The Supreme Court has dismissed Porterridge Trading Limited’s appeal against a High Court finding that three commercial leases at a Salthill development breached mortgage covenants held by First Active Plc.
The judgment, delivered by McCracken J. on 29 May 2006, concerned a receiver’s application for directions under section 316 of the Companies Act 1963. The receiver asked whether leases granted by Salthill Properties Limited to Porterridge in December 1999 contravened negative pledge clauses in mortgage debentures. The High Court had found that they did.
The company had agreed not to lease or otherwise dispose of charged assets without the bank’s prior consent. The three 25-year leases covered units included in the mortgaged property. No bank consent was obtained. The judgment records that the leases were created to obtain tax relief and needed to be granted at arm’s length to an unconnected third party before the end of 1999.
The appeal focused on whether Porterridge had actual notice of the covenants. Porterridge accepted that it had to show it lacked actual knowledge, and relied chiefly on an affidavit from Ms Hynes asserting that the company and its directors were independent. The court noted that there was no comparable affidavit from co-director Mr Quinn or from Mr Cunningham, and that the receiver’s evidence about the relationship between the company, Porterridge and Mr Cunningham was uncontested.
The High Court had relied on evidence that Mr Cunningham, a director of Salthill Properties, witnessed the mortgage debentures, and that the shareholders of Porterridge declared they held its entire share capital in trust for him. The Supreme Court said the trial judge could consider Mr Cunningham’s knowledge when assessing Porterridge’s evidence. It held that Porterridge had not discharged its burden of proving lack of actual knowledge and upheld the finding that it had actual notice.
The court also ruled that the receiver’s directions application was a proper procedure for determining the priority of charges and Porterridge’s rights as lessee. It found no clear and direct conflict in the affidavit evidence requiring a hearing on oral evidence. The court dismissed the appeal. The judgment does not set out any further order.