Hennessy v Tyrell & Anor [2022] IEHC 109 – Judgment further undermines receiver powers
Locations
The urgency of the action was that the auction was scheduled to take place at 12 noon on the day the application was heard by the High Court. The primary question before the court was whether the Defendants were entitled to advertise to sell the charged lands without having vacant possession. It was ultimately decided they could not and an order was granted in favour of the Mr Hennessy.
Facts
The charged lands comprised of 73 acres originally purchased by Mr Hennessy in 2005, funded by a loan from Allied Irish Banks (AIB) and secured by a charge over the lands.
AIB called in the loans in November 2015 and issued proceedings for possession of the charged lands in August 2016. On foot of this, there were some negotiations however, a resolution was not reached.
The loans were transferred from AIB to Everyday Finance on or about June 2019. There was some further engagement with Mr Hennessy but to no avail and Ken Tyrell (the 'Receiver') was appointed as receiver over 15 of Mr Hennessy's family properties in about September 2021.
The Receiver had put up the charged lands for auction without notifying Mr Hennessy who when he was made aware of the auction from an acquaintance applied to the Court to prevent the auctions proceeding.
The legal arguments
Mr Hennessy argued that the Receiver had no power of sale and should be prevented from selling the charged assets.
The Receiver identified three principle issues upholding the validity of the process:
(i) the contractual and statutory powers of a receiver,
(ii) the marketing and sale of the charged lands and
(iii) the adequacy of damages and of the undertaking as to damages offered by Mr Hennessy.
The Defendants argued that the Receiver's actions were an accepted procedure, which overcame the problem that a receiver often had no contractual power of sale. The procedure was that a receiver marketed the charged lands and executed a contract for sale (which is an agreement to sell rather than a sale per se) as the agent of the bank with the benefit of the charge. However, because receivers often do not have a specific power of sale, the bank which does have such power, executes the deed of transfer of the charged lands to the ultimate purchaser.
The Courts observations
The Court held that what "appears to be absolutely clear is that the Hennessey Brothers are unable to pay their debts or to secure the agreement of Everyday to restructuring of their debts upon terms they can meet" and although there is no evidence of whether payments have been made since the loans were called in, it seems that there was "little or nothing" paid to the bank. The court noted that if the Hennessey brothers cannot come to terms with Everyday or refinance elsewhere, then some or all of the charged lands would ultimately have to be sold.
The court noted that it was not contested that Everyday has the power of sale and that it was exercisable. However, it was held that the Receiver does not have the power of sale.
The Court observed that it was "more or less conceded that there is ambiguity and contradiction in the draft contract for sale as to the capacity in which Mr Tyrell would enter the contract; not least in the first line which suggests that he would do so as receiver, which it is accepted that he cannot".
The Law
The Plaintiff relied on the Supreme Court decision of Holohan v Friends Provident and Century Life Office[1], which held:
"(i) that a mortgagee with a power of sale has not power to dispose of the mortgagor's property with the same freedom as if it were his own;
(ii) that the question to be investigated in such an action is whether or not the mortgagee acted as a reasonable man would have acted in selling the mortgagor's property;
(iii) that the conduct of the defendant company in refusing to consider an alternative mode of sale to that upon which they had decided and in refusing to examine the possibilities of obtaining a better purchase price by adopting such a method of sale was unreasonable conduct on their part;
(iv) that the defendants should be restrained from completing the sale."
Judge Allen remarked that Mr Hennessy exaggerated that Everyday set out to achieve the lowest possible price of the land, but that the objective fact was that Everyday appeared to have decided at the end of January 2022 to sell the lands without possession and advertised the sale in an advertising campaign that appeared to be limited to those who might stumble on the listing on the surveyor's website. He went on to say that to rely on the Holohan Judgment, suggests that the onus of proof is on Mr Hennessy to establish that Everyday was acting unreasonably.
Judge Allen relied heavily on Ó Dálaigh C.J observations in Holohan in order to "fashion[ing] an order which will give rise to the least risk of injustice" and noted his comments with regard to damages which concluded that the contract for sale is either properly made or its not, and if not it cannot be permitted to be completed then the appropriate remedy is an injunction.
In addition to this, the Holohan Judgment was approved and applied in the case of Edenfell Holdings ltd[2], which Judge Allen said gave rise to an argument that if charged lands were to be sold at price less than should or could have been achieved, then Everyday would be responsible for that shortfall.
What Judge Allen referred to as "the elephant in the room" was the issue of Everyday attempting to sell the lands with Mr Hennessy in possession, but he would not go as far to say that Everyday are not entitled to offer the lands for sale without vacant possession. It is reasonable to assume that the mortgagee would take into account the implications of buying lands without vacant possession and the time, effort and expense of litigation in order to obtain possession, which will inevitably reduce the selling price of the lands.
Judge Allen commented that he did not believe anything turned on the nature of the charged lands (although he considered it to be more of a commercial enterprise than a family farm) and this does not affect the critical issue of the shortfall in the sale price being unrecoverable. In addition to this, he said that he did not believe that damages would be an adequate remedy for Everyday either and that any surplus of the family assets over liabilities was dependant on valuations made on the basis of vacant possession. Ultimately, the Court concluded by granting the orders preventing the sale of the charged lands but did make directions to ensure the expeditious exchange of pleadings and an early trial date to minimise the risk of injustice to either party.
Written by: Sinead Dolan and Mark Woodcock