Gorse Hill, Vico Road, Killiney, Co Dublin

The struggle between the O’Donnell family and Bank of Ireland for control of Gorse Hill continues this afternoon.

But what about the legal case concerning the O’Donnell children, discretionary trusts and right of residence?

We asked Legal Coffee Drinker, what’s it all about.

Broadsheet: Legal Coffee Drinker, what’s it all about.”

Legal Coffee Drinker: “It’s about whether or not Bank of Ireland has authority to retake possession of Gorse Hill. Gorse Hill is a property registered in the name of Vico Limited (“Vico”) which executed a mortgage over the property in favour of Bank of Ireland in 1998. This mortgage contained the standard clauses providing that in the event of Vico being unable to meet its financial obligations there under, the Bank would be entitled to appoint a receiver to take possession of the property and sell it.
In subsequent High Court and Supreme Court proceedings the O’Donnell children, Blaise, Blake, Bruce and Alexandra, challenged the validity of the mortgage. They claimed that the mortgagor Vico had not owned Gorse Hill in its own right, but had held it under a discretionary for them and that the Bank was aware of this. Accordingly Vico was not entitled to mortgage the property without the children’s consent, nor could the Bank rely on the mortgage against them in circumstances where it had known of their rights when entering into the mortgage.”

Broadsheet: “What’s a discretionary trust?”

LCD: [pause} “A trust is where one person (a trustee) is the nominal owner of property for the benefit of someone else (a beneficiary). A discretionary trust arises where there are a number of beneficiaries, and the trustee has the discretion to divide the trust property between them as it sees fit, without any beneficiary being entitled to any or any specific share. No matter what type of trust is involved, the role of the trustee is to look after and manage the property for the benefit of the beneficiary. Their duty is to act in the interests of the beneficiary at all times.”

Broadsheet: “Can a trustee mortgage trust property?”

LCD: “A trustee may be able to mortgage trust property if the terms of the trust permit but only if this is in the best interests of the beneficiaries. Failure to comply with this requirement may be a breach of trust and may have consequences for the mortgagee if they are aware of it and become implicated in the breach.”

Broadsheet: “So if Gorse Hill was held on trust for the O’Donnell children this would have been a defence?”

LCD: “Possibly, depending on whether or not the mortgage was a breach of trust and the extent of the Bank’s knowledge of this fact. However both the High Court and the Supreme Court took the view, after hearing evidence and going through relevant documents, that Gorse Hill was in fact held by Vico Limited in its own right and did not form part of the trust for the O’Donnell children (the Avoca Trust). The children, through the Avoca trust, had an interest in the shares of Vico Limited, but because of the principle that shareholders in a company do not own that company’s property, they weren’t owners of Gorse Hill. Instead; the directors of Vico were free to deal with it as they liked. “

Broadsheet: “And what about the right of residence?”

LCD: [refills coffee] “The right of residence wasn’t discussed in the above decisions. From newspaper reports it seems to have been raised for the first time by Blake O’Donnell in court this week. He said that he and his brothers and sisters had granted a right of residence in Gorse Hill to their parents, by which the Bank was bound. The difficulty is that this doesn’t really makes sense given the earlier decisions. You can only give a right of residence in property you own. If, like the O’Donnell children, you don’t own a property, you can’t grant anyone else a right of residence over it.”

Broadsheet: “What is a right of residence anyway when it’s at home?”

LCD: [lengthy pause] “It’s a right to occupy premises for one’s life. What it is exactly depends on its terms. It could be a right to occupy a particular room, or to occupy premises generally. It could be an exclusive right of residence, so that no one else can occupy the room/property with you, or it could be non-exclusive, which allows other occupiers.”

Broadsheet: “Can it be got rid of?

LCD: “Either the owner of the property or the owner of the right of residence may apply to court to ask for the right to be converted into money form, so that the owner of the right vacates in return for a lump sum payment. It’s up to the court to decide if it wants to do this or not.”

Broadsheet: “So if Brian O’Donnell has a right of residence, he cannot be got rid of?”

LCD: “Not if it was validly created. But in order to be validly created a right of residence would have to be created by the owner of the property (Vico, or a previous owner). In addition, if it was created after the mortgage in favour of the Bank was entered into it would only be valid if the Bank consented to it.”

Broadsheet: “Thank you Legal Coffee Drinker. Nothing like a late afternoon legal pep talk.

LCD: “Right”

Broadsheet: “Like a neat espresso.”

LCD: “Sorry?”

Broadsheet: “Illegally strong…”

LCD: *click*

Broadsheet: “…coffee.”