Receiver fails to persuade High Court he has a ‘strong argument’ that he was validly appointed

Speedread

The High Court decided that a receiver had not persuaded the Court that he had a strong argument that he was validly appointed in circumstances where he was appointed as 'receiver' in the Deed of Appointment and the underlying Deed of Mortgage referred to the appointment of a 'receiver and manager'.

Facts

In McCarthy v Moroney & anor; Moroney v Property Registration Authority & ors [2018] IEHC 379, High Court, McDonald J, 29 June 2018, the Court dealt with two related sets of proceedings. 

Declaratory Proceedings

These proceedings brought by Mr Moroney against the Property Registration Authority (PRA), Ennis Property Finance DAC, Bank of Scotland plc and Mr McCarthy (as receiver) concerned an application by Mr Moroney for declaratory relief and damages. Mr Moroney claimed that there had been an unlawful attack on his private property rights due to the registration by the PRA of Ennis Property and Bank of Scotland as owners of registered charges previously granted him and his wife in favour of Bank of Scotland Ireland Ltd (BOSI). Mr Moroney also claimed that there had been a failure by the PRA to afford him fair procedures. 

The Receiver, Ennis Property, and Bank of Scotland applied to the Court to have these proceedings struck out on the grounds that they had no prospect of success.  McDonald J in the High Court engaged in a very comprehensive analysis of the claim being brought by Mr Moroney and ultimately held that the claim should be struck out as it was clearly bound to fail.

Injunction Application

Mr McCarthy, as receiver, issued proceedings for the possession of lands from Mr and Mrs Moroney. He sought an injunction restraining the Moroneys from doing anything to prevent him taking possession of the lands. McDonald J noted that Mr McCarthy was, in effect, seeking a mandatory injunction requiring the Moroneys to vacate the lands, enabling him to take possession as receiver. In those circumstances, Mr McCarthy had to establish to the satisfaction of the Court that he had a strong case for possession. 

Mrs Moroney

As Mrs Moroney had not participated in the proceedings, and it was not clear if she had been notified of the date of the proceedings, McDonald J was not prepared to consider granting any relief against her until he was satisfied that she had been notified of the proceedings. However, he proceeded to hear the matter against Mr Moroney.

Entitlement to appoint a receiver

McDonald J was of the view that, based on the evidence, there was a strong case to be made that Ennis Property had the right to stand in the shoes of BOSI when it came to the appointment of a receiver. Furthermore, the statement of account clearly showed that there had been a failure to pay monies due under the loan facility and therefore there was a strong argument that Ennis Property was entitled to serve a letter of demand. Mr Moroney argued that the letter of demand was invalid in that the amount claimed was overstated due overcharged interest of €196,000. Ennis Property submitted that a non-statutory letter of demand was not required to accurately state the amount due and McDonald J agreed, holding that there was a strong case that, even if there was an overstatement of the sum due in the letter of demand, this would not invalidate the demand. Accordingly, McDonald J was of the opinion that there was a strong case that an event of default had occurred within the meaning of the Deed of Mortgage and as a result the right to appoint a receiver under Clause 9.1 of the Deed of Mortgage had become exercisable. 

Validity of the receiver's appointment

Mr Moroney then argued that the Deed of Appointment of the receiver was defective in that it merely appointed Mr McCarthy as receiver only and did not appoint him as 'receiver and manager' as required by the Deed of Mortgage. Mr Moroney submitted that the wording of Clause 9.1 of the Deed of Mortgage clearly contemplated that any person appointed to exercise the power to take possession must be appointed as a 'receiver and manager'. He based his argument on the language in the opening words of Clause 9.1 of the Deed of Mortgage which stated:-  

"At any time after the power of sale has become exercisable whether or not the Bank has entered into or taken possession of the Secured Assets or at any time after the Mortgagor so requests, the Bank may from time to time appoint under seal or under hand of a duly authorised officer or employee of the Bank any person or persons to be receiver and manager or receivers and managers (herein called "Receiver") which expression shall where the context so admits include plural and any substituted receiver and manager or receivers and managers of the Secured Assets".

Mr Moroney argued that the term "receiver" was defined as the person appointed to be a receiver and manager and only a person appointed as receiver and manager could exercise the power of possession under the Deed of Mortgage. McDonald J stated that it was crucially important to note that a receiver's authority to act was derived from the Deed of Mortgage and an appointment would not be valid unless made in accordance with its terms. There was an obligation on Ennis Property to follow strictly the requirements set out in the Deed of Mortgage relating to the appointment of a receiver. 

McDonald J held that, looking at the language of Clause 9.1, it seemed to follow that unless Mr McCarthy was appointed as receiver and manager, he could not exercise the power to take possession. As the Deed of Appointment merely appointed Mr McCarthy as a 'receiver' not as a 'receiver and manager', McDonald J was of the view that Mr McCarthy would have an uphill struggle in persuading a court at the trial of the matter that he had been validly appointed. Accordingly, Mr McCarthy's application for an injunction was refused. 

McDonald J did note that this was merely an interlocutory application and that Mr McCarthy might well be able to persuade the court  that a different view should be taken at the trial of the action.

For further information please contact Paula Mullooly.

Date published: 13 July 2018