High Court of Ireland Decisions

Judgment Title: Moorview Developments Ltd & Ors -v- First Active PLC & Ors

Neutral Citation: [2009] IEHC 367


High Court Record Number: 2003 9018 P

Date of Delivery: 17 July 2009

Court: High Court

BETWEEN

MOORVIEW DEVELOPMENTS LIMITED, SALTHILL PROPERTIES LIMITED, VALEBROOK DEVELOPMENTS LIMITED, SPRINGSIDE PROPERTIES LIMITED, DRAKE S.C. LIMITED, MALLDRO S.C. LIMITED, THE POPPINTREE MALL LIMITED AND BLONDON PROPERTIES LIMITED

JUDGMENT of Mr. Justice Clarke delivered on the 17th July, 2009



1. Introduction
1.1 This is yet another judgment in the long running litigation between these parties. On the 6th March, 2009, I delivered a judgment (“the main judgment”) in which I set out the reasons for having allowed a non-suit application on the part of the defendants in respect of what might reasonably be called the main hearing of the issues which arose in these linked proceedings. For the reasons set out in the main judgment I did not feel it appropriate, at that time, to rule on what were, in that judgment, described as the crystallisation and scope of debenture issues. Those issues had, in fact, been before the court. Those issues were, however, postponed for a further hearing which, again for the reasons set out in the main judgment, I determined should be a full plenary hearing.

1.2 The full list of the separate proceedings between these parties which have been linked was set out in Schedule 1 to the main judgment. One of those linked proceedings is case “H” being a case in which Kanwell Developments Limited (“Kanwell”) brings a well charging application arising out of a judgment obtained by it against Salthill Properties Limited (“Salthill”), the second named plaintiff coupled with the subsequent registration of judgment mortgage affidavits against assets of Salthill. On foot of those judgment mortgages Kanwell seeks a well charging order against the assets of Salthill.

1.3 The questions held over from the main proceedings and the Kanwell well charging proceedings are very closely linked and, to a large extent, turn on the same issues. Indeed, on one view and dependant on the questions which might be said to be decisive in the respective proceedings, both proceedings might turn on the same issues.

1.4 In general terms the issues held over from the main proceedings concern the extent of the security which the first named defendant (“First Active”) held over the assets of Salthill. Various points were put forward from which it was suggested that First Active did not, in fact, have security over certain aspects of the property (or relevant interests in the property) which was generally believed to form part of the development site on which Salthill was conducting a significant residential and commercial development project in Galway. In that aspect of the main proceedings, declaratory relief was sought to the effect that First Active did not have security over the relevant aspects of the development property so that, it was said, First Active had no entitlement to seek or purport to sell the relevant interests in the property to any third party and in particular, to the third named defendant Mr. Duffy. Likewise it was said that, for the same reasons, the second named defendant, (“Mr. Jackson”) was not validly appointed as receiver in respect of those interests in the Salthill development property. As part of the argument concerning the scope of First Active’s charge over the assets of Salthill it is argued that, insofar as First Active had a floating charge over the assets of Salthill, such floating charge had crystallised so that, it is said, no assets acquired after the date of crystallisation could be said to be caught by the charge.

1.5 It is not in dispute but that Kanwell has lodged judgment mortgage affidavits in respect of assets of Salthill. However, if First Active has full security over all of the property owned by Salthill then there are, in practice, no assets available for Kanwell so that the judgment mortgages are, in practice, worthless. On the other hand to the extent that it might be said that First Active does not have proper security over some of the assets in question, (or interests in those assets) then it follows that those assets or interests may well be available to Kanwell. Additional questions, therefore, arise in relation to the Kanwell well charging proceedings which are dependent on the status, so far as First Active’s security is concerned, of the Salthill property as of the time when the relevant Kanwell judgment mortgage affidavits were filed. Clearly the relevant time for considering Kanwell’s position is what the state of play was as of those times.

1.6 Against that background, it seems to me that the most relevant starting point must be a consideration of the debentures by which Salthill charged its assets in favour of First Active, for those debentures define and govern the security which First Active can be said to hold or, at any material time, to have held. I, therefore, turn to an analysis of the debentures.



2. The Debentures
2.1 Salthill and First Active entered into a series of debentures (which related to different parcels of land) on respectively, the 21st October, 1999, the 29th October, 1999, the 12th November, 1999 and the 20th December, 2001.

2.2 So far as material to the issues which I have to consider, each of the debentures were in the same form and purport to create comprehensive fixed and floating charges.

2.3 The charging clauses of the debenture which are of particular relevance to the issues which I have to decide appear to be clauses 4.1.5, 4.1.6 and 4.1.14, which provide as follows:-


“4.1.5 CHARGES unto the Bank by way of first fixed charge any future estate or interest which the Company may from time to time hereafter acquire in the Secured Property;

4.1.6 CHARGES unto the bank by way of first fixed charge, all other freehold, leasehold and other removable property now or at any time hereafter belonging to or for any estate or interest vested in the company together with all rights, liberties, powers easements, quasi easements and appurtenances (in each case of whatever nature) attached or appurtenant thereto and all buildings, erections, fixtures, fittings (including trade fixtures and fittings) and fixed plant and machinery from time to time there on thereon;

4.1.14 CHARGES unto the Bank by way of first floating charge all the undertaking property, rights and assets of the Company whatsoever and wheresoever both present and future, including but not limited to the stock-in-trade of the Company wheresoever not effectually subject to any fixed security hereby created;”


2.4 Those clauses are preceded by clauses which convey to First Active so much of the secured property (as defined) as is freehold unregistered land subject to the usual proviso for redemption and which sub-demises to First Active so much of that secured property as is of unregistered leasehold tenure again subject to a proviso for redemption. In addition there is a specific charge on so much of the secured property as is either registered freehold or registered leasehold land.

2.5 The term secured property is defined as the property set out in the first schedule to the debenture, together with various rights attached to same and “buildings, erections, fixtures, fittings etc.” as might be on the lands concerned.

2.6 Thus, the general structure of each of the debentures concerned is relatively straightforward. The property which is specifically mortgaged is set out in the first schedule and thus, becomes part of the secured property. That property is specifically mortgaged to First Active, either by means of a conveyance subject to an equity of redemption (in the case of unregistered freehold land), a subdemise, again subject to the equity of redemption, in respect of unregistered leasehold land and in the form of a charge in respect of registered freehold or registered leasehold land.

2.7 The additional charging provisions which I have specifically quoted above are in addition to those which create specific legal mortgages and charges referable to defined lands.

2.8 I should not leave the provisions of the debentures concerned without also setting out the terms of clause 19 which provides for the conversion of a floating charge in the following terms:-


“19 The Bank may at any time from time to time by notice to the Company convert the floating charge hereby created into specific charge as regards such of the secured assets specified (whether generally or specifically) in that notice if the Bank considers it would desirable to do so in order to protect, preserve or supplement the security hereby created over those Secured Assets or the priority of such security. If, without the prior consent in writing of the Bank, the Company creates any Encumbrance over any of the Secured Assets not expressed to be subject to a fixed Charge under this Debenture, or attempts to do so, or if any person levies or attempts to levy any distress, attachment, execution or other legal process against any such Secured Assets, the floating charge created by this debenture over those Secured Assets shall automatically, without notice, be converted into a fixed charge instantly such event occurs. If the Company ceases to carry on business or be a going concern or if an Enforcement event occurs, the floating charge created by this Debenture shall automatically without notice, be converted into a fixed charge over all the Security assets not otherwise effectively subject to a fixed charge under this Debenture instantly such event occurs. Nothing in this clause shall prejudice or affect any other event which may cause the floating charge created by this Debenture to crystallise over the Secured Assets.”

In the context of those Debentures it is important to briefly indicate the nature of the interest in the Salthill property which, it is contended, lie outside the Bank’s security. I therefore turn to those contested assets.



3. The Contested Assets
3.1 Three specific assets or interests in assets are said not to be secured in favour of First Active, and, it follows, are in principle available to Kanwell on foot of its judgment mortgages.

3.2 I propose briefly outlining those assets at this stage for the purposes of identifying how it is argued that the interests in question do not fall within First Active’s charge.

3.3 The first such asset became known as Lot C2 which is registered land being comprised in (so far as the freehold interest is concerned) Folio 59867F of County Galway and so far as the leasehold is concerned is comprised in Folio 46L for County Galway. A number of technical arguments were made on behalf of Salthill and Kanwell which, if correct, would, it is said, result in the merger of the freehold and leasehold interests concerned at a time subsequent to when it is argued there had been a crystallisation of First Active’s floating charge over that property of Salthill. Again in somewhat complicated circumstances (including what would appear to be conveyancing errors and an error by Land Registry), it is argued that the execution of a deed in favour of Mr. Duffy which was ultimately not proceeded with and was replaced by a deed in a different form, gives rise to an effect that the relevant interests in Lot C2 remain owned by Salthill and have been cleared of any charge. While First Active contests the basis on which it is argued that the ownership of the relevant interests is Lot C2, passed in such way as to, arguably, give rise to the consequences urged on behalf of Salthill and Kanwell, First Active also takes a more fundamental objection to the case made. It is argued that, even if Salthill and Kanwell are correct in their contention concerning the manner in which the ownership of Lot C2 has devolved, any such interest in the lands in question, as might have passed to Salthill, would have been automatically caught by, alternatively, the provisions of clauses 4.1.5, 4.1.6, or 4.1.14. It is said, under this heading, that the relevant clauses (or any one of them) is sufficient to capture after acquired property (that is to say property acquired after the relevant debentures were entered into) and that this remained so, irrespective of whether there had been a crystallisation of any floating charge.

3.4 A similar question arises in respect of the second area of land in question that is to say Lot A2, otherwise often referred as the M & G Triangle. Again due to a conveyancing error, a deed of rectification was executed on the 17th September, 2004. While there are issues between the parties as to the proper construction to place on the error concerned, coupled with the deed of rectification, it is again argued on behalf of First Active that even if Salthill and Kanwell are correct in the characterisation which they seek to place on that sequence of events, the M & G Triangle is still caught by the provisions of the Debentures concerning after the required property.

3.5 Like arguments arise in relation to the final parcel of land being Lot M.

3.6 It follows that it seems logical to start with a consideration of whether First Active are correct in the contention which they seek to make to the effect that, irrespective of the proper characterisation of the manner in which ownership of the three parcels of land in question devolved at the material time, First Active nonetheless had the benefit of a charge over that property at any material time by virtue of the proper application of the terms of the Debenture.

3.7 I, therefore, turn to that issue.

4. To What Extent does the Debenture Capture are Acquired Property

4.1 Under this heading it seems to me that the first matter to consider is the extent of clause 4.1.6, the text of which has been cited earlier. Under that clause First Active has charged to it “by way of first fixed charge” all other “freehold leasehold and other immovable property now or at any time hereafter” belonging to Salthill. First Active argues that the terms of that clause are clear and unambiguous. By it, it is said, Salthill has charged in favour of First Active any immovable property which it might subsequently acquire. It is said that there is no limitation either express, or by implication, in the use of the term “at any time hereafter”. Thus, it is argued, that for as long as the debenture continues in force, clause 4.1.6 is sufficient to immediately catch and charge any immovable property which is acquired by Salthill and that the charge thereby created is a fixed charge. It is further said that the clause is not dependent on the manner in which any such property interest might be acquired. Thus, it is said, regardless of the technical manner in which it might be said that an interest in immovable property comes into the hands of Salthill, that property is, it is argued, immediately the subject of a fixed charge under clause 4.1.6. Finally, as the charge is said to be a fixed charge, it is argued that the validity of such charge is unaffected by any issues of crystallisation which would, of course, be relevant only to floating charges.

4.2 Counsel for Salthill and Kanwell drew attention to the fact that the clause extends not only to the property concerned and any rights, easements or the like attaching to it but also “buildings, erections, fixtures and fixed plant and machinery”. On that basis it was argued that, on a true construction, the clause is, (despite being otherwise described) a floating rather than a fixed charge.

4.3 Counsel referred to authorities such as Re Holidair Ltd [1994] 1 IR 416 and Re Keenan Brothers Ltd [1985] I.R. 401, which make clear that the mere fact that a charge is described as a fixed charge does not necessarily mean that the charge concerned is, in substance, properly so characterised. The difference between a fixed charge and a floating charge is clear. The difference stems from the ability of the mortgagor or chargor to deal with the property concerned in the ordinary course of business. It is inherent in a floating charge that the assets of the company subject to a floating charge can be deployed in the ordinary course of business. For example stock in trade can be sold, the monies realised by the collection of book debts can be spent in the course of the company’s business and the like. Subject to any specific provision in the relevant debenture documentation, the company is free to deal with such of its assets as are covered by a floating charge in the ordinary course of business and without having to ask for permission from the charge holder. It is only when, in accordance with the terms of the charging document, the floating charge can be said to crystallise by being converted into a fixed charge in respect of whatever assets were, as of the relevant time, covered by the floating charge, that the charge fixes on specific assets to the extent that the company can no longer deal with those assets in the ordinary course of business. On the other hand a fixed charge relates to specific property. Again, subject to the terms of the charging document, the company concerned is not permitted to deal with any assets which are the subject of a fixed charge without the specific permission of the charge holder.

4.4 I did not understand counsel for First Active to disagree with the principle advanced on behalf of Salthill and Kanwell to the effect that a Court must look at all of the terms of a relevant charge for the purposes of determining whether the charge is, in truth, a fixed charge or a floating charge. The point of difference between the parties is as to whether the application of that principle to clause 4.1.6 should lead to that clause being construed as a fixed or a floating charge.

4.5 A starting point for the resolution of that dispute requires me to note that the creation of charges by companies over their assets in favour of lending institutions is fundamentally a matter of contract. The extent and nature of the charge depends on what the parties agree. The reason why it is appropriate to categorise charges as fixed or floating is that the use of those terms carry with them a significant number of characteristics. However that is not to say that there is any necessary legal consequence from the use of the term fixed charge or floating charge. Both are creatures of the document creating them. The document as a whole must be construed to determine the nature of the charge created. As noted earlier it is, of course, open to the parties, subject to any legal restraints which might arise under either company law, property law or the like, to fashion a charge in whatever way they might agree. While a fixed charge will not, ordinarily, allow a company to deal with the property which is the subject of that charge at all, it is open to the parties to agree an appropriate regime that would allow such a party to deal with the asset in a defined way.

4.6 By way of example referable to the business at hand in these proceedings, it is commonly the case that lending institutions hold first legal charges over the assets of development companies. It is normally explicit in the arrangements between those parties that the development company can construct on the development site concerned and enter into sales contracts with third parties for the sale of the units developed. The normal arrangements agreed in those circumstances typically involve a release by the lending institution concerned of its charge over relevant units so as to enable a closing of a sale of the unit concerned to be made to the third party concerned free from encumbrances. In such circumstances there is typically a pre-existing arrangement between the lending institution and the development company which provides for the amount of monies that are to be paid to the lending institution in order to procure such a release. The asset over which the lending institution in such circumstances has security will, therefore, vary significantly over time. The lending institution security will initially lie over the undeveloped site. As units come to be constructed the lending institution’s security will attach to those units. However equally, as units come to be sold, the lending institution’s security will disappear from those units. The mere fact, therefore, that it is contemplated that there will be a rolling shift in the precise property over which the lending institution concerned has security does not, in my view, prevent that security from being a proper fixed charge. It is fixed because the company has no general permission to dispose of the assets concerned without obtaining a specific release of the charge in respect of each unit concerned. Unlike the stock in trade of a manufacturing company which is subject to a floating charge but which can nonetheless be sold without any reference to the chargeholder, the development company needs to obtain a specific release for each unit sold at least prior to the closure of any such sale.

4.7 Likewise, while a floating charge will, ordinarily, entitle the company concerned to deal with the assets which are subject to the floating charge in the ordinary course of business, it is open to that company and its lending institution to agree any restrictions on that entitlement in respect of a specific asset or category of assets as those parties might wish to negotiate.

4.8 It seems to me, therefore, that the use of the terms “fixed” and “floating” in respect of charges gives a strong indication of the nature of the charge which the parties wish to put in place although it will not necessarily be decisive in every case. A charge can remain a fixed charge even though the parties have negotiated circumstances in which it is possible, with specific permission or within pre-agreed parameters, for assets which are the subject of a fixed charge to be disposed of. Likewise the parties may negotiate some limitation on what would otherwise be the entitlement of a company to deal with assets the subject of a floating charge in the ordinary course of business.

4.9 In the absence of other terms it seems to me that the use by parties of the phrase fixed charge will necessarily carry with it an intention on the part of the parties that the asset concerned cannot be dealt with in any way without the permission of the chargeholder. The use of the term floating charge, without any other terms, will likewise carry with it an implication that the intention of the parties was that the assets, the subject of such a charge, can be dealt with in the ordinary course of business without recourse to the chargeholder. However, in either case the parties are free to negotiate their contract with such deviation from what might be described as the “pure” position of a fixed or floating charge as they may be able to agree.

4.10 It is important to note that the reference to “buildings etc.” in clause 4.1.6 simply replicates the use of exactly the same terms in the definition of “secured property” which, it will be recalled, is used for the purposes of defining the property which is undoubtedly the subject of a first legal charge in the form of conveyance, sub-demise or charge (in the case of registered land). It is difficult to see how it can be argued that the use of that terminology in clause 4.1.6 has the effect of turning clause 4.1.6 from a fixed charge into a floating charge while the use of the same terminology (by the inclusion of that terminology in the definition of secured property) in clauses concerned with the creation of what undoubtedly are first fixed legal charges, does not.

4.11 I am not, therefore, satisfied that there is any legitimate basis for regarding clause 4.1.6 as doing anything other than it purports to do, that is to say that it creates a first fixed charge on all after acquired immovable property. There is no limitation on the scope of after acquired property covered by the relevant charge. Therefore, provided that Salthill can be said to have acquired property which is freehold, leasehold or “other immovable” at any time after the execution of a relevant debenture, then it seems to me clear that clause 4.1.6 creates a first fixed charge on that property with immediate effect.

4.12 It is next necessary to turn to the consequences of that finding.



5. The Consequences
5.1 It follows from the construction which I have placed on clause 4.1.6 that, to the extent that it might successfully be argued on behalf of Salthill and Kanwell that a proper construction on the sequence of transactions relating respectively to the three plots in issue, gave rise to a situation where an interest in the plot concerned became vested in Salthill at any material time, then, immediately on that interest becoming vested in Salthill, a charge was created in favour of First Active in respect of that interest in the plot concerned. There is nothing in the text of clause 4.1.6, or the remainder of the relevant debentures, that could be taken, either expressly or by implication, to suggest that clause 4.1.6 could not have effect after a crystallisation of any floating charge. For the reasons which I have sought to analyse I am satisfied that clause 4.1.6 creates a fixed rather than a floating charge. Whatever may have been the effect on the operation of Salthill by reason of the purported crystallisation of the floating charge which it had given in favour of First Active, same could have no effect, in my view, on the proper application of clause 4.1.6 which is concerned solely with the creation of a fixed charge over future acquired assets.

5.2 In those circumstances it seems to me that the issues raised at the hearing before me concerning crystallisation, the possibility of de-crystallisation, and whether, if de-crystallisation is recognised in Irish law, it could be said to have occurred on the facts of this case, are wholly irrelevant. Clause 4.1.6 created a fixed charge over all after acquired immovable assets which is independent of the floating charge and, therefore, not affected by the status of that floating charge. Likewise the alternative argument put forward on behalf of First Active which seeks to rely on Clauses 4.1.5 or 4.1.14 do not require determination.

5.3 Likewise it seems to me that the complex questions raised as to whether the sequence of conveyancing events in relation to the three plots in question (and it does have to be noted that the sequence of undoubted errors which occurred both as and between the parties and involving the Land Registry in that sequence is quite striking) gives rise to the change of ownership contended on behalf of Salthill and Kanwell are irrelevant. Even if Salthill and Kanwell are correct in their contention such that the relevant interests in those parcels of land became vested in Salthill at the time which Salthill and Kanwell contends, then those interests were, for the reasons which I have sought to analyse, immediately subject to a fixed charge in favour of First Active by virtue of the operation of clause 4.1.6.

5.4 In those circumstances it seems to me to be clear that First Active had, at all material times, a charge over all the relevant property and all interests in that property which Salthill owned. It follows that those aspects of the main proceedings which were held over must be dismissed for it is clear that there is no fragility in First Active’s security.

5.5 It also follows that no well charging order should be made in the Kanwell proceedings for to make such an order would be redundant. Kanwell only has a judgment against Salthill. Whatever may be the scope of the judgment mortgages registered against Salthill’s interest in various properties on behalf of Kanwell, the interest of Kanwell can go no further than the interest of Salthill. Any property which Saltlhill owned was, for the reasons which I have analysed, immediately charged in favour of First Active. It follows that the interest of Kanwell under its judgment mortgages must rank behind the interest of First Active for, by definition, at the time when Kanwell caused the respective judgment mortgage affidavits to be registered there was already in existence a fixed charge over all relevant assets in favour of First Active. Any interest which Salthill owned as of the date of registration of a relevant judgment mortgage was already subject to a fixed charge in favour of First Active. Any interest not then owed by Salthill could not have been caught by relevant judgment mortgage.

5.6 I should note in passing that, while the first of the judgment mortgage affidavits filed by Kanwell was the only judgment mortgage in being at the time when the Kanwell well charging proceedings were commenced, Kanwell sought, and, without opposition, obtained an amendment for the purposes of extending the proceedings to cover a claim based on a second judgment mortgage affidavit. First Active sensibly took the point of view that it was prudent to have all issues concerning the validity of any charge which Kanwell might have, determined in these proceedings. Irrespective of which judgment mortgage one is speaking of, however, it is clear that, at the time that judgment mortgage was registered, all of the then property of Salthill was caught, if not by any other provision, then by the provisions of clause 4.1.6. It follows that while Kanwell has a valid judgment mortgage over all of the property of Salthill, that judgment mortgage ranks, in all cases, behind the interests of First Active under the various Debentures. It follows that there would be no point in making a well charging order in favour of Kanwell.



6. Conclusions
6.1 In all those circumstances it seems to me that I should dismiss those aspects of the main proceedings which were expressly deferred in the main judgment.

6.2 I should also dismiss the Kanwell well charging proceedings.