Ruby Property Company Ltd. v. Kilty

Factual and Procedural Background

This application arises from two motions brought by the First Defendant and Second Defendant seeking dismissal of the Plaintiffs' claim on the basis that it has no reasonable prospect of success or alternatively for want of prosecution. The Second Defendant also sought dismissal on grounds that the claim was frivolous and vexatious, but this was rejected.

The Second and Third Plaintiffs, now deceased, were husband and wife and sole shareholders and directors of the First Plaintiff, a non-trading company holding an investment property known as "Austinville" at No. 1 Station Road, Sutton in the City of Dublin. This property adjoins a supermarket owned by the Second Defendant.

The Second and Third Plaintiffs were indebted to a bank ("the Bank") and the First Plaintiff charged the property to the Bank by a collateral mortgage debenture dated 3 August 1990. The Second and Third Plaintiffs defaulted on payments, leading to possession of their family home being granted to the Bank in February 1994 and taken in October 1994. The Bank demanded payment of £287,161.13 from the First Plaintiff and appointed the First Defendant as Receiver over the property on 20 October 1994.

In November 1994, the Bank sold the family home for £305,000.00 but claimed a remaining debt of £15,554.08 due from the First Plaintiff. The Receiver subsequently sold the property to the Second Defendant for £102,500.00 by conveyance dated 28 April 1995.

The Plaintiffs' amended statement of claim, delivered 31 July 1997, sought declarations that the collateral mortgage had lapsed, that the Receiver's appointment was invalid, that the conveyance to the Second Defendant be set aside, and claimed damages against the Receiver and the Second Defendant for various alleged wrongs including negligence and trespass.

Both Defendants sought to strike out the proceedings partly due to delay, including failure to reconstitute the action after the deaths of the Second and Third Plaintiffs. The court found the delay neither inordinate nor inexcusable, noting the need to obtain representation for the deceased Plaintiffs' estates.

Legal Issues Presented

1. Whether the Plaintiffs' claim should be dismissed under the court’s inherent jurisdiction on the basis that it has no reasonable prospect of success or for want of prosecution.
2. Whether the collateral mortgage debenture and the appointment of the Receiver were valid, particularly in light of alleged contravention of section 31(1)(c) of the Companies Act, 1990.
3. Whether the Receiver breached his duty under section 316A of the Companies Act, 1963, by selling the property at an undervalue.
4. Whether the Second Defendant holds good title to the property and whether claims for trespass against it can succeed.

Arguments of the Parties

Plaintiffs' Arguments

• The collateral mortgage had lapsed and was invalid due to a revised loan agreement after the commencement of section 31(1)(c) of the Companies Act, 1990, rendering the debenture void.
• The appointment of the Receiver was invalid and the Receiver had no power to sell the property without confirming monies were due to the Bank at the time of sale.
• The Receiver sold the property at an undervalue, breaching his statutory duty under section 316A of the Companies Act, 1963, and common law duties.
• The property was not properly advertised for sale, limiting market exposure and causing loss to the First Plaintiff.
• The Second Defendant does not have good title to the property and damages for trespass are claimed.

Defendants' Arguments

• The debenture and Receiver’s appointment were valid as the security was granted before section 31(1)(c) came into force and no new security was given after that date.
• The Receiver acted properly, relying on professional advice from a reputable auctioneering firm, and complied with the statutory duty to obtain the best price reasonably obtainable.
• The Second Defendant is a bona fide purchaser for value without notice of any defect and holds good title to the property.
• The delay in the proceedings was neither inordinate nor inexcusable.

Table of Precedents Cited

Court's Reasoning and Analysis

The court first addressed the issue of delay, finding the period of eighteen months after the death of the Third Plaintiff and two years from delivery of defences was neither inordinate nor inexcusable, especially given the need to obtain representation for deceased Plaintiffs.

Regarding the validity of the collateral mortgage and Receiver’s appointment, the court acknowledged the debenture was granted before section 31(1)(c) of the Companies Act, 1990 came into force, and thus was lawful at inception. Although the Plaintiffs argued a revised loan created a new, void security, the court found that any such issue would be between the First Plaintiff and the Bank, not involving the Defendants. Consequently, the Receiver’s appointment was valid and the Receiver had power to sell the property, provided monies were due.

On the issue of whether monies were due at the time of sale, the court accepted the Bank’s claim that costs and expenses remained outstanding after sale of the family home, justifying the Receiver’s sale of the property.

Concerning the allegation that the Receiver sold at an undervalue, the court reviewed extensive correspondence and expert advice. The Receiver had acted on professional advice from a reputable auctioneering firm, which recommended a sale by private treaty or tender without extensive public advertising due to the property’s specialist market appeal and planning history.

The court noted evidence suggesting the property might have been worth significantly more than the sale price but declined to decide on the undervalue issue at this stage, indicating the claim against the Receiver on this ground could not be dismissed outright.

However, the court found no basis to challenge the Receiver’s power to sell or the Second Defendant’s title. The Second Defendant was held to be a bona fide purchaser for value without notice of any defect, and thus claims against it, including trespass, could not succeed.

The court also emphasized that if the security contravened section 31 of the Companies Act, 1990, the transaction was voidable only at the instance of the company, and the Second Defendant’s bona fide purchase protected its title.

Holding and Implications

The court's final decision was to strike out all claims against the Second Defendant, finding that the Second Defendant holds good title as a bona fide purchaser for value and that claims against it cannot succeed.

Regarding the First Defendant (the Receiver), the court held that the claim challenging the Receiver’s right to sell must fail, but the claim alleging sale at an undervalue cannot be dismissed at this stage and remains arguable.

The court refused to strike out the proceedings for delay, finding the delay excusable and not inordinate, but imposed a condition that no motion to add the Bank as a defendant be brought and that the proceedings be concluded expeditiously.

No new legal precedent was established; the decision primarily applies existing principles on inherent jurisdiction, receivership duties, and bona fide purchaser protections to the facts of this case.