Salthill Properties Ltd & Anor v Royal Bank of Scotland & Ors

Factual and Procedural Background

This opinion arises from ongoing proceedings linked to a long-running dispute between companies associated with the second named plaintiff (referred to as the Cunningham Group) and their bankers. A prior main trial covering many related issues resulted in a judgment (the main judgment), which detailed the parties' relationship and the appointment of a receiver over significant assets of the Cunningham Group. The dispute includes a transaction involving the sale of a development property at Salthill in Galway by the second named defendant (First Active) to the third named defendant (Mr. Duffy), with First Active acting as mortgagee in possession.

The sale was split into residential and commercial portions, with the residential portion completing in 2005 and the commercial portion delayed due to ongoing court proceedings. Subsequent negotiations between Mr. Duffy and the Banks allegedly involved variations to the original sale agreement and provision of funding, with allegations that the Banks made a secret profit contrary to their duty to achieve the best price for the vendor (Salthill and the Cunningham Group).

The Cunningham Group sought to amend prior proceedings to include claims about secret profits arising from these transactions and earlier financing arrangements but was refused leave to amend on multiple occasions, leading to the initiation of these separate proceedings. The Banks have applied to dismiss these proceedings under procedural rules or the court's inherent jurisdiction, asserting abuse of process and that the claims are bound to fail.

Legal Issues Presented

1. Whether the current proceedings alleging secret profits made by the Banks in relation to the sale and refinancing of the Salthill property are an abuse of process or bound to fail.
2. Whether the claims are barred by doctrines such as res judicata or the rule in Henderson v. Henderson due to prior litigation and rulings.
3. The extent of fiduciary duties owed by a mortgagee in possession to the mortgagor in the context of the alleged secret profit and whether such duties were breached.
4. The appropriateness of dismissing the proceedings at this stage based on the evidence and procedural posture.
5. The involvement and liability of the parent company (RBS) in the alleged wrongdoing.

Arguments of the Parties

Appellant's Arguments (Cunningham Group / Salthill)

• The refinancing agreement of 22nd April 2008 included a secret profit arrangement disadvantaging Salthill, involving profit shares on residential and commercial portions of the development.
• The Banks negotiated an arrangement fee as a profit share on the residential portion, which was not intended to reduce Salthill’s indebtedness.
• The Banks and Mr. Duffy agreed to repay deposits and share profits from sales without accounting to Salthill.
• There is an alleged connection (transfer pricing) between the residential and commercial sale prices, potentially amounting to an indirect re-negotiation of the residential price.
• The Banks owed fiduciary duties as mortgagees in possession, including acting in good faith and not making secret profits, and breaches of these duties could justify setting aside the sale.
• RBS, as parent company, was involved in negotiations and liable for knowing assistance in breaches of trust and conspiracy with First Active.
• The court should assume the truth of the pleaded facts at this stage and not require a prima facie case to dismiss the proceedings.

Appellee's Arguments (The Banks: First Active and RBS)

• The Banks deny direct involvement by RBS in the negotiations and assert First Active alone had the commercial relationship and entered into the transactions.
• The Banks contend that the secret profit claims are barred by previous rulings, including refusals to allow amendments in earlier proceedings, and doctrines barring re-litigation.
• The Banks submit that the mortgagee-mortgagor relationship is not fiduciary and that judicial reluctance exists to impose fiduciary duties broadly.
• Any profits made or to be made by First Active would benefit the mortgagor, negating claims of secret profit.
• The Banks argue the claims are bound to fail on the evidence currently available and that dismissal is appropriate to prevent abuse of process and to achieve finality in litigation.
• The Banks assert that discovery has already been extensive and that further discovery would amount to impermissible fishing expeditions.

Table of Precedents Cited

Court's Reasoning and Analysis

The court began by situating the current proceedings within the context of prior litigation, emphasizing the need to prevent abuse of the court’s process and uphold finality in litigation. The court acknowledged the Banks’ submissions that the claims were barred by prior rulings and the doctrines of res judicata and the rule in Henderson v. Henderson, which preclude re-litigation of issues that could have been raised previously.

However, the court distinguished between claims relating to the 2005 arrangements, which had been dismissed or refused amendment in prior proceedings, and the claims arising from the 2008 refinancing agreement. The court found that the 2008 claims were not barred by previous rulings or doctrines because they arose from different factual circumstances and timing.

The court carefully considered the nature of the alleged secret profits, analyzing whether the refinancing agreement constituted a re-negotiation of the sale price or an improper arrangement. It noted the complexity of the factual matrix, including the alleged transfer pricing between residential and commercial portions and the disputed involvement of the parent company (RBS).

In assessing the Banks’ application to dismiss, the court acknowledged the high threshold required to dismiss proceedings at this stage, particularly where factual disputes exist and evidence may emerge through discovery and trial. The court recognized that while prior rulings had found no evidence to support secret profit claims on the 2005 arrangements, the 2008 refinancing introduced new issues that could not be dismissed outright.

Regarding fiduciary duties, the court noted the legal debate on whether a mortgagee in possession owes such duties to the mortgagor. It accepted that while a fiduciary relationship is not automatic, misconduct by a mortgagee might justify relief such as setting aside a sale. The court declined to resolve these complex legal questions on the dismissal application alone.

As to the position of RBS, the court expressed reservations about the sufficiency of evidence linking RBS directly to wrongdoing but declined to dismiss claims against it at this stage, allowing for the possibility that evidence could emerge through procedural means.

Ultimately, the court emphasized the distinction between cases dependent solely on documents and those requiring factual determinations at trial, concluding that the present case involved factual disputes unsuitable for dismissal on the current record.

Holding and Implications

The court DENIED the Banks’ application to dismiss the proceedings at this stage.

The direct effect of this decision is that the Cunningham Group and Salthill may proceed with their claims concerning alleged secret profits arising from the 2008 refinancing and sale arrangements. The parties are entitled to utilize available procedural mechanisms, including discovery and the exchange of witness statements, to develop their cases.

No new legal precedent was established by this decision. The court underscored that dismissal remains possible at a later stage if evidence fails to support the claims, but at present, the factual disputes and potential for further evidence preclude summary dismissal.