Togher Management Company Ltd & Anor v Coolnaleen Developments Ltd

Factual and Procedural Background

The Defendant company acquired approximately 27 hectares of land in The City, The State, for the purpose of developing a business park, financed by a loan secured by a first legal charge. A receiver was appointed pursuant to the debenture and the powers of a national asset management agency. The Defendant developed an industrial estate comprising 33 units, with 16 units leased under long leases.

Two management companies, the Plaintiffs, were established to manage the development: the first for the entire park and the second for a specific part of the development. The Defendant entered into Management Agreements with the Plaintiffs providing for the sale of common areas and obligations relating to the management and maintenance of the estate.

Following insolvency and appointment of the receiver, the lands were put up for public auction in two lots. The Plaintiffs protested the sale conditions, asserting that the sale would prejudice their contractual rights under the Management Agreements. The Defendant denied these assertions and proceeded with the auction. The Plaintiffs initiated proceedings seeking multiple reliefs including declarations of trust, recognition of easements, and injunctions restraining the sale.

The Plaintiffs obtained an order permitting them to register a lis pendens to protect their interests under the National Asset Management Agency Act, 2009. The Defendant subsequently sought to dismiss the Plaintiffs' claim on grounds that it was frivolous, vexatious, or bound to fail, and alternatively to vacate the lis pendens on the basis that the proceedings were not being prosecuted bona fide.

Legal Issues Presented

1. Whether the Plaintiffs’ claim discloses a reasonable cause of action or is frivolous and vexatious under Order 19, rule 28 of the Rules of the Superior Courts.
2. Whether the Court should exercise its inherent jurisdiction to dismiss the Plaintiffs’ claim on the basis that it is bound to fail.
3. Whether the lis pendens registered by the Plaintiffs should be vacated under Section 123 of the Land and Conveyancing Law Reform Act, 2009 on the grounds that the proceedings are not being prosecuted bona fide.
4. To what extent the Defendant/receiver can dispose of its interest in the subject properties so that purchasers are bound by the terms of the Management Agreements.
5. Whether the positive covenants in the Management Agreements run with the land and bind subsequent purchasers.
6. Whether the Management Agreements create trusts in favour of the Plaintiffs over the common areas and leasehold reversions.

Arguments of the Parties

Defendant's Arguments

• The proceedings are frivolous and vexatious, brought without proper motive, as the Plaintiffs’ directors are also directors of the Defendant, who is insolvent.
• The Plaintiffs have no legal or equitable interest in the lands or units, and the claims are not bona fide.
• The interest conveyed under the Management Agreements is limited; the Defendant retains rights to dispose of valuable interests including granting long leases and easements.
• The Defendant is entitled to sell the lands free from the Management Agreements’ obligations; purchasers are not bound by positive covenants, relying on the common law rule that such covenants do not run with the land.
• The positive covenant in Clause E of the Management Agreements is unenforceable against purchasers.
• The Plaintiffs’ claims for declarations of trust and easements are legally unfounded or superfluous.
• The injunctive relief sought is moot due to amendments in the sale conditions and the auction having proceeded.
• No duty of care is pleaded or owed for the claim of damages, and the indemnity claim does not disclose a cause of action as positive covenants are unenforceable and negative covenants are enforceable under established rules.

Plaintiffs' Arguments

• The proceedings are bona fide and brought to protect the interests of unit holders under the Management Agreements.
• The Plaintiffs have a beneficial interest in the common areas and leasehold reversions, which are held in trust by the Defendant.
• The contracts for sale fail to ensure purchasers will comply with the Management Agreements, risking circumvention of the management structure.
• The Plaintiffs seek to ensure the Management Agreements are effective and binding on purchasers, particularly regarding membership obligations and lease forms.
• The Plaintiffs do not concede that positive covenants are unenforceable and deny that this should warrant dismissal.
• The prior order granting leave to register lis pendens indicates substantial grounds for the claim and supports the existence of a reasonable cause of action.
• The Defendant’s reliance on the need for expert evidence supports the existence of serious legal issues that merit trial.
• Novelty of the claim does not preclude its success.

Table of Precedents Cited

Court's Reasoning and Analysis

The Court began by considering the Defendant’s application to dismiss under Order 19 rule 28 and the inherent jurisdiction to dismiss claims bound to fail. It emphasized that dismissal is a serious step, to be exercised sparingly and only in clear cases where no reasonable cause of action exists.

The Court found there was conflicting evidence regarding the bona fides of the Plaintiffs, with the Defendant alleging improper motives due to overlapping directorships and insolvency, and the Plaintiffs asserting they acted to protect unit holders’ interests. The Court concluded these factual disputes could not be resolved summarily and required a full hearing.

The Court acknowledged significant legal questions raised by the case, including whether purchasers of the Defendant’s interest would be bound by the Management Agreements and the enforceability of positive covenants against successors in title. It noted the novelty of the claims but held that novelty alone does not justify dismissal.

The Court examined the Management Agreements and related documents, finding they raised issues about trusts and beneficial interests in the common areas and leasehold reversions, referencing analogous case law. The Court declined to decide these complex legal questions at the motion to dismiss stage.

Regarding the Defendant’s application to vacate the lis pendens, the Court applied statutory criteria and recent case law on bona fide prosecution. It found no unreasonable delay and was not persuaded that the proceedings were not bona fide, noting the Plaintiffs’ assertions and the absence of compelling contrary evidence.

Overall, the Court held that the Defendant had not demonstrated that the Plaintiffs’ claims were frivolous, vexatious, or bound to fail, and that the issues raised warranted full trial consideration.

Holding and Implications

The Court’s final decision was to REFUSE the Defendant’s application to dismiss the Plaintiffs’ claim under Order 19 rule 28 and the inherent jurisdiction of the Court. It also REFUSED the Defendant’s application to vacate the lis pendens registered by the Plaintiffs.

The direct effect of this decision is that the Plaintiffs’ proceedings will continue, allowing the substantive legal and factual issues to be fully litigated at trial. The Court indicated that the Plaintiffs must proceed diligently, particularly by delivering a statement of claim without undue delay. No new legal precedent was established, but the judgment clarifies that the novelty of a claim does not warrant dismissal and that complex issues concerning management company agreements and trusts require full hearing.