donnell had requested Vico Limited to provide a guarantee to the Bank in relation to their personal borrowings and indirect personal borrowings via their wholly owned company, Hibernia, up to a maximum of €17m. The minute recorded that it was reported to the directors that the assets of Vico Limited comprised of a property and adjacent land in Killiney then valued at €30m. The Bank also required first legal charges over that property and adjacent land and also a guarantee and indemnity in relation to the borrowings of Mr. O'Donnell and Mrs. O'Donnell and Hibernia. It was also recorded that the chairman reported that discussions had taken place in relation to the level of the guarantee, as the indebtedness of Vico Limited to Mr. O'Donnell and Mrs. O'Donnell was recorded at IR£1,055,000. Further, it was recorded that Mr. O’Donnell had confirmed to the chairman at a meeting in Dublin in January 2005 that Mr. O'Donnell and Mrs. O'Donnell had invested a further amount of approximately IR£10m in improving and refurbishing the property after its acquisition. It is to be noted that the aggregate of the sums recorded as being invested by Mr. O'Donnell and Mrs. O'Donnell in the property, IR£11,055,000, is the equivalent of €14,039,850, which is quite close to the figure of €14,816,774 referred to earlier as shown in the accounts of Vico Limited for 2008 as the liability of the company referred to as “Settlors’ Subordinate Loan”. Further, it was recorded in the minute as follows:
49. The Bank, as has been recorded, did have sight of the minute of the meeting of the board of Vico Limited which disclosed that the shareholder of Vico Limited, the Trustee, as trustee of the Discretionary Trust, had consented to the proposed transactions. In his evidence, Mr. Jelski addressed the contention that, on the facts, the Bank had a duty to inquire that the consent of the shareholder of Vico Limited had been validly given in circumstances where the shareholder held the shares on trust. His evidence was that, as a matter of Manx law and as a matter of long established Isle of Man practice, there is no duty on a party taking security from a company to inquire or take notice of the dealings between trustee shareholders and the beneficiaries of the trust. 50. There was also a meeting of the board of directors of the Trustee, then IFG International Trust Company Limited, as Trustee of the Avoca Settlement, held on 1st June, 2006 in the Isle of Man. The minute of that meeting was in evidence before the High Court, although the undisputed evidence of Mr. Geoghegan, who was the main Relationship Manager of the Bank dealing with Mr. O'Donnell and Mrs. O'Donnell for the period from 2006 to 2008, was that no documents from the Trustee or the beneficiaries of the Discretionary Trust were provided to the Bank in 2006. The three directors of Vico Limited who were present at its board meeting were also present with three other directors at the board meeting of the Trustee. Once again, the proposed re-financing arrangements between Mr. O'Donnell and Mrs. O'Donnell and the Bank were correctly recorded, in that it was reported to the meeting that the Bank had agreed to lend Mr. O'Donnell and Mrs. O'Donnell and Hibernia respectively €11,333,000 and €5,667,000 and that, as security, the Bank required a legal charge over the assets of Vico Limited and a guarantee and indemnity from Vico Limited in relation to the loans. The minute recorded that the chairman reported to the meeting that “the [Trust’s] underlying company Vico Limited” had been requested to enter into the guarantees. The indebtedness of Vico Limited to Mr. O'Donnell and Mrs. O'Donnell in the amount of approximately IR£11,055,000 was also recorded. The minute stated:
51. The “agreement to consent” referred to in the minute of the meeting of the board of directors of the Trustee as having been provided by the beneficiaries, namely, the appellants, and a copy of which was annexed to that minute, was addressed to the Trustee and it was signed by each of the appellants on 31st May, 2006, including Alexandra, who was a minor at the time. The text of the document was as follows:
52. As recorded earlier, the loan facility arrangements between Mr. O'Donnell and Mrs. O'Donnell and the Bank were subsequently varied. For instance, in August 2006 the maximum limit on the total borrowings for which Vico Limited was to be liable as guarantor was increased to €25m. Further, as recorder earlier, Vico Limited gave further guarantees and indemnities to the Bank on 25th August, 2006 and 19th October, 2006 and Vico Limited furnished a deed of confirmation to the Bank, which was dated 15th June, 2007. I consider that it is not necessary to outline in detail the steps that were taken to authenticate those actions by Vico Limited, which were similar to the steps which had been taken in relation to the procurement of the guarantees and the securities given to the Bank by Vico Limited in early June 2006. By way of example, those steps included obtaining further opinions from Dickinson Cruickshank, which were dated 25th August, 2006 and 19th October, 2006 and which reiterated what was stated in the opinion dated 2nd June, 2006. The opinion of 19th October, 2006 was quoted extensively in the judgment of the trial judge, as will appear later. 53. It is also clear that the Trustee obtained the consent of the appellants to the increase in the maximum total liability of Vico Limited on foot of the guarantees to €25m by a document dated 22nd August, 2006 signed by each of the appellants, including Alexandra, who was still a minor, in identical terms to the document signed on 31st May, 2006, including the incorrect date of the Discretionary Trust, save that the sum of €25,000,000 was substituted for €17,000,000. The position of the Bank in relation to the document dated 22nd August, 2006 is the same as its position in relation to the document dated 31st May, 2006 signed by the beneficiaries, as outlined earlier. The Bank’s position is that it did not have knowledge of either document. It was acknowledged by counsel for the appellants that there is no evidence to the contrary. 54. In the context of the variation of the loan facilities, on 21st August, 2006, Mr. O'Donnell and Mrs. O'Donnell wrote to a person in the Isle of Man who was probably a staff member of both Vico Limited and the Trustee in relation to the indebtedness of Vico Limited to them, which the evidence demonstrates was in excess of €14m, and they expressly waived their entitlement in relation to that indebtedness in the following terms:
55. In 2011, Arthur Cox, Solicitors, acted for the Bank in the Summary Summons Proceedings against Mr. O'Donnell and Mrs. O'Donnell and the three corporate co-defendants. The defendants were represented by Whitney Moore, Solicitors. 56. The reason why the Bank required the inclusion in the Settlement Agreement of Clause 3.2(b), as quoted earlier, was explained by Mr. Hanrahan, a director of the Specialist Property Group of the Bank at the time, when he testified in the High Court on behalf of the Bank. Mr. Hanrahan’s evidence was that, after the commencement of the Summary Summons Proceedings against Mr. O'Donnell and Mrs. O'Donnell and the three companies referred to earlier, he had a number of conversations and meetings with Mr. Con Casey, a representative of Mr. O'Donnell and Mrs. O'Donnell, in January, 2011. In the course of the interaction between the parties, it was suggested on behalf of Mr. O'Donnell and Mrs. O'Donnell, for the first time, that the Bank did not have security over Gorse Hill, as it was controlled by a discretionary trust in favour of the children of Mr. O'Donnell and Mrs. O'Donnell. 57. After the Settlement Agreement was executed, compliance with the requirement of Clause 3.2(b) of the Settlement Agreement was dealt with between Whitney Moore, acting for the defendants in the Summary Summons Proceedings, and Arthur Cox, acting for the Bank. On 9th March, 2011, Arthur Cox was informed by Whitney Moore that their instructions were that Vico Limited held the legal and beneficial interest in Gorse Hill and that the Discretionary Trust held the shares of Vico Limited. It was Whitney Moore which furnished the 2011 Statutory Declarations to Arthur Cox. 58. In compliance with the Settlement Agreement, the 2011 Guarantee was given by Vico Limited under seal to the Bank. In the 2011 Guarantee the expression “Principals” was defined as meaning Mr. O'Donnell, Mrs. O'Donnell and the three companies which had been defendants in the Summary Summons Proceedings. In the operative part thereof, in consideration of the Bank making or continuing advances or otherwise giving credit or affording banking facilities to or with the Principals, Vico Limited unconditionally and irrevocably covenanted to pay and guaranteed on demand by the Bank all monies payable to the Bank from the Principals or any of them. The 2011 Guarantee was expressed to be in addition to any collateral or other security then or thereafter held by the Bank for all or any part of the monies thereby guaranteed, including any previous guarantees provided by Vico Limited. The execution of the 2011 Guarantee was ratified at a meeting of the board of directors of Vico Limited held in the Isle of Man on 24th March, 2011. By letter dated 24th March, 2011, Dickinson Cruickshank Ramsey reiterated the opinion of Dickinson Cruickshank as to the unlimited borrowing powers of Vico Limited and its power to charge its property and to issue guarantees and indemnities in respect of the liabilities of others. It also confirmed that the 2006 Mortgage and the 2006 Charge had been duly registered in the Isle of Man Companies Registry. Evidence as to the Bank’s understanding of the title to Gorse Hill before 2006 60. The focus of counsel for the appellants on the hearing of the appeal was on various statements dealing with the financial affairs of Mr. O'Donnell and Mrs. O'Donnell which had been prepared by Mr. O Beirn and had been the subject of evidence and submissions in the High Court and of submissions in this Court, as well as to the Bank’s note of 11th December, 1997 and other Bank internal notes, memoranda and documents dealing with the financial affairs of Mr. O'Donnell and Mrs. O'Donnell, with a view to establishing that the Bank knew that, as the appellants erroneously contended was the case, Gorse Hill was the subject to a trust prior to 2006. 61. While I consider it is unnecessary to outline all the evidence in relation to those documents, by way of example, one such document will be considered. It was a document which was headed “Credit Application (PB)” (PB meaning Private Banking), which was signed by, inter alia, Mr. Moriarty and Ms. Duggan, and which was an internal document of the Bank from Private Banking to the Credit Committee, in which Mr. O’Donnell’s financial profile was analysed in the context of further facilities sought by Mr. O’Donnell from the Bank. The document was dated 25th August 1999. The segment of the document on which counsel for the appellants laid emphasis was headed “Security” and counsel concentrated on what was stated in relation to Gorse Hill, which was one of ten properties which were available as security. In commenting on the various securities, it was noted that there was an “added complication” in that two of the properties, one being Gorse Hill, were held “in a trust” and some had been purchased via a “Power of Attorney Scheme” to avoid stamp duty, one being Gorse Hill. The “Power of Attorney Scheme” is no longer of relevance because the title to Gorse Hill was regularised in 2006. In the list of securities, Gorse Hill was described as “purchased in Vico Ltd. (Trust)”. That was elaborated on as follows:
62. Throughout the documentation generated in connection with the guarantees, indemnities and securities created in relation to the liability to the Bank of Mr. O'Donnell and Mrs. O'Donnell and companies controlled by them, one finds statements as to ownership of assets which are obviously incorrect. Such statements are to be found in documents which emanated from lawyers, for example, the reference in the fax dated 17th May, 2006 from Brian O’Donnell & Partners to Mr. Jelski referred to earlier, which incorrectly suggested that Vico Limited was ultimately owned by Mr. O’Donnell, as well as in documents created by officials within the Bank. The document under consideration in the preceding paragraph emanated from three bank officials, including Ms. Duggan and Mr. Moriarty. Undoubtedly, statements in that document, which were scrutinised by counsel for the appellants, were imprecise and in some cases incorrect. However, where the title to Gorse Hill was vested from 1998 onwards falls to be determined primarily by reference to the title documents and the other evidence outlined earlier. 63. The evidence established that following approval of the additional facilities to Mr. O'Donnell and Mrs. O'Donnell, Vico Limited, in late 1999, provided a series of guarantees to the Bank which were secured in favour of the Bank by an equitable mortgage by deposit of title deeds of Gorse Hill. In 2002 that security over Gorse Hill was released. The earliest guarantees and securities under challenge in these proceedings were given to the Bank in June 2006. The appellants’ case as pleaded 65. Not unusually, there is quite a lot of repetition in the pleadings, in that similar allegations are made by the appellants in relation to various stages of the relationship of Mr. O'Donnell and Mrs. O'Donnell and of Vico Limited with the Bank. What follows is a truncated outline of the pleadings, the focus being on the wrongdoing alleged on the part of the Bank against the appellants, from which it is claimed that the appellants’ entitlement to the reliefs they claim flows. What is pleaded as indicating a nexus between the appellants and the beneficial ownership of Gorse Hill is pleaded by reference to the Discretionary Trust, which it is pleaded was established as a trust by their parents for the benefit of the appellants. It is then pleaded that Gorse Hill “was placed into the [Discretionary] Trust by means of a mechanism whereby the shares of the legal owner of the property, Vico Limited, were settled on the [Discretionary] Trust and thereafter held by the [Trustee] in trust for the [appellants] . . . as the ultimate beneficiaries”, the contention being that Gorse Hill was trust property. 66. Chronologically, the first wrongdoing alleged on the part of the Bank against the appellants in the statement of claim is based on the execution by the appellants of the documents dated 31st May, 2006 and 22nd August, 2006 agreeing to Vico Limited giving security to the Bank, which will be referred to as the “2006 Consents”. There is an allegation, which is factually incorrect, that the 2006 Consents were executed “by reason of a requirement of the [Bank] . . . as proposed commercial lenders to [Mr. O'Donnell and Mrs. O'Donnell]”. It is further alleged that the appellants did not receive any independent legal advice in relation to the 2006 Consents, nor did they understand their legal significance or implications, particularly in circumstances where, it is asserted, they did not understand that their home, Gorse Hill, was in the ownership of Vico Limited and that the execution of the 2006 Consents would have the effect of placing their home in jeopardy. It is also alleged, again factually incorrectly, that the Bank was fully aware of, or had constructive knowledge of, the requirement that the appellants were, without advice or knowledge, acting in a way which was “likely to deprive them of their lawfully held property (consisting of their family home) and without any corresponding benefit accruing to them”. That last allegation is reiterated in relation to the alleged awareness or “constructive knowledge” of the Bank in relation to the “purported execution” of the 2006 Mortgage and the 2006 Charge and the guarantees and indemnities executed by Vico Limited on 1st June, 2006. 67. It is also alleged that the consents given by the Trustee to the execution by Vico Limited of the various guarantees, indemnities and securities executed in June 2006 and also the guarantee of 25th August, 2006 were procured by Mr. O'Donnell and Mrs. O'Donnell and the Bank by the provision to the Trustee of the 2006 Consents executed by the appellants. On the evidence that allegation against the Bank is factually incorrect, in that the Bank was not aware of the 2006 Consents when it took the guarantees and related securities over Gorse Hill from Vico Limited. 68. As regards all of the guarantees, indemnities and securities referred to, it is pleaded that the Bank was aware, or had constructive knowledge, of -
(b) the fact that the appellants were, in part, the minor children of Mr. O'Donnell and Mrs. O'Donnell; (c) the fact that the appellants were under the undue influence of their parents; (d) the fact that by the said transaction no benefit did, or could, accrue to the appellants; (e) the fact that the appellants were, without proper understanding and in the absence of being informed, depriving themselves of their lawfully held property; (f) the fact that the transactions were designed to enrich the Bank and to damage the appellants; and (g) the fact that the guarantees, indemnities and securities were procured by -
(ii) breach of trust, and (iii) negligence and breach of duty. 70. Later in the statement of claim, wrongdoing is alleged against the Bank in relation to the execution of the 2011 Statutory Declarations. It is pleaded that the said statutory declarations were obtained by the exertion of undue influence and/or duress and are void, and, further, that the appellants did not receive, nor were they advised to receive, any or any adequate advice, whether independent, legal or otherwise before making the statutory declarations. It is alleged that the statutory declarations were prepared by the Bank or its agents, which is factually incorrect, and that they were presented on a “take it or leave it” basis. Further, it is alleged that the statutory declarations are erroneous in that the appellants are the beneficial owners of Gorse Hill, which, it is alleged, was at all times known to the Bank. 71. Similar allegations are made in relation to the execution of the 2011 Guarantee as are made in relation to the earlier guarantees, indemnities and related security documents recorded earlier, including an allegation that it was procured by unconscionable application of undue pressure and influence and by the breach of trust, negligence and breach of duty. 72. An alternative plea is that the contracts, meaning the various guarantees, indemnities and securities given by Vico Limited to the Bank, are unenforceable based on the absence of any corporate benefit accruing Vico Limited in entering into them. 73. It is pleaded that at all times it was known to the Bank -
(b) that the sole business of Vico Limited was the management of the residential property, that there was no trading activity associated with Vico Limited, and that it existed as a corporate mechanism whereby Gorse Hill was held in trust for the appellants. 74. It is pleaded that, insofar as the Bank holds any right in Gorse Hill, it holds it in trust for the appellants’ benefit and that Gorse Hill is the subject of a constructive trust for the appellants’ benefit, as the appellants have been wrongfully deprived of their rights by the wrongful actions of third parties, including the Bank. Further, it is repeated that the wrongful conduct of the Bank was by way of unjust enrichment, duress, unconscionable bargain, interference, negligence, breach of duty and breach of trust. 75. Having regard to the appellants’ case as pleaded, in summary, the bases on which the appellants claim to be entitled to the reliefs sought is that -
(b) Gorse Hill was trust property of which the appellants were the beneficial owners and the giving of the guarantees and related securities to the Bank was in breach of trust; and (c) alternatively, the circumstances of the giving of the guarantees and related securities gave rise to the imposition of a constructive trust on any interest of the Bank in Gorse Hill for the benefit of the appellants. 76. Turning to the defence delivered by the Bank, it raises three preliminary objections, the first being that the appellants’ claim for damages was statute-barred and that, as regards the declaratory and equitable relief sought by the appellants, the appellants were guilty of laches and delay and had acquiesced in the matters complained of, such as they were not entitled to maintain their claims. The Bank’s position in the High Court was that that objection was not central to its defence, but it was not being dropped. In fact, it was not pursued and need not be addressed in this judgment. 77. The second preliminary objection is that the statement of claim discloses no cause of action, in circumstances where the appellants have not identified any proprietary interest or entitlement to any proprietary interest in Gorse Hill, nor have they identified a proprietary interest of which they have been deprived, it being asserted that the appellants’ claim is “frivolous and vexatious and is bound to fail”. 78. The third preliminary objection is that the appellants’ claim is misconceived as a matter of law, in that the appellants are attempting to rely upon an asserted beneficial interest in the shares in Vico Limited to ground a claim over an asset which was never owned by the appellants but was owned by another entity - Vico Limited. It is pleaded that the appellants cannot assert any proprietary interest in Gorse Hill by virtue of any interest which they may have or have held in the shareholding in Vico Limited and that such assertion is misconceived as a matter of law and is bound to fail. 79. Apart from the preliminary objections, the Bank in its defence joins issue with each of the allegations of wrongdoing made by the appellants against it. The recurring theme in the defence is that the appellants are not the beneficial owners of, and have no interest in, Gorse Hill and that no stateable basis for such an interest has been pleaded. Further, it is asserted that the appellants are not entitled to the relief sought or any relief, and, in particular, that they are not entitled to seek rescission of contracts and transactions to which they were not parties. 80. It would appear that nowhere in the statement of claim or in the replies to the notice for particulars raised on behalf of the Bank is there reference to Mr. O'Donnell and Mrs. O'Donnell being “Excluded Persons” under the Discretionary Trust or of the Bank having actual or constructive notice of that fact, which was a major component of the appellants’ case on the appeal. However, those matters would appear to have featured in the appellants’ submissions in the High Court, and to have been dealt with in the Bank’s response, as they are addressed in the judgment of the trial judge. The judgment of the High Court 82. The first issue identified by the trial judge was whether Vico Limited is the full legal and beneficial owner of Gorse Hill. On the evidence before him, he found (at para. 31) that Vico Limited acquired the beneficial interest in Gorse Hill by way of the contracts for sale executed in 1998 and 2000 and that the evidence clearly established that full legal and beneficial ownership of Gorse Hill was conveyed to Vico Limited by the deeds executed in 2006. 83. The second issue identified by the trial judge was what interest, if any, may be asserted by the appellants in Gorse Hill, given the structure of the Discretionary Trust and the associated trust arrangements. In addressing that issue, the trial judge considered the recent decision of the United Kingdom Supreme Court in Prest v. Petrodel Resources Ltd. [2013] 3 WLR 1, which will be discussed later. His finding on the evidence (at para. 40) was that it clearly establishes that the appellants “are beneficial owners of the shares in Vico Limited, but hold no beneficial interest in Gorse Hill”. In relation to the documentary evidence proffered in support of the appellants’ case, consisting primarily of internal memoranda generated by the Bank, the trial judge’s conclusion was that it was “unpersuasive” and he continued (at para. 40):
84. The third issue identified by the trial judge was whether the Bank was aware of any beneficial interest in Gorse Hill operating in favour of the appellants. He addressed this issue by reference to the equitable principles of constructive trust and knowing receipt. The trial judge (at para. 43) absolutely rejected the appellants’ contention that the Bank had devised the trust structure, stating that the contention was “exposed to be utterly without merit” arising from Mr. O Beirn’s evidence during the trial. Further, he absolutely rejected an argument advanced on behalf of the appellants that the Court should infer constructive knowledge on the part of the Bank that Vico Limited and/or the Trustee had acted in breach of trust or in breach of fiduciary duty in entering into the guarantees, indemnities and securities with the Bank. In this regard, he stated (at para. 45) that he could find “no basis in the evidence upon which to infer any knowledge of a breach of trust or other irregularity on the part of” the Bank. He pointed out that, in entering into the security arrangements, the Bank had sought the advice of Dickinson Cruickshank, who diligently assessed the position, and he quoted extensively from the opinion dated 19th October, 2006. He stated (at para. 46) that it was clear on the evidence that the Bank at all times proceeded on the basis of an understanding that Vico Limited from 1998 held the beneficial interest in Gorse Hill and from 2006 held full legal and beneficial title, “with the shares in Vico Limited being held to the benefit of the appellants”, and he found that the Bank’s understanding correctly reflected the true position. 85. Addressing an argument advanced on behalf of the appellants that they had “an equitable interest in Gorse Hill through the doctrine of knowing receipt”, the trial judge stated as follows (at para. 48):
87. The fourth issue identified by the trial judge was whether the securities given by Vico Limited to the Bank were properly executed and whether they were binding and, in particular, whether the circumstances warranted a declaration that they are void or the making of an order for their rescission. In addressing this issue, the trial judge considered the expert evidence which had been adduced in relation to the law of the Isle of Man as to the vires or capacity of a company incorporated in that jurisdiction. He also considered the submission made on behalf of the appellants that the decision to enter into the security should be deemed to have been in excess of the authority of the directors of Vico Limited, as not having been entered into in the best interests of Vico Limited. He quoted extensively from the minute of the meeting of the board of directors of Vico Limited held on 1st June, 2006 referred to earlier and he referred to the fact that, on the same day, a corporate certificate issued from Vico Limited setting out, inter alia, that the directors had acted “bona fide” in the best interests of Vico Limited. Having noted the waiver given by Mr. O'Donnell and Mrs. O'Donnell on 21st August, 2006, in relation to repayment of the indebtedness of Vico Limited to them until the indebtedness of Vico Limited to Bank would be discharged, he concluded (at para. 57):
88. The trial judge concluded (at para. 59) that no basis had been shown upon which the High Court might set aside the securities based on a lack of capacity of Vico Limited or a lack of good faith by its directors. In this context, he pointed out that, if a cause of action arose from the circumstances against the directors of Vico Limited, the rule in Foss v. Harbottle (1843) 2 Hare 461 would apply and Vico Limited would be the appropriate plaintiff, the appellants not having pleaded that their claim falls within any exception to that rule. 89. In paras. 60 to 67, the trial judge addressed actions by the Trustee. Having recorded that it was accepted by the parties that a ratification by shareholders would in most instances cure any defect in a company’s authority, the trial judge considered the actions of the Trustee and, in particular, what had occurred at the meeting on 1st June, 2006 of the board of directors of the Trustee “acting as trustee of the [Discretionary Trust] and shareholders of Vico Limited”, which he characterised as that the Trustee ratified the decision of the board of Vico Limited. He quoted from the minute of that meeting, including the content of the resolution passed at the end of the meeting - that it was resolved that approval be given to the directors of Vico Limited to enter into the proposed security arrangements relating to the borrowings of Mr. O'Donnell and Mrs. O'Donnell and Hibernia. 90. Dealing further with the appellants’ contention that the giving of security by Vico Limited to the Bank involved a “manifest” breach of trust, given that Mr. O'Donnell and Mrs. O'Donnell for whose benefit the security was created were “Excluded Persons” who might not benefit in any way from the Discretionary Trust, the trial judge, having referred to the relevant provisions of the Discretionary Trust, observed that it was clear that the Trustee enjoyed a wide discretion in dealing with the trust property and that, in assessing the conduct of the Trustee, the Court should have regard to the circumstances pertaining at the time. On the basis of what was contained in the minute of the meeting of the board of directors of the Trustee held on 1st June, 2006, he stated that it was apparent that the expectation that the borrowings would facilitate Mr. O'Donnell and Mrs. O'Donnell to ultimately increase the family estate, which would ultimately benefit the children, the beneficiaries of the Discretionary Trust were “to the fore of the board’s deliberations”. He also observed that it was clear that the board of the Trustee had regard to the fact that Vico Limited was significantly indebted to Mr. O'Donnell and Mrs. O'Donnell and “had received consideration from them, in the form of an undertaking not to seek repayments of the sums advanced by them to Vico Limited” while the guarantees should remain extant. He also observed that the beneficiaries assented to the security transaction by the 2006 Consents. It is necessary to digress from the outline of the judgment to emphasise that it was clear on the evidence that the Bank was not aware of the existence of the 2006 Consents and it did not have sight of the minute of the meeting of the board of directors of the Trustee on 1st June, 2006 when it took the security from Vico Limited. Returning to the judgment, having regard to the matters he had outlined, the trial judge concluded (at para. 65):
93. The conclusions of the trial judge were then summarised and that led to the decision recorded at the outset: that the appellants were not entitled to any of the reliefs claimed by them. Appellants’ submissions on the appeal and the Bank’s response in outline 95. The re-orientation of the appellants’ case involved the appellants abandoning the contention of a breach of trust and a breach of fiduciary duties by Vico Limited and its directors and, instead, the appellants contending that, in the sanctioning by the Trustee of the giving by Vico Limited of the guarantees and the related securities to the Bank, there had been a breach of trust, so that such interest in Gorse Hill as was acquired by the Bank by virtue of those securities was subject to a constructive trust in favour of the appellants. The appellants’ constructive trust argument was primarily based on the equitable principle of knowing receipt. While counsel for the Bank repeatedly asserted that the appellants were trying to introduce a new case on the appeal, which they were not entitled to do, all of the submissions made on behalf of the appellants were responded to on behalf of the Bank. 96. In relation to the constructive trust argument advanced on behalf of the appellants, the response on behalf of the Bank was as follows:
(b) on the facts no breach of trust was demonstrated; and (c) further, on the facts, no actual or constructive notice on the part of the Bank of breach of trust had been demonstrated, which would give rise to the imposition of a constructive trust on the Bank. 97. While, on the hearing of the appeal, the appellants’ claim that there was wrongdoing on the part of the Bank in relation to the procurement of the 2006 Consents and the 2011 Statutory Declarations was very much relegated to a secondary position, it was made clear by counsel for the appellants that it remained part of their case. Accordingly, it will be considered. Ownership of Gorse Hill/separate corporate personality of Vico Limited 99. First, it is important to consider the extent to which the issues which the High Court had to determine and the issues which are being pursued on the appeal are governed by the law of the Isle of Man, which was the subject of expert evidence in the High Court. Those issues, focusing, by way of example, on the securities given to the Bank in 2006, which arose in the High Court were:
(b) whether the directors of Vico Limited exceeded their authority in entering into those transactions and, if so, the consequences; (c) whether, if there was any lack of capacity or deficit on the part of Vico Limited to enter into those transactions, it was cured by the approval of the sole shareholder of Vico Limited, the Trustee, to Vico Limited entering into the security arrangements with the Bank through the resolution passed at the meeting of the board of directors of the Trustee on 1st June, 2006; and (d) whether there was a breach of trust on the part of the Trustee in giving that approval, the terms of the Discretionary Trust being governed by the law of the Isle of Man. 100. In general, while it was not argued on behalf of the appellants that this Court should conclude that the findings of the trial judge in relation to Vico Limited were erroneous, it is difficult to see how such an argument, if made, could succeed, as the findings were supported by credible evidence as to the application of the relevant provisions of the law of the Isle of Man. In re-orienting their case in this Court, the appellants’ argument was that the alleged infirmity in the interest in Gorse Hill acquired by the Bank from Vico Limited is traceable to a breach of trust on the part of the Trustee, it being alleged that, by reason of that breach of trust, the Bank’s interest is subject to a constructive trust in favour of the appellants, as the beneficiaries of the Discretionary Trust. That contention is premised on Gorse Hill being trust property settled by the Discretionary Trust. If Gorse Hill is not trust property, the issue as to whether there was a breach of trust simply does not arise. 101. Secondly, despite the fact that the issues outlined earlier raised by the appellants in the High Court are governed by the law of the Isle of Man, the core issues as to -
(b) aside from the capacity and fiduciary duty issues in relation to Vico Limited, the validity of the securities over Gorse Hill taken by the Bank, and (c) whether a constructive trust over its interest in Gorse Hill may be imposed on the Bank, 102. Turning to where the legal and beneficial ownership of Gorse Hill was vested at the material times, as has been outlined earlier, the trial judge (at para. 40) found that the evidence had clearly established that the appellants “are the beneficial owners of the shares in Vico Limited, but hold no beneficial interest in Gorse Hill”. While I consider that there is an evidential deficit as to whether the appellants are the beneficial owners of the shares in Vico Limited, the crucial question for consideration is whether any person other than Vico Limited, and, in particular, any of the appellants, has a beneficial interest in Gorse Hill. The trial judge made the finding as to the ownership of Vico Limited of Gorse Hill having considered the decision of the United Kingdom Supreme Court in Prest v. Petrodel Resources Limited [2013] 3 WLR 1. He stated that there was no basis upon which to depart from the ordinary rules of separate corporate personality as between Vico Limited and its shareholder. 103. On the appeal, the position adopted on behalf of the appellants was that the actual decision of the United Kingdom Supreme Court in Prest v. Petrodel Resources Limited on the facts of that case supports the appellants’ submission that Vico Limited was merely a nominee of the Discretionary Trust, in that it was specifically established as a special purpose vehicle and exists solely to hold the asset of the Discretionary Trust, which it was contended is Gorse Hill. I am satisfied that the submission on behalf of the appellants does not stand up to scrutiny. 104. As the trial judge outlined in his judgment (at para. 37), Prest v. Petrodel Resources Limited was decided in the context of family law proceedings, in which, following divorce, Mrs. Prest sought ancillary relief under a specific statutory provision in force in the United Kingdom against Mr. Prest, who was the sole owner of a number of complexly structured offshore companies, the relief being sought by Mrs. Prest being a transfer to her of properties vested in those companies. There were three principal issues addressed in the judgment of Lord Sumption in analysing that claim. 105. The first issue related to the applicability of the principle that a court may be justified in “piercing the corporate veil”. Lord Sumption’s conclusion is set out in the passage in his judgment which precedes the passage quoted by the trial judge. Lord Sumption stated (at para. 35):
106. The second issue addressed by Lord Sumption, which is of no relevance for present purposes, was whether, if there was no justification as a matter of general legal principle for piercing the corporate veil, there was a special or wider principle applicable in matrimonial proceedings under the statutory provision in issue in the Prest case. He found that there was not. That brought him to the third issue and that was whether the companies in question might be regarded as holding the disputed properties on trust for Mr. Prest, not by virtue of his status as their shareholder and controller, but in the particular circumstances in which the properties came to be vested in the companies. Having considered the factual situation, Lord Sumption stated (at para. 52):
107. The appellants’ reliance on the decision in Prest v. Petrodel Resources Limited was based on the determination by the Supreme Court on the third issue, which Lord Sumption had characterised as a “highly fact-specific issue”. Counsel for the appellants relied in particular on a passage from the judgment of Lord Sumption in which he addressed the factual situation in relation to six of the properties which had been acquired in the name of a company referred to as PRL. In that passage (at para. 48) Lord Sumption stated:
108. The reasons given by the trial judge for his finding that the appellants hold no beneficial interest in Gorse Hill have been outlined earlier. I have no doubt that the finding of the trial judge was supported by credible evidence and that this Court is bound by it on the authority of Hay v. O’Grady [1992] 1 I.R. 210. With the exception of some loose, non-technical language emanating from non-lawyers used in internal bank memoranda, which the trial judge quite properly characterised as “unpersuasive”, and some inaccuracy in correspondence, for example, the letter dated 17th May, 2006 to Dickinson Cruickshank, which emanated from Mr. O’Donnell’s law firm, all of the contemporaneous documentary evidence clearly proves that Vico Limited was the beneficial owner of Gorse Hill from the respective dates of the completion of the purchases of the unregistered portion (February 1998) and the registered portion (June 2000) and that it became the legal owner as well as the beneficial owner of all of Gorse Hill in May 2006. The documentary evidence also clearly proves that it was the issued share capital of Vico Limited which became part of the Trust Fund settled by the Discretionary Trust. Moreover, the documentary evidence also establishes aspects of the relationship of Mr. O’Donnell and Mrs. O’Donnell with Vico Limited in relation to Gorse Hill, which are material to the determination of where the beneficial ownership of Gorse Hill lies, namely:
(b) that there was an arrangement between Mr. O'Donnell and Mrs. O'Donnell and Vico Limited under which Mr. O'Donnell and Mrs. O'Donnell and their children would be entitled to reside in Gorse Hill. 109. Finally, while neither Mr. O'Donnell nor Mrs. O'Donnell testified in the High Court as to their intentions in relation to the ownership of Gorse Hill in 1998 or subsequently, their position, through the solicitors who acted for them in relation to the Bank’s investigation of the title to Gorse Hill, both in 2006 and in 2011, was that no party other than Vico Limited had a legal or beneficial interest in Gorse Hill. The only witness before the High Court who claimed to be in a position to contradict the documentary evidence which clearly established that, from May 2006, Vico Limited was the sole legal and beneficial owner of Gorse Hill was Mr. O Beirn and the only evidence which sought to contradict that proposition was the evidence of Mr. O Beirn. Blake’s evidence was that he was unaware of the legal structure in relation to Gorse Hill until early 2011. Mr. O Beirn in his evidence made a sweeping assertion that the assets within the Discretionary Trust included Gorse Hill, which was being held by the Trustee in trust for the appellants. The trial judge, who in another respect found Mr. O Beirn’s evidence to be “utterly without merit”, clearly rejected Mr. O Beirn’s assertion, which was understandable, given that Mr. O Beirn, in the accounts he prepared for Vico Limited for 2008, recorded Gorse Hill as being an asset of Vico Limited. 110. As has been noted, on the hearing of the appeal, apart from submitting that Vico Limited held Gorse Hill as a mere nominee for the Discretionary Trust, counsel for the appellants submitted that, in any event, in order for the appellants to establish that the Bank holds its interest in Gorse Hill as a constructive trustee for the benefit of the appellants, it is not necessary for the appellants to demonstrate that they have a proprietary interest in Gorse Hill. Whether or not that was an implicit recognition of weakness in the appellants’ claim to have a proprietary interest in Gorse Hill via the Discretionary Trust, it is not a correct proposition, as counsel for the Bank submitted and as will be demonstrated later. Alleged breach of trust on the giving of security over Gorse Hill to the Bank
(b) Mr. O'Donnell and Mrs. O'Donnell were “Excluded Persons” under the terms of the Discretionary Trust. 113. While it is asserted in the appellants’ outline written submissions that, if the Bank holds any interest over Gorse Hill, it does so as a constructive trustee, and various judgments and decisions of the superior courts in which the imposition of what has come to be known as the “new model constructive trust” was considered, the most recent being the decision of the High Court (Gilligan J.) in Re Varko Limited [2012] IEHC 278 were cited, the whole thrust of the appellants’ case on the appeal was that the Bank is liable as a constructive trustee on the basis of the equitable principle which is commonly referred to as “knowing receipt”.
Knowing receipt
. . . In either class of case it is immaterial whether the breach of trust was fraudulent or not. The essential feature of the first class is that the recipient must have received the property for his own use and benefit. This is why neither the paying nor the collecting bank can normally be brought within it. In paying or collecting money for a customer the bank acts only as his agent. It is otherwise, however, if the collecting bank uses the money to reduce or discharge the customer's overdraft. In doing so it receives the money for its own benefit.”
117. While, on the current state of the law on the equitable principle of “knowing receipt”, there is a divergence between this jurisdiction and the United Kingdom in that “knowledge, actual or constructive” of the breach of trust is an ingredient of the test for establishing liability as a constructive trustee in this jurisdiction, whereas in the United Kingdom the corresponding ingredient of the test is whether the recipient had sufficient knowledge of the circumstances of the transfer to make it “unconscionable” for him to retain the benefit of the receipt, the Court does not have to address that divergence, because it was not urged on behalf of the appellants that this Court should adopt the approach which has been adopted in the United Kingdom. It was contended on behalf of the appellants that, in any event, the Bank had constructive notice of the alleged breach of trust. 118. The appellants also relied on the decision of the United Kingdom Court of Appeal in Rolled Steel Products (Holdings) Limited v. British Steel Corporation [1986] Ch. 286, in support of their contention that the Bank is a constructive trustee of its interest in Gorse Hill for the benefit of the appellants. That case, in which the facts were complicated, also concerned the transfer of a company’s assets by its directors in breach of their fiduciary duties. There, two directors of the plaintiff company caused the company to give a guarantee supported by a debenture in respect of the debts of another company owned by one of the directors to a third party, on foot of which the third party’s successor recovered the debt together with interest, having appointed a receiver to the plaintiff company. The Court of Appeal held that the directors of the plaintiff company were acting in breach of the plaintiff’s articles of association and their fiduciary duties to the plaintiff company in purporting to authorise and in executing the guarantee and the debenture and that, as the defendants had notice of that breach when they received the assets of the plaintiff company, they were accountable therefor to the plaintiff company as constructive trustees. In the Court of Appeal, Slade L.J. quoted, inter alia, the passage from the judgment in Belmont Finance Corporation Limited v. Williams Furniture Limited, which was quoted by Blayney J. in Re Frederick Inns Limited. Slade L.J. then stated:
119. If the appellants were making the case that the directors of Vico Limited were acting in breach of their fiduciary duties in giving the guarantee and related securities over Gorse Hill to the Bank, and if they could establish that case, there would be an analogy between this case and the Rolled Steel case, in that the third party mortgagee in this case (the Bank) and the third party debenture holder in the Rolled Steel case would have received assets of the relevant company giving the security in breach of trust. However, the analogy which counsel for the appellants perceived between the Rolled Steel case and the case being made on the appeal was based on an assertion that the Trustee had acted in excess of, or abused, its power in approving a transaction which conferred no benefit on the Discretionary Trust and, despite being expressly precluded from doing so under the terms of the Discretionary Trust, allowed trust property to be used for the benefit of Mr. O'Donnell and Mrs. O'Donnell, thus resulting in the Bank receiving trust property in breach of trust. Again, in broad terms, the assumption underlying that perception is that Gorse Hill was trust property settled under the Discretionary Trust. It having been found that Gorse Hill was not trust property settled under the Discretionary Trust, the perceived analogy does not exist. 120. Looking more closely at the equitable principle of knowing receipt, counsel for the appellants did acknowledge that, in order that the Bank be found liable as a constructive trustee of the interest in Gorse Hill which it had acquired under the securities given to it by Vico Limited, it had to be established that the components of the first class of knowing receipt as set out by Millet J. in the Agip case existed, namely, that -
(b) the transfer was in breach of trust, and (c) the Bank received the trust property with notice, actual or constructive, that it was trust property and that the transfer to it was in breach of trust. Receipt of trust property by the Bank for its own benefit? 122. There remains the question whether the interest the Bank obtained from Vico Limited was an interest in trust property. Given the finding that Vico Limited is, and has been since May 2006, the legal and beneficial owner of Gorse Hill, the answer, from a title perspective, must be that the Bank did not acquire an interest in trust property. However, if one was applying the Belmont principle to the interest in Gorse Hill which the Bank received, it is the actions of the directors of Vico Limited in giving the securities over Gorse Hill to the Bank which would be relevant, because it was the directors of Vico Limited who owed fiduciary duties to Vico Limited at the relevant times in relation to its only asset, Gorse Hill. As already noted, the appellants are not now alleging a breach of their fiduciary duties by the directors of Vico Limited in giving the security to the Bank. 123. The appellants’ argument on the appeal was that the Bank had received a transfer of trust property from the Trustee. When pressed to identify the nature of such transfer, while accepting that it was “slightly ethereal”, counsel for the appellants submitted that the approval of the Trustee to the giving of the guarantees and securities by Vico Limited to the Bank, which it was contended enabled the Bank to obtain such guarantees and securities, constituted the passing of trust property to the Bank. That argument wholly overlooks the fact that the property in issue is Gorse Hill, which was legally and beneficially vested in Vico Limited at the relevant times. It also wholly ignores the fact that Vico Limited had a separate and distinct corporate personality from the Trustee, which owned its entire issued share capital. The proposition advanced is simply incorrect; there was no transfer of trust property, or of an interest in trust property, to the Bank because what the Bank got from Vico Limited was an interest in Gorse Hill which Vico Limited, as the sole legal and beneficial owner of Gorse Hill, had capacity, in accordance with the law of the Isle of Man, and power to pass to the Bank. While, in my view, that is the end of the constructive trust argument, nonetheless the remaining two hurdles will be considered. Transfer to the Bank in breach of trust? 125. At the risk of unnecessary repetition, on the case advanced on behalf of the appellants on the appeal, the breach of trust which it is contended gives an entitlement to the appellants to pursue an equitable remedy against the Bank is an alleged breach of trust on the part of the Trustee, the sole shareholder in Vico Limited, in approving of Vico Limited entering into the guarantee and security arrangements with the Bank. The alleged breach of trust is grounded on the fact that, by approving of the giving by Vico Limited of the secured guarantees and indemnities to the Bank, the Trustee was effectively benefiting Mr. O'Donnell and Mrs. O'Donnell in breach of the express terms of the Discretionary Trust, because they were “Excluded Persons” who were precluded from receiving benefit under the Discretionary Trust. Of course, as in the case of Vico Limited, the Trustee is not before the Court to answer the allegation of breach of trust by the appellants. Moreover, there was no evidence before the High Court from any officer either of Vico Limited or of the relevant corporate Trustee in place in 2006, 2007, 2011 or subsequently. That being the case, it would not be appropriate, and in any event it is not necessary, to express any view on whether the conduct of the Trustee complained of was in breach of the fiduciary duties of the Trustee to the appellants. It is possible to conclude that the appellants have not overcome the second hurdle, simply because, given the overarching finding that the legal and beneficial ownership of Gorse Hill was at all material times vested in Vico Limited, and the consequential finding that there was no transfer of trust property by the Trustee to the Bank, no question of a transfer to the Bank in breach of trust arises. 126. Despite the following matters which, in combination, mark the end of the appellants’ claim based on knowing receipt -
(b) that the appellants’ submission that, on the creation of the securities over Gorse Hill in favour of the Bank, there was a transfer of trust property by the Trustee to the Bank in breach of trust has been rejected as being incorrect, Constructive notice of breach of trust? 128. As recorded earlier, the trial judge rejected the claim that a “manifest breach of trust” was evident in the arrangement between Vico Limited and the Bank, on the basis that Vico Limited guaranteed the borrowings of Mr. O'Donnell and Mrs. O'Donnell who were “Excluded Persons” under the Discretionary Trust, because he was satisfied that the officers of the Bank had no knowledge, actual or constructive, of “the specificity of the settlement” and, in particular, were unaware of the contents of the relevant provision of the Discretionary Trust. The basis on which counsel for the appellants challenged that finding and, indeed, all of the findings made by the trial judge, was to assert that he drew the wrong inferences from the totality of the facts. 129. The appellants sought to support their contention that the Bank was put on inquiry, which I understand to mean that the Bank was obliged to satisfy itself that the Trustee was not giving approval to the giving of securities over Gorse Hill for the benefit of persons, namely, Mr. O'Donnell and Mrs. O'Donnell, who were precluded from benefiting from the assets the subject of the Discretionary Trust, in reliance on the internal bank documents referred to earlier, including the credit application dated 25th August, 1999, some of the contents of which are outlined earlier. They also relied on the fact that Mr. Mann’s evidence was that the provisions in the Discretionary Trust, which identified the settlors, Mr. O'Donnell and Mrs. O'Donnell, as “Excluded Persons” and which also specifically excluded the possibility of either of them being added as a beneficiary, were provisions typically found in a discretionary trust governed by the law of the Isle of Man. It was submitted that sufficient instructions had not been given to Dickinson Cruickshank to enable that firm to advise the Bank fully and, in particular, it was suggested that matters such as the existence of the Discretionary Trust and the fact that the appellants were beneficiaries thereof were hidden from Dickinson Cruickshank. 130. The Bank retained Gartlan Furey to act for it in connection with the loan facilities being granted to Mr. O'Donnell and Mrs. O'Donnell and Hibernia in 2006 and the guarantees and indemnities, and the securities over Gorse Hill, which the Bank was to obtain from Vico Limited. As recorded earlier, requisitions on title were raised by Gartlan Furey. I am satisfied that the responses given by the borrowers’ solicitors, Mr. O’Donnell’s firm, to the requisitions, coupled with the opinion of Dickinson Cruickshank dated 2nd June, 2006, considered against the background of the documentary evidence of the title of Vico Limited to Gorse Hill furnished to Gartlan Furey absolved the Bank from inquiring any further as to the capacity of Vico Limited to give the Bank valid security over Gorse Hill in respect of the liabilities of Mr. O'Donnell, Mrs. O'Donnell and Hibernia to the Bank. In reaching that conclusion, I am not overlooking the fact that from late 1997 the Bank was aware that Mr. O'Donnell and Mrs. O'Donnell intended to, and did, settle their assets under a discretionary trust and that their children were the potential beneficiaries of the trust. While some internal memoranda of the Bank, including the credit application dated 25th August, 1999, may reflect a misunderstanding on the part of some officials of the Bank, who were persons without legal experience, as to the property which was eventually settled by the Discretionary Trust, the reality is that Gorse Hill was not settled under the Discretionary Trust. Rather it was the issued share capital of Vico Limited, which from May 2006 onwards was both the legal and the beneficial owner of Gorse Hill, which was settled under the Discretionary Trust. 131. When the additional guarantee and indemnity was obtained by the Bank from Vico Limited in 2011 after the Settlement Agreement was executed, the parties to the Settlement Agreement, including Mr. O'Donnell and Mrs. O'Donnell, were represented by Whitney Moore and the Bank was represented by Arthur Cox. In view of the attitude which had been adopted on behalf of Mr. O'Donnell and Mrs. O'Donnell prior to the commencement of the hearing of the Summary Summons Proceedings, Arthur Cox prudently sought confirmation from Whitney Moore that Vico Limited was the legal and beneficial owner of Gorse Hill and that confirmation was forthcoming and was corroborated by the 2011 Statutory Declarations. Those statutory declarations merely accurately recorded the true title position in relation to Gorse Hill, as found, namely, that Vico Limited holds the entire legal and beneficial title to that property, from which it followed that none of the appellants had any interest in, or any right or title to, that property. Nothing which happened in connection with the implementation of the Settlement Agreement in 2011, in my view, put the Bank on further inquiry as to the title to Gorse Hill. 132. While, as regards the beneficial ownership of the shares in Vico Limited, the statutory declarations appear not to have been wholly accurate at the time they were made, in that they stated that the appellants were the beneficial owners (as distinct from potential beneficial owners) of the shares in Vico Limited, that does not have any bearing on the capacity of Vico Limited to create valid security over Gorse Hill. The fundamental factor, both in 2006 and 2011, was that the Bank obtained proof that the legal and beneficial ownership of Gorse Hill was vested in Vico Limited and that it had the capacity to create a valid security for the liabilities of a third party in favour of the Bank over Gorse Hill. In 2006 the Bank had the additional comfort of the minute of the meeting of the board of Vico Limited, which recorded that its sole shareholder, the Trustee, approved the giving of security. At that stage the Bank did not obtain, and, in order to perfect its title, it did not need to obtain the 2006 Consents. Further, the evidence established that the Bank was not aware of the existence of the 2006 Consents. In 2011 it obtained the 2011 Statutory Declarations for the reason explained by Mr. Hanrahan in his evidence. In any event, those statutory declarations represented the true legal and equitable position in relation to the ownership of Gorse Hill when they were made. 133. I have no doubt that the findings of fact made by the trial judge as to what the Bank and its officials and agents knew about the terms of the Discretionary Trust were supported by credible evidence and that this Court is bound by them on the authority of Hay v. O’Grady. In the light of the foregoing observations, I am satisfied that the trial judge was correct in finding that the Bank had no knowledge of, or reason to believe, that there was a breach of trust on the part of the Trustee and that the Bank was not on any further inquiry than the inquiries which had been made by the solicitors acting for it in relation to the title to Gorse Hill. Knowing receipt claim: the outcome Other issues arising from constructive trust arguments 136. Moreover, I am satisfied that all of the authorities relied on by the appellants in which the plaintiff was successful in getting equitable relief on the ground that the defendant held property as a constructive trustee for the plaintiff illustrate that the plaintiff must have a proprietary interest in the property in question. In the Rolled Steel case, for example, the plaintiff company owned the assets over which the debenture was granted in breach of the directors’ fiduciary duties. 137. In addressing their challenge to what the appellants asserted was an error in law and in fact by the trial judge in determining that the appellants had no proprietary interest in Gorse Hill and that Vico Limited should be the party to seek relief, a line of authority (starting with the decision of the Chancery Division of the High Court of England and Wales in In re Lucking’s Will Trusts [1968] 1WLR 866) was cited on behalf of the appellants in their outline written submissions. As counsel for the Bank asserted that the trial judge had not made any express finding that, as Vico Limited owned Gorse Hill, only Vico Limited could sue for its recovery, it is useful to quote what the trial judge said in the summary of his conclusions. He stated (at para. 77):
138. The most recent of the decisions cited on behalf of the appellants is the decision of the Court of Appeal of England and Wales in Shaker v. Al-Bedrawi [2003] Ch 350. In that case, the Court of Appeal considered the application of the exclusionary rule commonly known as the Prudential principle, which is derived from the decision of the Court of Appeal in Prudential Assurance Company Limited v. Newman Industries Limited (No. 2) [1982] Ch. 204. In broad terms, the general rule which has become known as the Prudential principle lays down that the shareholders in a company may not sue to recover what is referred to as reflective loss in the value of their shares, as only the company has the right to sue for the actual loss to it. 139. The claimant in the Shaker case claimed to be beneficially entitled to a substantial proportion of a company’s shares, which he alleged were held on trust for him by the company’s sole director. He brought proceedings against a director and other defendants in respect of US$6m, which allegedly formed part of the proceeds of sale of two of the company’s subsidiaries, and he alleged that the director had acted dishonestly and in breach of duties to the beneficiaries under the trust. The defendants sought the determination of a preliminary issue that the claimant was barred from bringing his action as he would be seeking to recover damages that were merely reflective of the company’s loss, in respect of which the company itself had a cause of action. The defendants were successful at first instance. The Court of Appeal allowed the appeal, holding that, since the relevant facts had not been, and could not be, shown without a trial, the Prudential principle should not be applied. However, what is of particular relevance in the context of the appellants’ argument is that the Court of Appeal did consider the applicability of the Prudential principle and in the judgment of the Court delivered by Peter Gibson, L.J., it was stated (at para. 83):
2006 Consents/2011 statutory declarations
(b) the Bank was unaware of their existence. 142. The 2011 Statutory Declarations, as the trial judge stated, on the basis of the finding that the entire legal and beneficial title to Gorse Hill was vested in Vico Limited, merely stated what the subsisting legal position was. Indeed, Mr. Hanrahan’s evidence was that, on the advice of its solicitors, Arthur Cox, the Bank took a “belt and braces” approach to prevent any “purported issues in relation to the beneficial ownership of Gorse Hill being raised”. However, the crucial point is that the appellants have no cause of action against the Bank arising from the circumstances in which the 2011 Statutory Declarations were obtained from Whitney Moore, the solicitors acting for Mr. O'Donnell and Mrs. O'Donnell in the Summary Summons Proceedings, and furnished to the Bank’s solicitors. The characterisation of this aspect of the appellants’ case as a “red herring” by counsel for the Bank, in my view, was wholly justified. Summary of conclusions 144. As, because of the re-orientation by the appellants of their case, there was no issue on the appeal as to the capacity of Vico Limited to grant the guarantees and related securities over its asset, Gorse Hill, to the Bank, and there was no contention that the directors of Vico Limited acted in breach of their fiduciary duties, they having obtained the sanction of the sole shareholder, the Trustee of the Discretionary Trust, to the giving of those guarantees and securities, there is no basis for concluding that the findings of the trial judge, on the basis of the evidence before him as to the law of the Isle of Man, that Vico Limited did have such capacity and that the securities were not given in breach of the fiduciary duties of the directors of Vico Limited were other than correct. Accordingly, those findings stand. 145. The appellants’ contention that the guarantees and related securities were given to the Bank in breach of trust because the Trustee of the Discretionary Trust was acting in breach of trust in sanctioning the giving of those guarantees and securities to the Bank, which were for the benefit of Mr. O'Donnell and Mrs. O'Donnell, who were excluded from any benefit under the Discretionary Trust, so that there is imposed upon interest in Gorse Hill acquired by the Bank a constructive trust for the benefit of the appellants fails for the following reasons:
(b) accordingly, the approval of the Trustee to the giving of the guarantees and related securities was not necessary to give the Bank good title to the interest created by the securities in Gorse Hill it acquired from Vico Limited, the legal and beneficial owner thereof; (c) apart from the fact that such approval was not necessary, even if it had been, as the trial judge correctly found, the Bank had no knowledge, actual or constructive, of the specific provisions of the Discretionary Trust which it is alleged precluded the creation of security over the assets settled by the Discretionary Trust for the liabilities of Mr. O'Donnell and Mrs. O'Donnell; and (d) assuming, notwithstanding the evidential deficit, that since these proceedings have commenced the appellants have become the sole beneficial owners of the property the subject of the Discretionary Trust (that is to say, the issued share capital of Vico Limited) their claims against the Bank in these proceedings must fail because -
(ii) the appellants not having any proprietary interest in Gorse Hill, even if the Bank’s interest in Gorse Hill was the subject of a constructive trust arising from the application of the equitable doctrine of knowing receipt, they would have no remedy against the Bank, because only a person with a proprietary interest in Gorse Hill could pursue a remedy against the Bank for a declaration that the securities held by the Bank over Gorse Hill are of no effect. 147. For the reasons outlined in para. 141 above, the appellants have no cause of action against the Bank arising from the procurement of the 2006 Consents. The 2011 Statutory Declarations accurately reflected the ownership of Gorse Hill when they were made by the appellants, who have no cause of action against the Bank arising from their procurement. Decision | ||||||||||||||||||||||||||||||||||||||||