The Gazette 1979

GAZETTE

JULY-AUGUST

1979

RECENT IRISH CASES COMPANY Receivership — Dispute as to priorities between encumbrancers — Order extending time for delivery of particulars of mortgage or charge by a company for registration — Companies Act, 1963, Section 106 — Meaning of expression "without prejudice to the rights of parties acquired prior to the actual time of such registration" in common form of Order. This was an application made to the High Court under Section 316 of the Companies Act, 1963 ("the Act") by a receiver to determine an issue as to priorities between two encum- brancers which arose in the course of a receivership of a Company. The Company, Clarets Limited ("the Company"), carried on a hotel and restaurant business in premises at Kenilworth Square, Dublin. The premises had been purchased by the Company from the first named Defendant, Thomas G. McGann ("McGann"), leaving a substantial part of the purchase money unpaid. On 28 February 1975 the Company executed a mortgage in favour of McGann over the premises at Kenil- worth Square to secure the unpaid balance purchase money. Particulars of the mortgage were not delivered to the Registrar of Companies for registration within 21 days of the creation of the mortgage as required by Section 99 of the Act. On an application by McGann to the High Court on 29 July 1977 an Order was made under Section 106 of the Act extending the time for registering the mortgage and parti- culars, in the prescribed form, were duly registered in the Companies Office on 23 August 1977. However, in the period between the execution by the Company of the mortgage to McGann and McGann's registering such mortgage under Section 99 of the Act the Company had on 17 January 1977 executed a mortgage debenture in favour of Stanchart Bank (Ireland) Limited ("the Bank") to secure accommodation granted by the Bank to the Company. Parti- culars of the mortgage debenture were duly delivered under Section 99 of the Act. The mortgage debenture contained a special clause providing that the Bank's security was subject

to the rights of the prior mortgagee, McGann. In the course of the receivership of the Company the premises at Kenil- worth Square were sold by the receiver. The Bank now contended that its claim against the proceeds of sale took priority to McGann's claim. The Bank's contention was based on the form of the Order made by the High Court on 29 July 1977 under Section 106 of the Act extending the time for registering McGann's mortgage which included the follow- ing statement: " . . . but this Order to be without prejudice to the rights of parties acquired prior to the actual time of such registration . . ." The High Court (per Costello J.) explained that this was the common form of the Order in use since the beginning of the century (i.e. under the earlier Companies Acts), and referred to Re Joplin Brewery Company Limited [ 1902] 1 Ch. 79. In the present case it had been expressly agreed between the Company and the Bank that the Bank's mortgage debenture was subject to McGann's first mortgage. Thus, the Bank's rights were at all times subject to those of the prior encumbrancer. Therefore the right to appoint a receiver, and enforce their security by sale of the Company's premises were made subject to McGann's rights under his mortgage. The effect of the Court's Order of 29 July 1977 under Section 106 of the Act was that McGann's security became a valid one when registration (under Section 99 of the Act) was actually effected "without prejudice to the Bank's rights under their mort- gage debenture". The Court was then required to consider what rights the Bank had acquired prior to the actual registration of particulars of McGann's mortgage. Held (per Costello J.) that the Bank's rights were limited or qualified ones in that they were subject at all times to those of McGann under his mortgage. The Bank were bound by the words of their agreement and could not obtain a priority which they had expressly agreed they would not have. Therefore the mortgage debenture of 17 January 1977 created by the Company in favour of the Bank did not rank in priority to the mortgage of 28 February 1975 given by the Company to McGann and that the

security which McGann obtained under his mortgage ranked in priority to that of the Bank. The decision of the Court of Appeal in Re Monolithic Building Company [ 1915] 1 Ch. 643 referred to by Kenny J. in Interview Limited [1975] I.R. 382 at 396 was distinguished. In the matter of Clarets Limited (in Receivership) and the Companies Act, 1963, Alex J. Spain (Receiver) v. Thomas G. McGann and Stanchart Bank (Ireland) Limited. - High Court (Costello J.) - unreported — 22 November 1978. EQUITY Sale by a Cestui Que Trust to a trustee of a remainder interest — The duties of a trustee in such a case. The Plaintiff was a beneficiary under his uncle's Will of two properties in Finglas, Dublin, one a dwellinghouse to which he became absolutely entitled and the other an 11 acre field in which field the deceased gave a life interest to his brother (the Defendant) with the remainder interest to the Plaintiff. It is about the sale of this remainder interest that this case is concerned. In 1968, the Plaintiff, via an intermediary, offered (without success) to sell his remainder interest in the property to the Defendant. The Plaintiff then directly re-offered to sell his interest to the Defendant and the Defendant agreed to purchase the interest for £1,500. A contract was prepared by the one solicitor and executed by both parties in August 1968. The transaction itself was not completed until August 1973. The Plaintiff sought to have the sale set aside, firstly relying upon the equit- able doctrine of undue influence and secondly, on the ground that the Defendant, being not only a life tenant of the field but also one of the trustees of the Will, had enfringed the equitable principles which applied to transactions between a cestui que trust and a trustee and that the bargain was an unconscionable one and was vitiated by the equitable rules relating to such bargains. The Plaintiff's medical history and financial circumstances were examined. The Plaintiff's doctor gave evidence that he was satisfied that the Plaintiff was suffering from