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High Court of Ireland Decisions
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Cite as:  IEHC 375
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Judgment Title: O'Donnell & ors -v- Governor and Company of the Bank of Ireland & ors
Neutral Citation:  IEHC 375
High Court Record Number: 2012 7554 P & 2012 169 COM
Date of Delivery: 31/07/2013
Court: High Court
Composition of Court:
Judgment by: McGovern J.
Status of Judgment: Approved
Neutral Citation  IEHC 375
THE HIGH COURT
[2012 7554 P]
[2012 169 COM]
ALEXANDRA O’DONNELL, BLAISE O’DONNELL, BLAKE O’DONNELL AND BRUCE O’DONNELL
THE GOVERNOR AND COMPANY OF THE BANK OF IRELAND, BANK OF IRELAND PRIVATE BANKING LIMITED AND TOM KAVANAGH
JUDGMENT of Mr. Justice Brian J. McGovern delivered on the 31st day of July, 2013
1. These proceedings arise in relation to various securities executed in favour of the first named defendant over a property at Gorse Hill, Vico Road, Killiney, County Dublin (“Gorse Hill”) by Vico Limited. These securities related to the liabilities of Brian O’Donnell and Mary Patricia O’Donnell, as well as various corporate entities controlled by them.
2. The plaintiffs are the children of Brian and Mary Patricia O’Donnell. They assert beneficial ownership over Gorse Hill, claiming that the various securities were executed in breach of trust and ultra vires the powers of Vico Limited, and seeking declarations that these instruments are void and of no legal effect. On foot of such declaration, or in the alternative, the plaintiffs seek recission of these instruments.
3. The plaintiffs also seek a declaration that statutory declarations executed by them on 15th March, 2011, which purported to affirm the securities in question, are void and of no legal effect on the basis that these were procured on the basis of undue influence, in breach of trust and breach of duty. Again, the plaintiffs seek recission of these instruments.
4. Further, the plaintiffs seek a declaration that they are entitled to the beneficial ownership of Gorse Hill, together with a declaration that the appointment of the third named defendant by the first named defendant as receiver of Vico Limited is void and of no legal effect, as well as injunctive reliefs restraining the first named defendant and the second named defendant from taking any step on foot of the securities held by them.
5. Finally, the plaintiffs seek damages, including aggravated, exemplary or punitive damages, for breach of trust, negligence and breach of duty.
6. The claim arises in the following circumstances. By way of Deed of Settlement dated 16th September, 1997, known as the “Avoca Settlement”, a discretionary trust was established in favour of the plaintiffs by Brian and Mary Patricia O’Donnell. All of the plaintiffs were minors at this time. Aundyr Trust Company Limited, a Manx trust management company, was appointed as the initial trustee. This company changed its name in or around 2002 to IFG International Trust Co. Limited and will hereinafter be referred to as “IFG”.
7. The precise manner in which the trust was structured is in dispute, and will be addressed in due course. It is not disputed, however, that a holding company, Tabasco Limited was incorporated, with IFG being the sole shareholder. This company in turn set up number subsidiary companies to hold the trust assets. In particular, Vico Limited was incorporated in the Isle of Man on 11th December, 1997.
8. Gorse Hill had been acquired by way of a contract for sale dated 27th May, 1997, with the purchaser being a solicitor employed by William Fry, in trust for Vico Limited. A second contract for sale was executed in relation a further parcel on 20th April, 2000, with Brian O’Donnell being the purchaser, again in trust for Vico Limited.
9. A deed of Mortgage and Charge in favour of the first named defendant was registered against Vico Limited in the Isle of Man on 20th February, 1998. A Power of Attorney had been executed by Vico Limited in favour of the Lower Mount Limited on 1st January. 1998, so as to facilitate this transaction.
10. The plaintiffs have been resident at Gorse Lodge since 2000. Brian and Mary Patricia O’Donnell also resided at the property up until 2011, when it is claimed that they moved to the United Kingdom.
11. On 20th October, 2000, Brian and Mary Patricia O’Donnell wrote in what was described as a “letter of wishes”, addressed to IFG:-
We confirm that we shall use the residence, Gorse Hill, Vico Road, as a residence of ourselves and the beneficiaries for so long as the trustees on behalf of the beneficiary shall permit. It is acknowledged by the trustees and the beneficiaries that any notice given to us to vacate the residence shall be in writing and shall, in the absence of our consent, be at least two calendar years prior to the vacation date to allow sufficient time for alternative arrangements to be made.”
13. By way of two Deeds of Transfer dated 8th May, 2006, the previous arrangement (described at paragraphs 8 and 9 supra) was terminated and the property at Gorse Hill was transferred outright to Vico Limited. The company’s title was registered at the Registry of Deeds on 19th May, 2006, and its ownership of Folio DN 211 was registered at the Land Registry on 18th June, 2006. Gorse Hill was the only asset of the Vico Limited.
14. Around this time, Brian and Mary Patricia O’Donnell entered into arrangements with the first and second named defendants whereby Vico Limited would offer security by way of mortgages and guarantees for their personal borrowings, as well as borrowings through the vehicle of a company wholly owned by them, Hibernia (2005) Limited. Subsequently, further arrangements were entered into, involving other corporate vehicles controlled by Brian and Mary Patricia O’Donnell. The security instruments (“Securities”) in question are as follows:-
(i) Deed of Mortgage dated 1st June, 2006, between Vico Limited and the first named defendant;
(ii) Guarantee and Indemnity dated 1st June, 2006, executed by Vico Limited in respect of personal liabilities of Brian and Mary Patricia O’Donnell;
(iii) Guarantee and Indemnity dated 1st June, 2006, executed by Vico Limited in respect of the liabilities of Hibernia (2005) Limited;
(iv) Guarantee and Indemnity dated 19th October, 2006, executed by Vico Limited in respect of the obligations of Brian and Mary Patricia O’Donnell;
(v) Deed of Confirmation dated 15th June, 2007, in respect of the Guarantee and Indemnity dated 19th October, 2006;
(vi) Guarantee and Indemnity dated 24th March, 2011, executed by Vico Limited in respect of the liabilities of Brian and Mary Patricia O’Donnell, Vico Swiss Holdings AG and Grey Stoke Société Anonyme.
15. On 31st May, 2006, the plaintiffs signed a document addressed to IFG as trustees of the Avoca Settlement. The second and third named plaintiffs were minors at the time. This document provided:-
17. On 18th October, 2006, IFG ceased to act as trustee, and Chancery Company Managers Limited was appointed to that role. In 2008, Chancery Trustees Limited was appointed as trustees in succession to Chancery Company Managers Limited, arising out of a restructuring required by Manx law. For convenience, both entities will hereinafter be referred to as “Chancery”.
18. As matters transpired, by 2010, the course of dealings between Brian and Mary Patricia O’Donnell and the first and second named defendants had reached a point where the borrowers were unable to discharge their borrowing commitments. A number of sets of proceedings were commenced by the first and second named defendants, including summary proceedings in the name of the first named defendant, bearing the record number 2010/6100S. This matter was listed for hearing on 3rd March, 2011. On 4th March, 2011, settlement was reached, whereby Brian and Mary Patricia O’Donnell agreed to take the following steps, in lieu of which judgment was to be entered against them:-
(ii) To deliver to the Bank, on or before 16th March, 2011, full unencumbered security from each and every person or company having a legal and / or beneficial interest in the Gorse Hill property, such security to:
a. Secure all of the debts the subject of these proceedings;
b. Be executed within two days of receipt from the Bank of the form of documents required by it, without comment or negotiation on the part of the Debtors or any other person; ...
1.2 I confirm that Vico Limited holds the entire legal and beneficial title to the property and that I have no interest in or right or title to the property except to the extent I am the beneficial owner of the shares in Vico Limited.
20. While the factual background set out heretofore is by and large common case between the parties, there is a dispute as to the legal ramifications of the arrangements as described. The legal issues falling for consideration in this case appear to me to be as follows:-
(b) What interest, if any, may be asserted by the plaintiffs in Gorse Hill, given the structure of the Avoca Settlement and associated trust arrangements?
(c) Were the first and second named defendants aware of any beneficial interest in Gorse Hill operating in favour of the plaintiffs?
(d) Were the Securities properly executed and are they binding? Do the circumstances warrant a declaration that they are void or an order for their recision?
(e) In light of the conclusions that may be reached to the foregoing questions, what is the effect of the Statutory Declarations executed by the plaintiffs? Were their signatures procured by way of undue influence or duress, such that their declarations may be declared void or rescinded?
21. As set out supra, Vico Limited’s title to Gorse Hill was registered at the Registry of Deeds on 19th May, 2006, and its ownership of Folio DN 211 was registered at the Land Registry on 18th June, 2006. Section 31 (1) of the Registration of Title Act, 1964, provides that:-
23. The charge referred to in the previous paragraph had been created by deposit of title deeds, and was registered against Vico Limited pursuant to Manx law, with a Certificate of Registration dated 20th February, 1998, being produced to the court which states that:-
26. Objections and Requisitions on Title had been raised in contemplation of the latter arrangement by the first named defendant, including the following:-
27. Gethin Taylor of Chancery, a trustee of the Avoca Settlement and a director of Vico Limited, swore an Affidavit of Discovery in these proceedings on 20th May, 2013, wherein he avers that:-
29. The plaintiffs advanced the alternative plea that Vico Limited was a special purpose vehicle, holding legal title to Gorse Hill as nominee, with the trust retaining beneficial ownership. There is no basis upon which to hold that the company was specifically incorporated by the trustees as a nominee, given that its incorporation was registered before the Avoca Settlement had been executed and that legal ownership did not pass to the purported nominee until 2006. Furthermore, it is apparent from the Deed of Mortgage and Charge executed by Vico Limited in 1998 in favour of the first named defendant that the company was the beneficial owner at that time, rather than the trust.
30. This position is further confirmed in the plaintiffs’ replies to the first and second named defendants’ Notice for Particulars, which were delivered on 13th December, 2012. In response to the request for particulars contained at paragraph 3.1; namely:-
The Plaintiffs’ Position
33. Neither Brian nor Mary Patricia O’Donnell were called to give evidence at this trial. Mr. O’Donnell in particular would be uniquely placed to confirm the position with regard to the Avoca Settlement.
34. However, the position as outlined supra is again clearly stated in correspondence entered into in the context of settlement negotiations relating to summary proceedings issued by the first named defendant. On 9th March, 2011, Whitney Moore & Kelleher, the solicitors representing Brian and Mary Patricia O’Donnell, wrote to Arthur Cox, the solicitors representing the first named defendant, to confirm that:-
38. The Court took the view that the cardinal rule of separate corporate personality set in Salomon v A Salomon & Co Ltd  AC 22 should not be departed from unless there is evidence of impropriety or of a party seeking to obtain an unlawful advantage through the use of corporate vehicles. Where it can be established that the corporate structure is a “sham”, intended to conceal the reality of the situation, the courts may intervene. Lord Sumption stated at page 20:-
In the present case, Moylan J held that he could not pierce the corporate veil under the general law without some relevant impropriety, and declined to find that there was any. In my view he was right about this. The husband has acted improperly in many ways. In the first place, he has misapplied the assets of his companies for his own benefit, but in doing that he was neither concealing nor evading any legal obligation owed to his wife. Nor, more generally, was he concealing or evading the law relating to the distribution of assets of a marriage on its dissolution. It cannot follow that the court should disregard the legal personality of the companies with the same insouciance as he did. Secondly, the husband has made use of the opacity of the Petrodel Group's corporate structure to deny being its owner. But that, as the judge pointed out, at para 219, "is simply [the] husband giving false evidence." It may engage what I have called the concealment principle, but that simply means that the court must ascertain the truth that he has concealed, as it has done. The problem in the present case is that the legal interest in the properties is vested in the companies and not in the husband. They were vested in the companies long before the marriage broke up. Whatever the husband's reasons for organising things in that way, there is no evidence that he was seeking to avoid any obligation which is relevant in these proceedings. The judge found that his purpose was "wealth protection and the avoidance of tax" … It follows that the piercing of the corporate veil cannot be justified in this case by reference to any general principle of law.”
41. The plaintiffs did not seek to maintain that the corporate structure of Vico Limited was a “sham”, nor that there had been any wrongdoing by Brian and Mary Patricia O’Donnell in establishing the trust structure or in their dealings with the first and second named defendants. Therefore, there appears to be no basis upon which to depart from the ordinary rules of separate corporate personality in this case.
Constructive Trust / Knowing Receipt
44. The plaintiffs plead that the court should infer constructive knowledge on the part of the first and second named defendants that Vico Limited, its directors and/or the trustees of the Avoca Settlement had acted in breach of trust or breach of fiduciary duty entering into the Security arrangements. In general, a third party dealing with a company is entitled to assume that the company’s internal affairs are in order. In Rolled Steel Browne-Wilkinson LJ stated the position thus at page 304:-
5. The company has the power to issue guarantees and indemnities for payment of liabilities of others and to charge the undertaking and property of the Company as security for its liability as guarantor, subject to the proviso contained at paragraph 4 above.
6. The company will have duly executed a document where such document has been expressed to be executed by the Company and has been signed as a deed by a director and the secretary of the Company or a second director.
We can confirm the following:-
(1) The company is of good standing as of the date hereof.
(2) We have examined:
(i) a Guarantee in favour of The Governor and Company of the Bank of Ireland and can confirm that the company has the power to execute the said document and perform its obligations thereunder;
(ii) Facility letter dated 17th August 2006 from the Governor and Company of the bank of Ireland to Brian and Mary Patricia O’Donnell; and
(iii) Deeds or Mortgage and Charge dated 1st June 2006 over properties at Gorse Hill, Vico Road, Killiney, County Dublin and Folio 211 County Dublin. (together, the “said documents”)
(3) We have examined copies of the resolutions passed by the Company which:-
(a) authorise the execution delivery and performance of the said documents
(4) We can confirm as follows:-
(a) the said documents have been duly executed by the persons authorised by the said Resolutions.
(b) the said documents constitute valid and binding obligations of the company
(c) that any proceedings commenced in pursuance of the said documents would be proper proceedings in the Courts of the Isle of Man which would proceed notwithstanding that the choice of Irish Law has been made as the governing law of the said documents.”
47. The plaintiffs similarly seek to establish an equitable interest through the doctrine of knowing receipt citing inter alia the judgment in Ulster Factors v. Entonglen Ltd  IEHC 34 wherein Laffoy J approved the approach taken by the Court of Appeal of England and Wales in Belmont Finance Corporation v. Williams Furniture Limited (No. 2)  1 All ER 393 and stated at page 3:-
49. Furthermore, the evidence also shows that the first and second named defendants had no knowledge, or reason to believe that there had been a breach of trust or breach of fiduciary duty on the part of the trustees of the Avoca Settlement or of the directors of Vico Limited. Insofar as the plaintiffs claim that the surrounding circumstances should have put the bank “on inquiry” of the possibility of a breach of trust, the evidence before me shows that appropriate inquiries were in fact made, disclosing no difficulties.
50. The plaintiffs claim that a “manifest breach of trust” was evident in the fact that Vico Limited entered into an arrangement to guarantee the borrowings of Brian and Mary Patricia O’Donnell, who were “excluded persons” in the Avoca Settlement, explicitly prohibited from benefitting from the trust. I am satisfied, having heard the evidence of key bank personnel involved in the obtaining the Securities from Brian and Mary Patricia O’Donnell, that the officers of the first and second named defendants had no knowledge, actual or constructive, of the specificity of the settlement, and in particular were unaware of the contents of this provision. This point will be addressed in more detail at paragraphs 62-67 infra,
Capacity of Vico Limited to Enter into the Securities
(2) Without prejudice to the generality of subsection (1), a company may —
(a) issue and allot fully or partly paid shares in the company;
(b) issue debentures of the company;
(c) distribute any of the property of the company among the members, in kind or otherwise;
(d) give security by charging uncalled capital;
(e) grant a floating charge on the undertaking or property of the company;
(f) procure the company to be registered or recognised as a body corporate in any place outside the Island;
(g) make provision in connection with the cessation of the whole or part of the business of the company, or of any subsidiary of the company, for the benefit of employees or former employees of the company or of a subsidiary of the company or for the dependants of such employees or former employees; and
(h) do any other act that it is authorised to do by any statutory provision or rule of law.
2.2 It was reported to the Meeting that the assets of the company comprise of a property and adjacent land in Killiney Co. Dublin Ireland (The “Assets”) currently with a market value of €30,000,000. The Guarantee provided to the Bank would require First Legal Charges over the Property and the adjacent Land. Furthermore, a Guarantee and Indemnity in relation to Mr and Mrs Brian and Mary Patricia O’Donnell and Hibernia (2005) Limited borrowings would also be required.
2.3 The chairman reported to the meeting that discussions had taken place in relation to level of guarantee to be provided, as the company's indebtedness to Mr. and Mrs. Brian and Mary Patricia O'Donnell currently was recorded at just over £1 million. The chairman further advised that Mr. O'Donnell had confirmed to Mr. Harris at a meeting in Dublin in January 2005 that Mr. and Mrs. O'Donnell had invested a further amount of money in improving and refurbishing the property since its acquisition, approximately £10,000,000.
2.4 Mr. Harris has requested details of the refurbishment to facilitate the correct accounting. An undertaking of Mr. O'Donnell was requested to provide the directors with all the necessary in relation to the company accounts.
2.5 The Chairman advised the meeting that IFG International Trust Company Limited as Trustee of the Avoca Settlement, the ultimate beneficial owner of the Company had consented to the transaction.”
56. On 21st August, 2006, Brian and Mary Patricia O’Donnell wrote to IFG in the following terms:-
58. Furthermore, as addressed at paragraphs 44 to 50 supra, there is no evidence that the first and second named defendants were on notice of any abuse or misuse by the directors of their powers. The bank is entitled to rely upon the assumption that the directors exercising their powers properly and for the purposes of the company.
59. Notwithstanding the foregoing, it seems to me that, having found that the plaintiffs hold no proprietary interest in Gorse Hill, the ordinary application of the rule in Foss v Harbottle (1843) 67 ER 189 would entail that where a wrong has purportedly been done to the company, the company should be the party to seek relief. The plaintiffs have not pleaded that their case falls into one of the exceptions to this rule. The purported loss to the plaintiffs is a reflective loss by way of diminution of the value of their shareholding which should properly be addressed by means of a suit by the company against the directors (see Stein v. Blake  1 All ER 724). No basis has been shown upon which this court might set aside the securities based on a lack of capacity of the company or lack of good faith by the directors.
Actions by the Trustees
...and indirectly via their wholly owned company Hibernia. It was reported to the meeting the Bank had agreed to lend Brian and Mary Patricia O'Donnell €11.3 and €5.6 million. As security provision for the loan the Bank required from Vico a legal charge of the company's assets, property and lands at Vico Road, Killiney.
The chairman reported to the meeting that Brian and Mary Patricia O'Donnell were specifically excluded from the benefit of the Trust. It was further reported that Vico Limited was indebted to Mr. and Mrs. O'Donnell for IR£1,055,000. It was further reported to the meeting that Mr. O'Donnell had confirmed to Mr. Harris at a meeting held in Dublin in January 2005 that he and his wife had invested approximately £10 million in furthering, improving and renovating the property and lands at Vico. It was reported to the meeting that to correctly reflect the indebtedness a schedule of work of construction and refurbishment was required to reflect correctly in the books of Vico the correct indebtedness to Mr. and Mrs. O'Donnell.
The chairman advised the meeting that the offices of Vico had received a letter from Mr. O'Donnell confirming that all information would be provided to the company to facilitate the correct indebtedness figures. Furthermore, as Mr. and Mrs. O'Donnell were specifically excluded from benefit from the Trust the trustees had been provided from the beneficiaries an agreement to consent to the provision of the security and guarantee in relation to Mr. and Mrs. O'Donnell's borrowings, a copy of which is attached and forms part of these minutes.
It was also reported to the meeting that the beneficiary of the settlement are the children of Mr. and Mrs. O'Donnell and it was also possible the borrowings would facilitate Mr. and Mrs. O'Donnell to ultimately increase the family estate which would ultimately benefit the children, the beneficiaries of the Trust.
After due consideration and discussion it was resolved that approval be given to the directors of Vico Limited to enter into the proposed security arrangements relating to the borrowings by Mr. and Mrs. O'Donnell and Hibernia (2005)."
(b) The Trust Fund and the income thereof shall henceforth be possessed and enjoyed to the entire exclusion of any such excluded person and of any benefit to him by contract or otherwise.
(c) No part of the capital or income of the Trust Fund shall be paid or lent or applied for the benefit either directly or indirectly of any such excluded person in any manner or in any circumstances whatsoever.
(d) No power or discretion hereby or by any appointment made hereunder or by law conferred upon the Trustees or any of them shall be capable of being exercised in such manner that any such Excluded Person will or may become entitled either directly or indirectly to any benefit in any manner or in any circumstances whatsoever.
66. With regard to the question of whether the transaction conferred a benefit upon Brian and Mary Patricia O’Donnell as “Excluded Persons”, as I have previously adverted to, I am satisfied that the first and second named defendants had no knowledge, actual or constructive, of the provisions of Clause 19 in their dealings relating to Gorse Hill, that they had approached the Security transactions with appropriate caution and diligence, and had no reason to suspect a breach of trust. Therefore, there is no remedy available to the plaintiffs with regard to the Securities on this basis.
67. I did not receive evidence from the trustees, except in the form of an Affidavit of Discovery, nor did Brian or Mary Patricia O’Donnell submit witness statements or give evidence to the court. Therefore, I form no view on this matter save to remark that any remedy that may be available to the plaintiffs on the basis of the trustees having purportedly conferring a benefit on excluded persons should be sought directly as against those same trustees. It is noteworthy that the plaintiffs did, at the eleventh hour, attempt to join Vico Limited and Chancery to these proceedings, but that application was refused.
The Statutory Declarations
69. The plaintiffs contend that their signatures were procured by the undue influence of their parents and that the court should declare that the Statutory Declarations are void and without legal effect, or rescind same.
70. The relevant section of Statutory Declaration sets out the following:-
73. In 2006, perhaps in contemplation of the Security arrangements, full legal and beneficial title was transferred to Vico Limited, and was duly registered. All available formal documentation supports this view. The expectation at that time was, as expressed by the trustees in their minutes, that “the borrowings would facilitate Mr. and Mrs. O'Donnell to ultimately increase the family estate which would ultimately benefit the children, the beneficiaries of the Trust”.
74. The plaintiffs were entitled, under the Avoca Settlement, to a beneficial interest in the shares of Vico Limited. For a time, owing to the structure of the trust, the beneficial interest had been held in the shares of Tabasco Limited, which in turn held the shares in Vico Limited. Be that as it may, it is clear that the trust held shares rather than any interest in Gorse Hill.
75. Having determined that Gorse Hill was not held by the trust, it follows there had been no dealing in trust property. Accordingly, there is no proprietary claim open to the beneficiaries of the trust, and the bulk of the plaintiffs’ case, which was premised on establishing an appropriation of trust property, must fall away. Mr. Timothy Mann, an expert in Manx law called on behalf of the plaintiffs accepted this proposition in his evidence.
76. Having regard to the balance of the arguments advanced by the plaintiffs, concerning the behaviour of the directors of Vico Limited and the trustees of the Avoca Settlement, I find no basis, on the evidence, to hold that the first and second named defendants had knowledge, actual or constructive, of any breach of duty or breach of trust by the directors or the trustees. As such, there is no basis upon which to grant relief going to the validity of the Securities on these grounds.
77. If any cause of action arises from these circumstances as against the directors, the rule in Foss v. Harbottle applies and the company should be the appropriate plaintiff in seeking to make good any reflective loss in the value of the shareholding in Vico Limited, held to the benefit of the plaintiffs. Any action in relation to the conduct of the trustees should be brought against the trustees. In making this observation, I offer no view as to whether a cause of action exists against them.
78. For the foregoing reasons, the plaintiffs are not entitled to the reliefs sought, or any relief. I will hear the parties as to costs.