Thompson & anor v Tennant & anor (Approved)

Factual and Procedural Background

Between 2007 and 2010, the Plaintiff entered into loan facility agreements secured by a mortgage over two properties collectively referred to as the Mortgaged Property. The mortgage was originally held by Ulster Bank, which transferred its interests to Defendant Company B. The Plaintiff remained indebted to Company B, and upon the secured liabilities becoming payable in January 2019, Company B appointed Defendant as receiver over part of the Mortgaged Property, specifically the premises at no. 2 Upper Eden Road.

Disputes arose regarding the validity of the receiver's appointment and the scope of the receiver’s authority. The Plaintiff and the second Plaintiff Company operate a crèche business at no. 2 Upper Eden Road. The Plaintiff contended that leases of the property were granted without the mortgagee’s consent, and there were questions about the legal basis for the receiver’s appointment and access to the property.

Following refusal of access to the Defendants’ agents and subsequent attempts to inspect the property, the Plaintiffs instituted proceedings seeking permanent and interim injunctions to restrain the Defendants from exercising powers under the receivership, a declaration that the appointment of the receiver was invalid, and accountings related to the loan facilities. The Defendants offered undertakings to refrain from possession pending the hearing of the interlocutory application, which is the matter before the court.

Legal Issues Presented

1. Whether the second Plaintiff Company has a lease or tenancy of no. 2 Upper Eden Road binding on the Defendants, either by express lease or implied tenancy through acceptance of rent.
2. The validity of the appointment of the Defendant as receiver over the property, given the terms of the mortgage deed and relevant statutory provisions.
3. Whether the receiver validly accepted his appointment, considering the discrepancy between the property described in the deed of appointment and the property referenced in the receiver’s acceptance.

Arguments of the Parties

Plaintiff's Arguments

• The Plaintiff contends that the payment of rent by the second Plaintiff Company directly to Defendant Company B and its acceptance creates a binding tenancy or lease, notwithstanding the absence of written consent from the mortgagee.
• The Plaintiff argues that the mortgage deed does not expressly permit appointment of a receiver over the property itself, only over the income from the property, rendering the appointment invalid.
• The Plaintiff asserts that the receiver’s acceptance purports to cover the entire Mortgaged Property, not just the portion specified in the appointment deed, invalidating the acceptance.
• The Plaintiff challenges the admissibility and weight of certain evidence submitted by the Defendants, particularly affidavits based on hearsay and lacking personal knowledge.
• The Plaintiff emphasizes the constitutional property rights at stake and the potential irreparable harm to the crèche business and its stakeholders if possession is taken.

Defendants' Arguments

• The Defendants dispute the existence of a binding lease or tenancy, arguing the payments identified are inconsistent with the Plaintiff’s own assertion of loan repayments and that requests for lease information do not amount to acknowledgment of tenancy.
• Relying on precedents, the Defendants assert that the statutory power to appoint a receiver under section 19(1)(iii) of the Conveyancing Act 1881 applies, and that contractual terms confer additional powers on the receiver.
• The Defendants argue that the receiver’s acceptance of appointment, although broader in language, is limited by the terms of the deed and does not confer authority beyond the property specified.
• They contend that the evidence submitted by the Plaintiff is technical and intended to delay enforcement of valid security, and maintain that the undertakings already given allow sufficient time for the Plaintiffs to find alternative premises.
• The Defendants challenge the sufficiency of the Plaintiff’s undertaking as to damages but have not provided detailed evidence of their own losses or the value of the charged properties.

Table of Precedents Cited

Court's Reasoning and Analysis

The court first considered the admissibility of the Defendants’ evidence, specifically the affidavit of a deponent from a loan administration service provider who lacked personal knowledge of the Plaintiff’s affairs. The court found that, under the Rules of the Superior Courts, hearsay evidence of belief with stated grounds is admissible on interlocutory applications. The affidavit was based on examination of relevant books and records, rendering the evidence admissible, though the court acknowledged that the Plaintiff’s direct evidence was stronger on certain points.

Regarding the issues raised, the court found that two of the three issues identified by the Plaintiff met the threshold of a fair issue to be tried: (1) the existence of a binding lease or tenancy between the second Plaintiff Company and the Defendants, based on payment and acceptance of rent, and (2) the validity of the receiver’s appointment, including the question of whether the appointment was over the property or merely its income.

On the lease issue, the court noted conflicting evidence and arguments but held that the Plaintiff had raised a fair issue to be tried. The court referenced established principles that a mortgagee and tenant may create a new tenancy by agreement, express or implied, and that acceptance of rent by the mortgagee may be evidence of such agreement.

On the validity of the receiver’s appointment, the court reviewed relevant case law and statutory provisions. It observed that although the mortgage deed did not expressly confer power to appoint a receiver over the property, statutory powers under the Conveyancing Act 1881, as incorporated into the contract, apply. The court acknowledged the Defendants’ authorities supporting the appointment’s validity but indicated some hesitation about the strength of this issue as a fair issue to be tried. However, given the other issues, it was not necessary to resolve this definitively at interlocutory stage.

The court also considered the third issue concerning the receiver’s acceptance of appointment over a broader property than specified. The court found that the Plaintiff had raised a fair issue to be tried on this point, given the strict interpretation courts apply to deeds of charge and appointment.

In assessing the balance of convenience, the court recognized that damages would likely be adequate to compensate the Defendants for any financial loss caused by interlocutory relief. Conversely, the Plaintiffs would suffer irreparable harm if possession were taken, including disruption of a childcare business and associated social consequences. The evidence regarding the adequacy of undertakings as to damages was incomplete on both sides, but the court was not persuaded that the Plaintiffs’ undertakings were insufficient.

Overall, the court concluded that the balance of convenience favored granting interlocutory relief to minimize potential injustice pending trial.

Holding and Implications

The court granted interlocutory injunctions restraining the Defendants from exercising powers pursuant to the purported appointment as receiver over the property pending trial. The court emphasized that this relief does not preclude the Defendants from initiating separate proceedings to enforce their security.

The interlocutory injunction was granted in favor of the Plaintiffs.

The direct effect is to maintain the status quo pending determination of the substantive issues, protecting the Plaintiffs’ business and property interests temporarily. No new legal precedent was established, and the Defendants retain the right to enforce their security through separate legal action.