Clauses on Default
Sample Clauses
AIB SME Loan Agreement Events of Default
A term loan though expressed to be repayable over or within a specified period may be terminated by the Bank and the Bank may demand early repayment at any time with or without notice to the Borrower upon the occurrence of any of the following events:
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- On the failure by the Borrower to make any repayment of principal or interest on the date it is
- On the Borrower ceasing or threatening to cease to carry on business or any substantial part
- On the death of the Borrower or of any guarantor for the
- If any guarantor notifies the Bank that they no longer wish to act as guarantor or that the guarantee is to terminate or on a material change relevant to a guarantor occurring which is in the opinion of the Bank prejudicial to the Bank’s
- On the bankruptcy of, or commission of any act of bankruptcy by, the
- In respect of a company Borrower, the presentation of a petition for winding up or for the appointment of an examiner, the convening of a meeting for the purpose of considering a resolution or the passing of a resolution to wind up or the appointment of a
- On distress being levied against the goods of the Borrower or on the same being taken in execution pursuant to any decree, judgement or order of a court of competent
- On judgement being obtained against the Borrower and remaining unpaid for a period of fourteen days from the date of such
- On a material change relevant to the Borrower occurring which is in the opinion of the Bank prejudicial to the Bank’s
- On the failure by the Borrower to provide any securityspecified in the letter of sanction promptly or within the period therein mentioned (if any) or within such extended period as may be agreed between the Bank and the Borrower.
- On the breach, non-observance or non performance by the Borrower, any member of the Group or any guarantor of any term or condition attaching to any facility or any other financial indebtedness whether with the Bank or any other party
- If any money becomes due or becomes capable of being declared due and payable under any guarantee or indemnity given by the Borrower, any member of the Group, or any guarantor to the Bank or any other party
- On discovery by the Bank that any information supplied by the Borrower was false, misleading or inaccurate
- If any security held by the Bank, any of its subsidiaries or any other party for the obligations of the Borrower, any member of the Group or any guarantor to the Bank, any of its subsidiaries or any other party (whether as principal or surety and whether alone or jointly with any other person or party) becomes enforceable.
- If in the opinion of the Bank any change takes place in any applicable law or regulation or in the interpretation thereof which will make it unlawful for the Bank to maintain or give effect to its obligations in respect of the facility
- On any change in the shareholding, management or control of a company Borrower which, in the opinion of the Bank, is prejudicial to the Bank’s interests
- On the occurrence of any of the events of default that apply to term loans under the SBCI Scheme set out in section 4 (iii).
- On the occurrence of any of the events of default that apply to term loans under the SBCI Future Growth Loan Scheme set out in section 5 (iii).
- On the occurrence of any of the events of default that apply to term loans under the BILS Scheme set out in section 6 (iii).
- On the occurrence of any of the events of default that apply to term loans under the EELS Scheme set out in section 7 (v).
- On the occurrence of any of the events of default that apply to loans under the Government Covid-19 Credit Guarantee Scheme set out in section 1
Debenture Clauses
Event of Default” means:
(a) any event, howsoever described, specified in the Facility Letter or in this Debenture or in any other document or arrangement from time to time entered into by the Company and the Lender as an event upon the occurrence of which the Lender becomes entitled to call for early repayment of all or any part of the Secured Obligations or to call for the provision of full or partial cash collateral in respect of any of the Secured Obligations which are at such time contingent; or
(b) any failure by the Company to pay or repay on demand all or any part of the Secured Obligations which are so payable;
14. When Security Becomes Enforceable
14.1 On the occurrence of an Event of Default, the Security shall become immediately enforceable and the Secured Obligations shall be due and payable.
14.2 At any time after the Security has become enforceable the Lender may, in its absolute discretion, without notice to the Company, without the restrictions contained in the Act and at the times, in the manner and on the terms it thinks fit:
(a) enforce all or any part of the Security;
(b) take possession of and hold all or any part of the Secured Assets;
(c) without first appointing a Receiver, exercise:
(i) the power of sale;
(ii) all the powers or rights which may be exercisable by the registered holder of the Investments including those set out at clause 8 (Exercise of Rights in Respect of Shares);
(iii) all or any of the powers and rights conferred on mortgagees by the Act as varied or extended by this Debenture; and
(iv) all the powers, authorities and discretions conferred by this Debenture expressly or by implication on any Receiver or otherwise conferred by statute or common law on mortgagees or receivers; and/or
(d) apply or appropriate any sums which may be received by the Lender in respect of the Secured Assets in repayment of the Secured Obligations.
14.3 Without prejudice to the generality of the foregoing and notwithstanding anything contained in this Debenture:
(a) the exercise by the Lender of the powers and rights conferred on it by virtue of the provisions of Chapter 3 of Part 10 of the Act shall not be subject to any restriction on such exercise contained in section 96(1)(c) of the Act;
(b) the restrictions on taking possession of mortgaged property contained in section 97 of the Act shall not apply to this Debenture; and
(c) section 99(1) of the Act shall not apply to this Debenture and any obligations imposed on mortgagees in possession or receivers by virtue of the application of section 99(1) shall not apply to the Lender, any Receiver
Cases
Allied Irish Banks plc v McKeown & Anor
[2019] IECA 296 (28 November 2019)
Page 1 ⇓THE COURT OF APPEALNeutral Citation Number [2019] IECA 296Record Number: 2017/239Edwards J.McGovern J.Donnelly J.BETWEEN/ALLIED IRISH BANKS PLCPLAINTIFF/RESPONDENT- AND –PADDY MCKEOWN and ADELAIDE McCARTHYDEFENDANTS/APPELLANTSJUDGMENT delivered by Ms. Justice Donnelly on the 28th day of November 2019Introduction1. On the 12th May, 2017, Costello J gave liberty to the plaintiff bank (hereinafter “therespondent”) to enter judgment against the first defendant in the sum of €1,469,251.43and against the second defendant in the sum of €1,467,102.96. The sum against the firstdefendant represented an award against him personally in the sum of €1,429,166.22 andan award on a joint and several basis with the second defendant, in the sum of€40,548.60 (those sums less surcharge interest of €463.39). The sum against the seconddefendant was sought in the sum of €1,387,003.82 and €40,000 (those sums lesssurcharge interest of €449.46).2. The first and second defendants have appealed against the judgment and order of theHigh Court. They will be referred to as the appellants in this judgment. As it has somerelevance to the issues in this appeal, it must be noted that the appellants were legallyrepresented in the High Court and the Notice of expedited appeal was filed by theirsolicitor and settled by counsel. They represented themselves at the hearing of theappeal.The Issues before the High Court3. The appellants carried on the business of professional landlords. They are husband andwife. They own a portfolio of commercial properties in Cork city. By letter of loan offerdated the 20th May, 2013, the respondent offered to refinance three facilities of the firstappellant. Repayment was:“On demand at the pleasure of the Bank subject to repayment/refinance on31/12/2013. In the interim interest is to be funded by way of a monthly standingorder in [respect of a specified amount]”.4. A further letter of loan offer of the same date was made to both appellants and acceptedby them. This related to a loan account and an overdraft facility. This was said to berepayable “[o]n demand at the pleasure of the Bank subject to repayment/refinance by31.12.2013”.Page 2 ⇓5. Security for the facilities included two letters of guarantee from the second appellant for€1,650,000 and interest and €40,000 and interest in each case. The first guarantee washeld as supporting security facilities 1 and 2 and the second was held as supportingsecurity for facility 3. The first appellant expressly waived his entitlement to takeindependent legal advice prior to signing the letter which he signed and accepted on the24th May, 2013. The funds were drawn down by way of refinancing i.e. they hadpreviously been drawn down in respect of the existing facilities. It is and was commoncase before the High Court that the facilities were not repaid or refinanced and each ofthe loan accounts remained outstanding.6. At the High Court, the appellants sought liberty to defend the proceedings and arguedthat they had established an arguable ground of defence in respect of: -(a) The proper construction of the letters of May 2013;(b) The alleged improper motives of the respondent in its dealings with theappellants and in particular in seeking summary judgment in theseproceedings; and(c) That the guarantees granted by the second appellant were discharged by amaterial alternation of the underlying loans.7. The High Court judgment records that “the defendants advanced a variety of otherarguments which were not pursued at the hearing of this case and therefore do notfeature in this judgment.” Despite that statement a number of those grounds were arguedat the oral hearing. In respect of all the issues argued before her, the trial judge rejectedthe case made out on behalf of the appellants and gave liberty to enter final judgment asset out above.The Grounds of Appeal8. The notice of expedited appeal lists ten grounds of appeal. Grounds 1 to 3 relate to theinterpretation of the loan offer of May 2013. Ground 4 appears to contain an error inexcluding the word “not”. It seems the ground meant to refer to the trial judge erring inlaw and in fact in not holding that the respondent demanded repayment of the loan in badfaith and pursuant to ulterior motives. Ground 5 repeats a claim that the guarantees wereinvalid and unenforceable against the second appellant. Ground 6 is a general plea thatthe trial judge erred in holding that the appellants did not have a valid defence. Ground 7is a general plea relating to a valid counterclaim. Ground 8 relates to a stay of execution.Ground 9 refers to a failure to have regard to the supplemental affidavits of theappellants. Ground 10 claims that there was a failure of natural justice by not giving theappellants a right to be heard and a fair hearing.9. The written legal submissions of the appellants, which were filed by them in person, referto 21 issues to be decided at the appeal. Many of these issues were not contained in thenotice of expedited appeal and/or were expressly abandoned at the hearing in the HighCourt.Page 3 ⇓Issues Not Properly Before the Court of AppealNew issue at the oral hearing10. At the hearing of the appeal, the second appellant, on her own behalf and on behalf of thefirst appellant submitted that the High Court had been deceived by the respondent and bycounsel making statements misrepresenting fact. This was explained as a reference bycounsel to over €7,000,000 owed by the appellants to the respondent. On a query fromthe bench, this came from a reference in the transcript to that figure. It was abundantlyclear from the transcript (including from its context within italics) that the reference to€7,000,000 was contained in a quote that counsel for the respondent had clearly readfrom another case. It was only after this was pointed out that the appellants withdrewthis allegation of deceit.New issues advanced only in written submissions11. In their written submissions, the appellants raised issues concerning proof of debt (undera number of separate sub-headings). As stated above, this was not at issue in the HighCourt proceedings, was not part of the notice of expedited appeal and is therefore notcorrectly before this Court as a ground of appeal. This point will not be considered furtherand is rejected.12. The appellants also claimed that the judge was dismissive of their argument regarding thethree zero balance mortgages unlawfully retained as security by the bank in the May 2013agreements. This was not contained in the notice of expedited appeal nor was thisargument developed any further in the oral or written submissions. There appears to beno real criticism of the trial judge’s summary of the respondent’s release of security. Forall these reasons this point will not be considered further and is rejected.13. The appellants complain that the total amount owed was circa €1.5 million but that theaward was for circa €3 million. Apart from the fact that this was not a ground of appeal, itis clear that this issue is misconceived. The judgment was entered against each appellanton the basis set out above. Any monies realised by the respondent in executing againsteither of the appellants will result in a pro tanto reduction of their respectiveindebtedness.14. The appellants, in their written submissions, raised for the first time an issue with theCentral Bank’s Tracker Mortgage Examination. This is not a matter which is relevant toany issue properly before this Court by way of appeal. This point will not be consideredfurther and is rejected.15. The appellants claim discovery in their written submissions. Discovery was only raisedafter judgment was given. It was not (for good reason) before the High Court and is not amatter properly before this Court. This point will not be considered further and isrejected.16. The appellants claim that at the time proceedings issued, one of the security documentswas in the name of AIB Mortgage Bank. It is not at all surprising this issue was notPage 4 ⇓argued before the High Court and was not a ground of appeal. In any event, it is notproperly before this Court and the point will not be considered further and is rejected.17. The appellants made a further claim in relation to the costs of the proceedings and claimthe respondent’s behaviour has exacerbated the costs. This is done without context. Inany event this particular issue as regards costs is not properly before the court at thispoint in the proceedings.18. The appellants claim that there was no proof of drawdown in 2013. This is against abackground where this was a restructuring of loans. This argument was not contained inthe grounds of appeal. Apart from noting that such an argument has already beendescribed as “a contrived and empty argument devoid of any merit whatsoever” in Bankof Ireland v Flanagan [2015] IECA 56 this point will not be considered further and isrejected.19. Another new ground advanced in written submissions is, in toto, as follows: “ThreeSustainable Solutions encompassing all loans including the Family Home TrackerMortgage were offered by AIB Financial Solutions Group”. It is impossible to understandthe point being advanced here. As there is no context for same, as it was not a ground inthe notice of expedited appeal and as no further explanation was given at oral hearing,this point will not be considered further and is rejected.Issues advanced in written and oral submissions on appeal only20. The appellants sought to advance on appeal an argument that the respondent had nolocus standi in the proceedings. This related to a claim that the entity named as theplaintiff in the proceedings “Allied Irish Banks PLC” was not an entity that had sent thefacility letters.21. Although this point or a similar point had been mentioned in the affidavits of theappellants before the High Court (although simultaneously contradicted by references tothe plaintiff inter alia, seeking guarantees prior to the agreements of May 2013), it wasnot pursued in written or oral submissions before the High Court. Moreover, this grounddid not form part of the notice of expedited appeal. Furthermore, the appellants soughtleave to admit new grounds of appeal on, inter alia “New evidence of the Identity andLocus Standi of the Plaintiff Allied Irish Banks PLC”. This motion was refused by Order ofMs. Justice Irvine on the 20th October, 2017.22. Under these circumstances this Court is being asked to act as a court of first instance inrespect of this issue. Such a request is occurring where the appellants were legallyrepresented at the hearing before the High Court. No explanation for the failure to pursuethis application in the High Court is before this Court (the written submissions only referto the ground itself but not the reason why it should now be accepted). There is simply nobasis upon which this Court should take the exceptional step of permitting such a groundto be argued for the first time on appeal. This point is therefore rejected.Issues Raised in the Notice of AppealPage 5 ⇓23. The appellants raised an issue of natural justice regarding their right to be heard and afair hearing. In the written submissions, they simply referred to the right to be heard andnatural and constitutional justice and made reference to another Court of Appeal case byits record number. This ground of appeal appears to refer to the request by theappellants’ counsel to reply to counsel for the respondent. At the end of counsel for therespondent’s reply, the appellants’ counsel stated to the High Court “I will have toaddress some of the points [counsel] has made”. This was refused by the trial judge onthe basis that the respondent’s counsel was replying to the submissions made on behalfof the appellants and he had not gone beyond what had been submitted by counsel forthe appellants. This was entirely in accordance with the appropriate procedure for theconduct of cases. There was no unfairness and no breach of natural justice. This groundof appeal is rejected.24. In circumstances where a stay on further execution of the High Court judgment wasplaced by order of the President of the Court of Appeal, save to the extent that I will dealwith the issue of the counterclaim below, it is unnecessary to consider the question of astay pending appeal.25. The other matters contained in the notice of expedited appeal are encompassed withinthe grounds of appeal set out below.The Legal Principles26. No issue was taken by the appellants with the general legal principles concerningapplications for summary judgment upon which the trial judge relied. These are found ininter alia, in Aer Rianta CPT v. Ryanair Limited [2001] 4 IR 607, Harrisrange Limited v.Duncan [2003] 4 IR 1 and IBRC v. McCaughey [2014] I.R 749. It is unnecessary torepeat those well-known principles, save to say summary judgment is only to grantedwhere it is “very clear” to the court that the defendant has no case and that there areeither no issues to be tried or only issues which are simple and easily determined. It isinsufficient for the defence to merely assert on affidavit an arguable defence. The courtmust look at the entirety of the circumstance in deciding whether there is a fair orreasonable probability of a real or bona fide defence and that any assertions made arecredible in the light of established facts.27. It is in the application of the above principles that the appellants submit that the trialjudge erred. They submit that it cannot be said to be very clear that they had no arguabledefence.Issues raised in the High Court and in the Notice of Expedited AppealOn Demand Clauses28. The appellants pursued at the oral hearing, the issue of the whether the “on demandclause” permitted the respondent to make the demand at any time. The two letters ofloan sanction had slightly different terminology in the “on demand clause”. The firststated that it was “On demand at the pleasure of the Bank subject torepayment/refinance on 31/12/2013” and the second stated “On demand at the pleasureof the Bank subject to repayment/refinance by 31/12/2013”.Page 6 ⇓29. At the hearing of the appeal, the appellants highlighted the difference between “on” and“by” in the two letters. They submitted that no one had made a demand on the stateddate or by the stated date. They submitted that these were not simply “on demandclauses”; the letters they submitted demonstrated an intent to do something else with theloans. The facilities had been offered “subject to the terms and conditions set out in thisletter and subject to the Bank’s General Terms and Conditions Governing BusinessLending”.30. At the High Court, it had been argued on behalf of the appellants that the import of theletters, by particular reference to the word “refinance”, was that a reasonable opportunitywould be given to the appellants to refinance. It was claimed the letters required areasonable offer to have been made and none was made. What was a reasonable offerwould be decided at the trial of the action. As the trial judge commented, the implicationof this argument was that the respondent was not at liberty to choose whether or on whatterms to offer to refinance the loans as it had agreed to some unspecified reasonablerefinancing.31. The trial judge rejected the construction advanced by the appellants at the trial. She didso in light of the decisions of the High Court in National Asset Management Ltd. v.McNulty [2013] IEHC 369 and ACC Bank Ltd Plc v Kelly [2011] IEHC 7. The observationsof Clarke J in ACC Bank Ltd Plc v Kelly at para 7.2 are apt when he said: “The ordinarymeaning of a loan being repayable on demand is that a person who gives the loan isentitled to demand repayment. The terminology used in describing the other repaymentterms is again clear. Those terms only applied where there is no demand. It is by nomeans unusual for commercial property lending facility to be payable on demand.”32. In those cases, the facilities were stated to be repayable on demand “without prejudice”. Iagree with the High Court judge that there is no distinction between a clause which is“subject to” certain terms or which is “without prejudice” to certain terms.33. The ordinary meaning of these “on demand” clauses is that the respondent was entitledto demand repayment. This was at their pleasure subject to repayment/refinancing by oron the 31st December, 2013. The ordinary meaning of this is that if there had been arepayment or a refinancing on or before the 31st December, 2013, the demand forrepayment pursuant to either letter of May 2013 could no longer be made. If there hadbeen repayment, obviously no further demand for repayment would be relevant orpermitted. If there had been a refinancing between the parties then that repaymentwould have been subject to that further refinancing agreement.34. In those circumstances, the facilities were payable on demand and the respondent wasentitled to call in the loans as and when it did. This ground of appeal is rejected.Improper Motives35. The appellants sought to defend their case in the High Court on the basis that therespondent acted for improper motives in its dealing with them and in particular inseeking judgment in these proceedings. The High Court judgment records the manyPage 7 ⇓issues that the appellants had with the manner in which they were dealt with by therespondent. These issues were many and varied. Their complaints regarding therespondent’s release of security are listed at para. 15 of the High Court judgment.36. The trial judge stated that a considerable part of the appellants’ complaint related to thetreatment of their tracker mortgage in respect of their family home. That facility did notform part of these proceedings and the trial judge held that the issues that they raised inrelation to that facility do not give rise to a defence to the sums claimed in theseproceedings. In written submissions, the appellants did not advance any specific legal orfactual reason to demonstrate that the trial judge was mistaken in law and in fact in herdetermination that the issues that they have raised in relation to that facility do not giverise to a defence to the sums claimed in these proceedings. In oral submissions, theappellants sought to advance that negotiations with respect to the house had becomepart of the restructuring negotiations. I am satisfied however that as regards the issuewith the family home there is no reason to hold that the trial judge was incorrect in law orin fact in her determination. No arguable defence to these proceedings has been madeout in respect of any issue as regards the family home.37. At the hearing of this appeal, the appellants submitted in an oblique fashion, that therespondent bank had wrongly and improperly behaved with respect to calling in theseloans. They submitted that they were not in default with their loans but that they hadbeen overcharged in respect of the mortgage. Unfortunately, at the hearing of the appeal,the appellants’ main focus as to improper behaviour was on their misconceivedsubmission that counsel for the respondent stated that the appellants owed €7,000,000. Ihave dealt with that submission at paragraph 10 above.38. The appellants submitted at the hearing that the respondent had dealt with them unfairlyin respect of the restructuring of the loans and the calling in of the loans. This submissionappeared in substance to be directed at their claim in respect of the “on demand” clausewhich I have dealt with above.39. In respect of their allegations in the High Court as to improper motives, the trial judgeheld that they had made no more than a mere assertion that the respondent bank oughtnot to have treated them as it did. She also held that they had not established how thealleged improper motives of the respondent, even if proven, would amount to a defenceto the claim for summary judgment by the respondent in respect of the on demandfacility that expired on the 31st December 2013. She noted that it was remarkable that,in the plethora of allegations advanced against the respondent, it is not stated that therespondent represented that it would not call in the loan in accordance with the terms ofthe facility. She held that no case had been made out that the alleged improper motives,even if established, would provide an answer to the claim to be repaid monies that theappellants accept they borrowed and have not repaid. The trial judge correctly observedthat questions of security and of the appointment of a receiver over certain assets do notarise in these proceedings. She held that the appellants had not established a fair orreasonable probability of having a real or bona fide defence.Page 8 ⇓40. In my view there was no error in law or in fact on the part of the trial judge in respect ofthis matter. She correctly identified that the improper motives were made by way of mereassertions. More fundamentally, she identified that these improper motives, even ifestablished, did not provide an arguable defence to the respondent’s claim.The Guarantees41. The second appellant submits that the trial judged wrongfully stated in her judgment thatthe second appellant did not swear and affidavit in the proceedings but relied upon theaffidavit of the first appellant. The position was that very late supplemental affidavitswere filed by the appellants. Counsel for the respondent at one point stated: “I’m notobjecting to the Court seeing those supplemental affidavits, I think nothing turns onthem”. Counsel for the appellants did not demur on that. Moreover, he did not open thesecond appellant’s affidavit. He only opened the first appellant’s affidavit to refer to anewspaper article exhibited by him therein.42. In her judgment, the trial judge dealt with the issue of the guarantee as raised in theaffidavit of the first appellant which purported to deal with the guarantees under whichthe second appellant was sued. She dealt with the legal argument put before her. In thenotice of expedited appeal, in their written submissions and at the hearing of the appeal,the appellants did not point to any particular averment in the affidavit, which wasmaterial to the issue upon which the High Court adjudicated on an arguable defencearising out of the guarantees. For all these reasons, I am quite satisfied that there is nomaterial error and no want of natural justice by reason of the misstatement of theposition as regards the swearing of an affidavit by the second appellant.43. In her judgment, the trial judge rejected the second appellant’s arguments that (a)because she “refused” to provide any further guarantees, the existing guarantees weredischarged and (b) that the guarantees had been discharged where there were materialchanges in the underlying contractual obligations between the respondent and the firstappellant. The trial judge referred to clause 2 of the first guarantee dated the 2nd March,2009 which was a continuing guarantee. She also cited clause 6(i) which gave therespondent liberty to determine, enlarge or vary any credit to the first appellant(borrower) without notice to the second appellant (guarantor).44. The trial judge accepted that that the guarantee was a continuing one and that it wouldinclude the sums guaranteed up to the amount referred to therein of €1,650,000. Clause6(i) permitted either the enlargement or the variation of the first appellant’s creditbrought about by the facility of May 2013. She also held that there was no obligation onthe bank to obtain an alternative or fresh or additional guarantee. A failure to do so didnot discharge the existing guarantee. She held similarly in respect of the identical (savefor the limit guaranteed) second guarantee.45. I am satisfied that the trial judge did not err in so holding. The interpretation of theguarantees was very clear as a matter of law and did not provide the arguable defencecontended for by the appellants. For this reason, all points of appeal in respect of theguarantees are rejected.Page 9 ⇓Counterclaim46. The appellants in their notice of expedited appeal and in their written submissions claimedthat the trial judge erred in finding that they did not have a valid counterclaim. This wasnot elucidated further at the hearing. Their first counterclaim related to the allegedpremature or improper calling in of the loans. The second counterclaim referred to allegedovercharging.47. The trial judge held that the appellants first counterclaim amounted to no more than areassertion of the grounds of defence which she had already rejected. In relying on thedecision of Clarke J. in Moohan v S & R Motors Donegal Ltd. [2008] 3 I.R. 656 in decidingthat she would not put a stay on her judgment. In so deciding, the trial judge made noerror of fact or of law. I therefore reject this point of appeal.48. In respect of the claim of overcharging, the trial judge identified the amount allegedlyovercharged as €57,857.67 and said that this amounted to an independent claim. Thetrial judge could not resolve the factual dispute in relation to this claim. She ruledhowever that given the scale of the discrepancy between the debt due by the appellants,a set off would mean very little. In the exercise of her discretion she declined to put astay on her judgment.49. In their written submissions, the appellants submitted that the trial judge omitted asecond assessment of overcharging on their accounts. It appears that the affidavit of thefirst appellant had referred to two reports. One report was by an Eddie Fitzgerald and thesecond was by “Cáit”. Mr. Fitzgerald had identified the alleged overcharging. The otherreport identified overcharging of circa €52,000 on one facility. This had been included inthe earlier reports. On behalf of the respondent, David Coleman swore a supplementalaffidavit identifying that the height of the overcharging complaint was the figure of€57,857.67. Neither in their supplemental affidavits nor in the hearing at the High Court,did the appellants take issue with this amount.50. I am satisfied that the trial judge did not err in her identification of the height of theamount being claimed as overcharged. I am also satisfied that in accordance with theprinciples in Moohan, she did not err in declining to put a stay on any part of thejudgments to be entered in favour of the respondent against the appellants.Conclusion51. The appellants in written and oral submissions have sought to argue certain grounds thatwere not argued in the High Court and/or were not included in the grounds of appeal. Theappellants were legally represented in the High Court. No reason has been advanced as towhy these grounds were not so argued. In all the circumstances, these grounds are notproperly before this Court and are rejected.52. In relation to the grounds of appeal which are properly before this Court, I haveconcluded that there was no error of fact or of law on the part of the trial judge. Shecorrectly applied the well-established jurisprudence.53. Accordingly, I dismiss this appeal.
Result: Dismiss appeal
Ennis Property Finance DAC -v- Murphy
[2017] IEHC 573 (10 October 2017)
JUDGMENT of Mr Justice Max Barrett delivered on 10th October, 2017.
I. Background
1. These are summary proceedings for debt.
2. In or about December, 2004, Bank of Scotland (Ireland) (‘BOSI’), the predecessor in interest to Ennis Property and Mr Murphy entered into an agreement, pursuant to which BOSI agreed to provide Mr Murphy with a loan facility in the amount of €855k (the ‘First Agreement’). The terms of the First Agreement were contained in a facility letter dated 17th December, 2004, executed by Mr Murphy on or about 20th December, 2004, and subject, inter alia, to BOSI’s general terms and conditions. The terms of the said facility were amended by the parties by facility letters dated 15th May, 2008, and 19th July, 2010. The purpose of the loan facility was to fund the purchase of certain properties respectively in County Wicklow and the United Kingdom, and to fund related legal and professional fees arising.
3. The terms of the First Agreement provided, inter alia, that BOSI was entitled (1) to interest at a rate provided for in the First Agreement, (2) without the consent of Mr Murphy, to assign any of its rights and benefits under the First Agreement to any third party, (3) upon an event of default, to call for the immediate repayment of all monies payable and due plus accrued interest thereon.
4. In or about April 2006, BOSI and Mr Murphy entered into another agreement, pursuant to which BOSI agreed to provide Mr Murphy with a loan facility in the amount of UK £630k (the ‘Second Agreement’). The terms of the Second Agreement were contained in a facility letter dated 25th April, 2006, executed by Mr Murphy on or about 5th May 2006, and subject, inter alia, to BOSI’s general terms and conditions. The terms of the said facility were amended by the parties by a facility letter dated 19th July, 2010. The purpose of the loan facility was to fund the purchase of a property in the United Kingdom, and to fund related arrangement and legal fees arising.
5. The terms of the Second Agreement provided, inter alia, that BOSI was entitled (1) to interest at a rate provided for in the Second Agreement, (2) without the consent of Mr Murphy, to assign any of its rights and benefits under the Second Agreement to any third party, (3) upon an event of default, (a) to call for the immediate repayment of all monies payable and due plus accrued interest thereon, (b) at its sole discretion, pending receipt of all monies due (including accrued interest), to convert all or part of the outstanding loan balance to a euro denominated amount.
6. In breach of the First Agreement and the Second Agreement, the loan periods under which expired on 31st December, 2010, Mr Murphy failed to make required quarterly interest payments and has failed to repay the principal sum owing. As a consequence of the failures aforesaid, letters of demand issued to Mr Murphy on 3rd June, 2016. A receiver was appointed over certain assets of Mr Murphy on 17th June, 2016. Following the appointment of the receiver, the defendant engaged in ‘without prejudice’ correspondence with Mr Murphy. However, no agreement could be reached and fresh letters of demand issued on 23rd November, 2016. Despite the said demands, the amounts demanded have not been repaid and the defendant therefore commenced the within proceedings on 7th December, 2016.
II. Some General Legal Principles
7. Mr Murphy contends that in all the circumstances arising, adjudication on his debt ought to follow a plenary hearing. The hurdle that he must cross to succeed in having matters sent to plenary hearing is notably low. As Hardiman J. stated in the Supreme Court in Aer Rianta c.p.t. v. Ryanair Limited [2001] 4 IR 607, 623:
“In my view, the fundamental questions to be posed on an application such as this remain: is it ‘very clear’ that the defendant has no case? Is there either no issue to be tried or only issues which are simple and easily determined? Do the defendant’s affidavits fail to disclose even an arguable defence?”
8. In Harrisrange Ltd. v. Duncan [2003] 4 IR 1, 7, McKechnie J. summarised as follows the relevant principles to be brought to bear when a court approaches the issue of whether to grant summary judgment or leave to defend:
“(i) the power to grant summary judgment should be exercised with discernible caution;
(ii) in deciding upon this issue the court should look at the entirety of the situation and consider the particular facts of each individual case…
(iii) in so doing the court should assess not only the defendant’s response, but also in the context of that response, the cogency of the evidence adduced on behalf of the plaintiff…
(iv) where truly there are no issues or issues of simplicity only or issues easily determinable, then this procedure is suitable for use;
(v) where, however, there are issues of fact which, in themselves, are material to success or failure, then their resolution is unsuitable for this procedure;
(vi) where there are issues of law, this summary process may be appropriate but only so if it is clear that fuller argument and greater thought is evidently not required for a better determination of such issues;
(vii) the test to be applied, as now formulated is whether the defendant has satisfied the court that he has a fair or reasonable probability of having a real or bona fide defence; or as it is sometimes put, ‘is what the defendant says credible?’…
(viii) this test is not the same as and should not be elevated into a threshold of a defendant having to prove that his defence will probably succeed or that success is not improbable, it being sufficient if there is an arguable defence;
(ix) leave to defend should be granted unless it is very clear that there is no defence;
(x) leave to defend should not be refused only because the court has reason to doubt the bona fides of the defendant or has reason to doubt whether he has a genuine cause of action;
(xi) leave should not be granted where the only relevant averment is the totality of the evidence, is a mere assertion of a given situation which is to form the basis of a defence and finally;
(xii) the overriding determinative factor, bearing in mind the constitutional basis of a person’s right of access to justice either to assert or respond to litigation, is the achievement of a just result whether that be liberty to enter judgment or leave to defend, as the case may be.”
9. Worth mentioning also in this regard, in light of the various contentions averred to, and referred to in submission, by Mr Murphy, is the nature of the assertions that a defendant must bring to bear in order that a matter will be sent to plenary hearing. As Charleton J. noted in National Asset Loan Management Ltd v. Barden [2013] IEHC 32, “The mere assertion on affidavit of a defence is insufficient. A defence must, if the matter is to be remitted to plenary hearing, have some reasonable foundation.” As Clarke J., as he then was, observed when speaking for the Supreme Court in Irish Bank Resolution Corporation (in special liquidation) v. McCaughey [2014] IESC 44, observed, para. 5.5, “The sort of factual assertions, which may not provide an arguable defence, are facts which amount to a mere assertion unsupported either by evidence or by any realistic assertion that evidence might be available, or, facts which are in themselves contradictory and inconsistent with uncontested documentation or other similar circumstances…”. So it does not suffice simply to raise an abundance of allegations unsupported by evidence or any realistic assertion that evidence might be available and to expect that a plenary hearing will follow. Yet that, with every respect, is all that Mr Murphy has done.
III. Some Contentions Made by the Defendant
(i) The Alleged Agreement as to Residual Debt.
10. Mr Murphy contends that the actions of BOSI from February, 2012 led him to believe that BOSI had accepted a proposal whereby, following the sale of the assets that were the subject of the loan agreement, he would not be liable for the residual balance. However, his affidavit evidence, with respect, does not support this contention. When it comes to a critical meeting of 6th February, 2012, all that Mr Murphy can aver to is what seems to be a polite observation on the part of the relevant bank official who “informed me [Mr Murphy] that he believe[d]…the Bank to be reasonable and fair and that this [the non-availability of other assets to meet Mr Murphy’s liabilities] would be taken into full consideration and with my full co-operation a mutually beneficial outcome would be achieved.”
11. This expression by a bank official of his personal belief as to the likely treatment of Mr Murphy by his employer, if given as Mr Murphy avers, contains no representation as to any waiver of debt. And even if BOSI or its successor in title were slow in coming to demand their full contractual entitlements (and the court does not see that either was), cl.25.4 of BOSI’s general terms and conditions (of which there is no evidence between the court that it has been altered as between the parties to the within application) provides that “No failure to exercise and no delay in exercising on the part of the Bank any right, power or privilege…shall operate as a waiver thereof, nor shall any single or partial exercise of any right, power or privilege, preclude any other or further exercise thereof…”. Nor does the court, relying in this regard on the judgment of Clarke J. in ACC Bank plc v. Kelly [2011] IEHC 7, para. 7.9, see that any concluded arrangement (even if short of a contract) came to exist between the parties to the within proceedings such as would have grounded a case in promissory estoppel.
12. The court, with respect, also does not see how Mr Murphy can argue on the one hand that there was an agreement of the type contended for dating from February, 2012, yet aver on the other (as he does) that BOSI asked him to, and he did, come up with fresh (and rejected) proposals in 2014. It does not appear in any event that the actions which Mr Murphy suggests that he took on the basis of the perceived understanding between him and BOSI went beyond his existing obligations in respect of the secured debt.
13. As to the suggestion that the contra proferentem rule ought now to be applied by the court in such a way as to read against BOSI its failure (as Mr Murphy perceives matters) to refer expressly in its dealings with Mr Murphy to its non-acceptance of the purported residual debt arrangement, that would be for the court to stray into error. The contra proferentem rule is concerned with the interpretation of ambiguous contractual clauses. It is not an interpretative tool capable of being used to construe the acts or omissions of a particular party in a manner more favourable to one litigant over another. (See further Allied Irish Banks plc v. Pollock and ors [2016] IEHC 581, para. 54).
(ii) Non-Receipt of Statements.
14. Mr Murphy maintains that he did not receive any bank statements after April, 2015. This may or may not be so. (The court has in the evidence before it one statement which does appear to have issued after that date). While the court does not wish to diminish the importance of a financial institution providing regular statements to an accountholder, even (perhaps especially) a borrower-accountholder in default, there is no indication that any (if any) non-receipt by Mr Murphy of certain statements has impacted in any way as regards the repayment of the debt presenting or his ability to meet same. In fact it is not even clear that Mr Murphy beyond pointing to the alleged non-receipt of statements as an error, contends for any such impact.
(iii) Alleged Deficiencies in Appointment and Actions of the Receiver.
15. Mr Murphy points to deficiencies in the appointment and actions of the receiver, whom he avers did not account to him for sales proceeds and, in truth, acted as the agent of Ennis Property and not as his agent. There is nothing in the evidence, beyond Mr Murphy’s bare averment, to suggest that the receiver acted as the agent of the plaintiff. As to the validity of the receiver’s appointment, it is striking that Mr Murphy did not seek to challenge the appointment of the receiver while the receivership was extant. The court does not see that such a challenge would now serve much practical purpose given that the receivership has concluded and the funds raised by the receiver through the disposal of secured assets have been applied against Mr Murphy’s liabilities to Ennis Property. But such a challenge, even if it were to proceed, could not amount to a defence to Ennis Property’s present claim for judgment in respect of loan facilities which Mr Murphy has expressly accepted in his affidavit evidence that he obtained. (See Allied Irish Banks plc v. Killoran [2015] IEHC 850, para. 49, and ACC Loan Management Ltd v. Dolan and ors [2016] IEHC 69, para. 42).
16. As to Mr Murphy’s mooted claim against the receiver for allegedly not obtaining the best price for the secured properties, that is a line of potential action that exists between Mr Murphy and the receiver; it is not a defence to the within summary application that Mr Murphy might be entitled to an indemnity from a non-party were that non-party to be joined to the within proceedings if the within application was to be referred to plenary hearing.
(iv) Data Protection Acts.
17. It is a surprisingly regular feature of proceedings involving financial institutions and like bodies that a defendant debtor makes complaint that a data access request under the Data Protection Acts has not been complied with swiftly or at all, which is, to put matters at their mildest, a disappointing state of affairs, if in fact it pertains. However, to the extent that there has been a failure to satisfy a data access request in conformity with those Acts, a complaint may be made to the Data Protection Commissioner. At this time, that complaint runs on a separate track to any default-debt recovery train of proceedings that arrive in court.
18. Mr Murphy complains that he made data access requests but that the cheques for the administrative fees were returned to him without explanation. If this is so, the court would respectfully urge Ennis Property to ensure that it or its agents, when returning such a cheque, explain why it is being returned. Regardless of this, it does not appear from the affidavit evidence that Ennis Property has acted otherwise than in accordance with the Data Protection Acts, and even if it had that does not affect the recoverability of the debt now sought and owing at law.
19. Mr Murphy contends that such information that will be or has been disclosed to him may relate to the validity of the appointment of the receiver. It may, but so far as the validity of that appointment does not afford a defence to the instant application, the court respectfully refers the parties to the previous section of the within judgment.
(v) Default/Penalty Interest.
20. Mr Murphy claims that he has been charged default/penalty interest. This, with respect, is not so: interest has been applied at the agreed interest loan rate. And, on a related note, the court does not accept that expert banking evidence requires to be tendered to calculate the true amount now outstanding. The calculations required are straightforward and represent but the ‘bread and butter’ of basic banking.
(vi) Counterclaim.
21. Though the possibility of a counterclaim for damages arising from stress, inconvenience and financial loss occasioned by BOSI’s actions, is tentatively touched upon in Mr Murphy’s evidence and submissions, the mooted counterclaim, as articulated by Mr Murphy, regrettably lacks any arguable substance.
22. Even if Mr Murphy could point to a specific vouched loss and substantiate a claim against Ennis Property in this regard, he would face the additional hurdle, in the context of seeking leave to defend on the strength of such counterclaim, that he would need to establish an entitlement to equitable set-off against the judgment debt in relation to any award which might be made in his favour.
23. The principles to be applied on an application for summary judgment when the defence advanced is one to set off a counterclaim or cross-claim were identified by Clarke J. in Moohan v. S&R Motors (Donegal) Ltd [2008] 3 IR 650, 656 (and recently approved by the Court of Appeal in NAMA v. Kelleher [2016] IECA 118), Finlay Geoghegan J. observing as follows in her judgment in Kelleher, para. 31:
“[W]hen as in these proceedings a defendant contends for a bona fide defence which is to set off a counterclaim or cross claim there are two separate questions which the court must address in considering whether the defence meets theAer Rianta threshold. A court must consider both whether the connection between the plaintiff’s claim and the counterclaim or cross-claim of the defendant is such as to establish aprima facie entitlement of the defendant to set off in equity the amount recoverable on the counterclaim and also whether or not the substance of the counterclaim itself reaches the arguable orbona fide threshold. Both questions must be answered in favour of the defendant to establish a bona fide defence. Unless the counterclaim or cross-claim itself meets the Aer Rianta threshold irrespective of the position in relation to set off it cannot constitute a prima facie defence.”
24. Neither limb of the test as identified in Kelleher can be said to have been met by Mr Murphy in circumstances where it is not clear that his asserted losses give rise to any stateable claim against Ennis Property and the tentatively mooted counterclaim does not reach the applicable arguable or bona fide threshold.
IV. Conclusion
25. Mr Murphy represented himself at the hearing of the within application. He is, if the court might respectfully observe, a well-spoken and softly-spoken gentleman who sought in the past, through what doubtless seemed to him to be savvy financial investments, to improve his financial standing and so better to provide for his family. There is nothing wrong, and much to be applauded, in that. Unfortunately, it seems that the market went against Mr Murphy and that, in consequence, he now finds himself heavily indebted to Ennis Property. Yet, whatever the motivations for his indebtedness and the cause of his inability to pay, he is indebted and the monies sought do fall to be repaid. Conscious of the low threshold identified by the Supreme Court in Aer Rianta for sending a matter to plenary hearing, and mindful also of that “discernible caution” which the court, recalling the observations of McKechnie J. in Harrisrange, must bring to its decision-making in summary applications, the court considers itself nonetheless to be coerced as a matter of law, and for the reasons aforesaid, into: (a) declining to send the within application to plenary hearing; and (b) granting the summary judgment now sought.
Bank of Scotland PLC -v- O’Connor
O’Connor -v- Bank of Scotland PLC & ors [2017] IECA 24 (10 February 2017)
JUDGMENT OF THE COURT DELIVERED BY MR JUSTICE MICHAEL PEART ON THE 10th DAY OF FEBRUARY 2017
1. This is a judgment to which all members of the Court have contributed. The appellant’s first appeal (2015/225) is against an order dated 6th March 2015 (Cregan J.) in which judgment was given against him in the sum of €7,683,999.96 in proceedings brought by Bank of Scotland Plc (‘BOSI’). In the High Court he had sought to resist judgment on the basis of claims made in other proceedings which he commenced against BOSI and the other named defendants. Both proceedings were heard together. By a separate order of the same date, the reliefs sought in those proceedings were refused, and a lis pendens which he had registered against certain lands (‘Lindville’) which were mortgaged to BOSI by way of security for borrowings was vacated. The second appeal (2015/216) is against those orders.
2. This judgment will address the issues raised in the appellant’s proceedings since it is accepted that if he fails in his second appeal (2015/216) the appeal against the judgment in favour of BOSI fails and that judgment will stand.
Some background
3. Mr. O’Connor is an experienced property developer. The lands at Lindville were lands on which he sought to construct 8 houses for which planning permission had been granted. Initially he sought to develop these lands through a partnership with a Mr. O’Donovan. However, it appears that following differences between them the partnership was dissolved by agreement in late 2000. Thereafter, Mr. O’Connor sought to ‘go it alone’ in relation to the development of the Lindville sites, but he needed funding to do so – hence the BOSI borrowings which are the basis for the judgment granted against the appellant in the High Court.
4. The Lindville lands were purchased by Mr. O’Connor and Mr. O’Donovan with the assistance of a loan from Ulster Bank, who took a first charge on the entire of the Lindville lands. A map attached to that charge outlined the secured lands in red. That map is of some relevance on this appeal as we shall see in due course.
5. The Court notes that at this time Mr. O’Connor was also planning to develop two other sites at Rochestown Road, Cork, one being Ashley, and the other being Five Firs immediately adjacent to Ashley. The development at Ashley is of some relevance to two of the issues in the case, namely whether:-
(i) the bank represented to the appellant that it would provide funding to enable him to complete the development at Ashley, and failed to do so, and
(ii) that the bank reneged on a promise that it would provide a sum of €100,000 to complete the show house at Ashley to a high standard. This judgment will return to these issues in due course.
6. Upon the dissolution of the partnership, Mr. O’Connor was anxious to obtain additional finance in order to discharge an agreed sum to Mr. O’Donovan on foot of the dissolution of the partnership, to pay off certain sums owed to Bank of Ireland, and to fund the ongoing development of the 8 houses at Lindville. The first BOSI loan facility letter in respect of a loan to Mr. O’Connor of the sum of €820,000 is dated 25th September 2002. It was accepted by Mr. O’Connor and in accordance with the conditions for the loan he, inter alia, executed a mortgage in favour of BOSI over eight sites at Lindville as security for those borrowings. It was a condition also that upon the sale of each site a sum of €150,000 would be repaid to BOSI and the solicitor then acting for him, Mr. Cuthbert of Martin Sheehan & Co, solicitors gave an undertaking in that regard to BOSI. In fact, prior to the drawdown of this facility Mr. O’Connor had already entered into an agreement for the sale of one of the eight Lindville sites (No.59), and Mr. Cuthbert gave an undertaking to pay over a sum of €150,000 upon the completion of that sale. Thus, the security for the loan was a charge over seven sites and an undertaking by Mr. Cuthbert to pay over €150,000 to BOSI upon the completion of the sale of each of the remaining seven sites.
7. As noted by the trial judge at para. 3 of his judgment “the plaintiff and the defendants all agreed, at the end of the trial, that there were seven major issues which needed to be considered by the Court”. He set them forth as follows:
(1) The issue of whether the common areas of “Lindville” were intended to be included in the security granted by the plaintiff to the Bank in 2002;
(2) The issue of whether, if a mistake was made in 2002, the defendant solicitors were negligent and/or in breach of duty in failing to notice that the common areas had been included in the plaintiff’s security granted to the Bank in 2002 when they were reviewing the security for the plaintiff for the 2007 loan in 2007;
(3) The issue of whether the Bank made a representation to the plaintiff on or about 12th March, 2010 that the Bank would fund the plaintiff’s developments through to completion;
(4) The issue of whether the amalgamation of further loans advanced by the respondent to the appellant in 2007 and 2008 loans by means of another loan in 2010 was unlawful and was procured by the Bank by deceit or fraud or undue influence or was in any other respect unlawful;
(5) The issue of whether the Bank represented to the plaintiff that he could spend €100,000 to complete one of the houses in Ashley to show- house standard and that the Bank would provide funds for same;
(6) The allegations against the receivers that the receivers had a conflict of interest, that the receivers had failed to carry out their duties properly and that the receivers had failed to preserve the assets.
(7) The issue of whether the defendant solicitors failed to properly advise the plaintiff in respect of the 2007, 2008 or 2010 loan offers;
First Issue – the common areas at Lindville site
8. Central to the issues raised by Mr. O’Connor in the High Court and on this appeal is that the 2002 BOSI facility letter described the security for the loan as consisting of, inter alia, a “first specific charge over the freehold land of the borrower consisting of eight sites at Blackrock Road, Cork”. There is no dispute that these are the Lindville lands, but Mr. O’Connor asserts that this charge was intended to cover only the sites themselves, and that it was never intended that the bank’s security would include what has been described as the common areas. He says that this is corroborated by the fact that BOSI’s solicitor’s letter to Mr. Cuthbert dated 2nd October 2002 enclosing the mortgage and charge and draft certificate of title is headed “Mortgage of eight sites at Blackrock Road, Cork”. In addition he relies on the fact that on page 1 of the Solicitor’s Report and Certificate of Title the security property is described as “sites 27, 28, 29, 30, 53 and 57 at Lindville, Blackrock Road, Cork”. Mr. O’Connor relies on the fact that in all these descriptions there is no reference to the common areas as forming part of the bank’s security.
9. However, as noted by the trial judge at para. 30 of his judgment, the body of the Solicitor’s Report and Certificate of Title states: “I/we have investigated the title to the property described in Part One of the Schedule hereto (hereinafter called “the property”), the tenure of which is stated therein”. The trial judge stated that it was clear therefore that the actual property over which security was being provided is that which is described in that Schedule which was in the following terms:-
“All that and those part of the lands of Lindville, Blackrock Road, Cork as more particularly delineated on the map or plan attached hereto and thereon outlined in red held firstly for the residue of a term of 500 years demised by indenture of lease 28th March, 1854 and subject to the yearly rent therein reserved, and secondly in fee simple.” [trial judge’s emphasis]
10. The schedule to the deed of mortgage and charge dated 29th October 2002 that was executed by Mr. O’Connor in favour of BOSI refers to the Lindville lands as being “as is more particularly delineated on the map and next hereto and they are on outlined in red”.
11. The reason why the appellant says that it was never intended that the common areas be included as part of the bank’s security is that there is, he maintains, within the ground comprising the common area sufficient land upon which to construct two further houses. He was permitted to call an independent expert witness, Mr. Glen Barry, in that regard, even though his report was produced only after the commencement of the hearing. The defendant’s expert, Mr. Crean, had opined that it was extremely unlikely that a planning permission for two additional houses could ever be obtained, firstly, because following some public protests the council had already taken the common areas in charge; secondly, the appellant had failed in his judicial review challenge to the council’s decision in that regard; and thirdly, because two applications by the appellant for such a planning permission had already been refused. Nonetheless, this was why the appellant was seeking to establish that the common areas were never intended to be included in the bank’s security. That evidence would be relevant to the question of damages if the trial judge had been satisfied that the appellant was correct that those areas were not intended to be included in the bank’s security, but in circumstances where he decided otherwise for the reasons he gave, any conclusion on the competing evidence of Mr. Barry and Mr. Crean was unnecessary.
12. Before reaching any conclusions on this issue, the trial judge had noted that even though this error as to the inclusion of the common areas in the security given to BOSI is said to have occurred in 2002, while Mr. Cuthbert was acting for Mr. O’Connor, he never brought proceedings against either Mr. Cuthbert or the firm of Martin Sheehan & Company. Rather, he has sued the solicitors who were acting for him in 2007, when a new facility issued which required a continuation of the 2002 facility, and on the basis that those solicitors had failed to properly protect him by permitting that extension of the 2002 facility which had included the common areas, and which, he says, should not have been included.
13. Having referred to the matters to which I have referred in paras. 6, 7 and 8 above, the trial judge went on to arrive at his conclusion on this issue in the light of evidence adduced. It is convenient to set forth his conclusions on this issue by setting forth what he has stated from paras 30.5 to 32 of his judgment as follows:
“(5.) Mr. Cuthbert gave evidence on behalf of the plaintiff. Mr. Cuthbert was the plaintiff’s solicitor at the time of the 2002 loan facility and 2002 mortgage and charge over Lindville. He was a frank and honest witness. Mr. Cuthbert’s evidence was that he would never have allowed a client to sign a mortgage or charge (where that mortgage or charge referred to a map) without reviewing the map carefully with the client. His evidence was that (although he had no distinct recollection of the transaction twelve years ago) he was of the view that he would have followed his normal procedure with Mr. O’Connor in relation to the signing of the mortgage and charge in 2002. If that were the case, then clearly Mr. O’Connor would have seen the map and would have known that the mortgage and charge were created over the sites and the common areas at Lindville.
(6.) Mr. Cuthbert also gave evidence that if he did not follow his normal procedure in 2002 that was simply because Mr. O’Connor had such an intimate knowledge of the Lindville site because of his experience in purchasing the site, developing the site, financing the site and because of his involvement in agreeing the map with his partner Mr. O’Donovan some time previously. He also said that, even if he did not specifically get Mr. O’Connor to review the map before he signed the mortgage, he had no doubt whatsoever that Mr. O’Connor was intimately familiar with the map. Given that this evidence was from a witness on behalf of the plaintiff, and was the plaintiff’s solicitor at the time of this transaction, I am of the view that it is clear beyond doubt that Mr. O’Connor was fully aware that the common areas were included in the mortgage in 2002
(7.) It is also important that Ulster Bank originally had a charge over all the common areas and sites at Lindville. That is agreed by all parties. The refinancing which Mr. O’Connor was seeking to obtain was refinancing from BOSI to pay off Ulster Bank, (and also to pay off other debts he owed to Bank of Ireland and Mr. O’Donovan). Therefore it makes sense that BOSI would have obtained the same security as Ulster Bank. As Ulster Bank had security over all the common areas and all the sites, it makes sense that BOSI was also obtaining security over all the common areas and all the sites (with the exclusion of a number of sites which had been sold by that time).
(8.) When questioned as to whether Mr. O’Connor intended at any time to give security to BOSI which was a lesser security than that offered to Ulster Bank, Mr. O’Connor’s evidence was uncertain. In my view it was not clear that he intended to offer BOSI less security than he had granted to Ulster Bank.
(9.) Moreover, when asked whether, in effect, by granting the Bank security over the sites only, BOSI would have been landlocked by virtue of the fact that they had no access to the common areas and no rights of way, Mr. O’Connor indicated that they could have been included in an extra conveyancing document but were not. However there was no evidence of any discussion at the time of BOSI or the plaintiff discussing rights of way or other conveyancing documents.
(10.) When asked did he intend to frustrate the security he offered to BOSI his reply was an emphatic no – that he did not mean to do so.
(11.) I am not convinced that Mr. O’Connor intended to grant less security to Bank of Scotland (Ireland) than had been granted to Ulster Bank. Indeed the entire tenor of his evidence was that this was a very fraught time and he was focused on obtaining the finance to pay off his former partner and to pay off Ulster Bank. Thus there was no particular reason as to why he would have contested the transfer of the common areas.
(12.) Likewise his evidence is that he did not wish to frustrate BOSI’s security. If that be so, then it follows – given that there was no additional wayleave agreement – that the parties must have intended to include all the common areas, roads and services as part of the agreement. If that were not so then BOSI’s sites would have been landlocked and Mr. O’Connor would have had an advantage which was not agreed or intended between the parties.
(13.) It is also of some significance that this schedule of the property is in fact on the page immediately before the signature page. The signature page therefore follows immediately after Mr. O’Connor assigned the mortgage and charge and this signature has been witnessed by his solicitor Mr. Cuthbert. A copy of the map was produced in court and the map is then attached as a following page. The map clearly includes, within the red interlining, the common areas of Lindville.
(14.) Another reason, in my view, why the map included the common areas and was always intended by all parties to include the common areas was that Mr. O’Connor gave evidence to the court that the map drawing up these sites and these common areas was drawn up by Mr. O’Donovan’s solicitor and interlined in red at the time of the partnership dissolution agreement.
(15.) This map appears to have formed the basis for the map attached to the mortgage and charge dated September 2002. There is however a difference between the two maps in that the map drawn up for the dissolution of the partnership agreement included extra sites whereas the map attached to the mortgage in charge has been interlined in red to exclude a number of sites, (which had been sold). Mr. Murphy SC for the Bank, submitted to the court – and it seems a reasonable inference – that what in fact happened was that the map drawn up for the dissolution of the partnership agreement was photocopied and then re-interlined in red marker by some person so that it would properly reflect the provisions of the mortgage with BOSI. This appears to be the case because there is a stamp on the dissolution of partnership agreement which is a taxing/revenue stamp and which is peculiar to each document. It appears that exactly the same stamp appears on the document attached to the deed of mortgage and charge in 2002. (That seems a likely explanation as to what happened but it is by no means hugely important to the matters which I have to decide).
(16.) It is surprising that Mr. O’Connor could have signed a document such as a mortgage document which on the previous page refers to a map but which Mr. O’Connor now says he has no recollection of seeing and is of the view that it was not there. I do not accept this evidence. In my view, given that the solicitors report and certificate of title refer to a map, and, given that the mortgage of 29th October, 2002 also refers to a map, it is highly likely that this map was drawn up at that time and appended to the agreement.
(17.) Moreover Mr. O’Connor has not put forward a scintilla of evidence – beyond his bare assertion – that it was not intended that the common areas would be transferred to BOSI in February 2002. He seeks to rely on his contemporaneous notes of the time which on occasion refer to the transfer of eight sites. Insofar as Mr. O’Connor put forward any evidence that he did not intend to transfer the common areas to BOSI I do not accept his evidence. I have no doubt that Mr. O’Connor knew full well at the time what he was conveying to BOSI – which was the eight sites plus all the common areas.
(31.) I believe that what Mr O’ Connor has sought to do in this case is to exploit a certain looseness of language in certain parts of the documents (for example in the solicitors correspondence and in the solicitors certificate and report of title) – which refer to eight sites but which do not refer to the common areas – to seek to argue that therefore there was no intention to convey the common areas but only an intention to convey the sites. In my view his evidence on this is non- existent and his case is untenable.
Conclusion on the first issue
(32.) Having heard evidence on this issue from the plaintiff, the plaintiff’s solicitor and the Bank’s solicitor, I therefore find as a fact that it was at all times the plaintiff’s – and the Bank’s – intention to mortgage and charge the common areas to BOSI and that the plaintiff at all times actually knew that he was in fact mortgaging and charging the common areas of Lindville and the relevant sites to BOSI in September 2002. I therefore conclude that the Plaintiff’s case on the first issue is unfounded.”
14. In his notice of appeal the appellant states a ground of appeal (ground B) which was not part of the grounds which he relied upon in the High Court – namely the doctrine of Non Est Factum. In other words, in his notice of appeal he states for the first time that mortgage document dated 2002, on which the bank relies “is not the document that [the] Appellant signed on 4th October 2002”. He gives three reasons for his reliance on that ground of appeal, two of which are dealt with later in this judgment. The third reason is one which he seeks raise for the first time on this appeal, not having done so in the High Court, namely that the document upon which the bank relies is not the document which he signed on 4th October 2002. Given that it was not raised in the High Court, this Court does not propose to address it as it is clear that it is not one upon which the appellant is now entitled to rely. In an effort to identify the issues that required to be determined the trial judge on Day 10 of the hearing identified seven precise issues that seemed to him to arise for determination. The appellant agreed that these were the issues in the case. Non Est Factum is not one of the issues identified. Appropriate allowance will be made to self-representing plaintiffs and defendants, and some latitude will be permitted in the application of strict rules that will otherwise apply. At the commencement of his judgment the trial judge refers to this latitude, indeed assistance, that was provided to the appellant. But a self- representing party cannot be permitted to depart completely from the rules that apply, and in particular cannot be permitted to argue on appeal an issue to which evidence would be relevant, which was not raised at first instance. Non Est Factum is not therefore a ground for determination on this appeal.
15. At a directions hearing in relation to this appeal, the respondents were directed to provide to the appellant a written submission outlining the principles in Hay v. O’Grady [1992] 1 I.R. 217, as applied in Northern Bank Finance Limited v. Charlton [1979] I.R. 149. They did so. That submission identified for the appellant the difficult task which he faced in seeking to overturn the very clearly stated findings of fact made by the trial judge in relation to the common areas issue in this case. Without stating these well-known principles in full detail, it can be briefly stated that in general the appellate court should not interfere with findings of fact made in the court below where there was credible evidence to support those findings which the trial judge accepted. The appellant submits that this Court can reach its own conclusions of fact because even under Hay v. O’Grady principles the evidence upon which the court relies must be credible evidence and he submits that it is not, and also in so far as the judge drew inferences in order to support his conclusions, such inferences were not reasonably drawn and can be revisited by this Court. While the appellant is correct in this regard as a general statement on Hay v. O’Grady, the Court is satisfied that he has failed to establish any lack of credibility in relation to the evidence upon which the trial judge founded his conclusions, either in relation to facts or inferences.
16. In the present case the plaintiff gave evidence that the common areas were not intended to be included as part of the BOSI loan security in 2002, and by extension as security for the later loans in 2007, 2008 and 2010. The trial judge explicitly stated that he did not accept that evidence. The trial judge heard all the evidence and observed all the witnesses who gave it. He was entitled to form his clear view of that evidence and prefer the evidence of other witnesses to the evidence given by the plaintiff himself. Indeed, part of the evidence upon which he has stated that he relied for his conclusion, and was clearly entitled to accept, was evidence given by the appellant’s own solicitor, Mr. Cuthbert. His conclusions on the common areas issue is firmly based upon evidence given to him and which he was entitled to accept, and in my view the appellant has failed to overcome the obstacle presented to him by Hay v. O’Grady. This Court should not interfere with his findings of fact on this issue.
17. The respondents have pointed out that on this appeal the appellant has sought to take issue with some of the evidence given in the High Court but to which he voiced no objection in the High Court, and submit that this is not permitted on appeal. This Court agrees. Where evidence given by a witness at first instance is not challenged, it can be presumed to be not disputed, and the judge is entitled to accept it. Objection to it cannot be voiced for the first time on appeal. Similarly, it is clearly the case that he may not on appeal raise issue for the first time that he never raised in the court below. In so far as such issues have been raised for the first time on appeal, the Court does not propose to address them.
18. The rejection of the appellant’s appeal on the common areas issue has a cascading or domino effect into some of the other issues in the case.
Second issue – Negligence against the solicitor defendants in 2007
19. By 2007 the appellant had obtained two further loan facilities from BOSI. The 2003 loan facility was for two years in the sum of €750,000. Its purpose was to restructure the existing 2002 loan, and to fund the construction of two detached houses at Lindville. The security was stated to be an extension of the bank’s first specific charge over the “freehold land incorporating five sites in Lindville …”. The bank was also to receive a payment of €150,000 from the proceeds of sale of each of the two houses to be constructed. The reference to five sites clearly references that two sites had been disposed of by 2003. By this time Mr. Cuthbert of Sheehan & Co was for some reason no longer acting for Mr. O’Connor. His solicitor at that date, according to his own evidence was Mr. James Riordan of Messrs. M.J. Horgan & Sons.
20. In June 2004 the appellant signed and accepted a further loan facility letter from BOSI – this time in the sum of €900,000 to enable him to complete the construction of four houses at Lindville. The facility was for 2 years, and the security to be provided was “an extension of [the BOSI] first specific charge over the freehold land and premises of the borrower consisting of one completed house and four sites at Lindville”. His acceptance of this facility was signed by James Riordan, solicitor. Repayment was intended from the sale of the houses specified, but in any event by the 16th June 2006, as noted by the trial judge.
21. Later in 2006 the appellant was interested in purchasing the lands at Ashley for development purposes. The trial judge sets out his summary of the events leading up to the purchase of these lands, and in particular the appellant’s evidence that he contacted Michael Cotter of Ernst & Young in relation to financing the purchase through BOSI. The trial judge notes that Mr. Cotter made contact with a Mr. Roy Barry in BOSI. A meeting was arranged with BOSI which the appellant and Mr. Cotter attended when details of the purchase and development costs were discussed. The appellant stated that ahead of the auction that was to take place on the 12th December 2006 he was assured by BOSI that the funding would be made available, and even though he had not received the facility letter itself by the date of the auction he was assured that the funding would be provided. On that basis he purchased the Ashley lands at auction for the sum of €1.51 million, and paid a deposit of 10% from his own funds.
22. Some weeks after the auction BOSI issued a facility letter dated 5th February 2007 indicating the approval of a loan facility in the sum of €4.34 million. The loan term was again 2 years, and its purpose was to:-
(a) the purchase the Ashley land,
(b) to cover the cost of constructing the houses at Ashley,
(c) to cover rolled-up interest, and
(d) to refinance the previous BOSI facility. The security was a first charge on the Ashley land, as well as an extension of BOSI’s existing charge on the land at Lindville which by then consisted of three completed houses. Mr. O’Riordan was named as the appellant’s solicitor. In fact, according to the trial judge, Mr. O’Riordan’s partner, Mr. Darren O’Keeffe, also acted in the matter.
23. The appellant has sued these solicitors in negligence in relation to their advice and handling of the 2007 loan facility and security in that they are said to have failed to notice that an error had been made back in 2002 by the previous solicitors acting for the appellant, in that the security provided in 2002 included the common areas, as already described above, and accordingly that they acted negligently by including those common areas in the security being provided for the 2007 facility by way of extension of the 2002 BOSI charge. It is alleged that the firm was negligent in failing to advise him of the error in the 2002 security documentation. He has also sued them on the basis that they had a conflict of interest in that they also acted from time to time on behalf of BOSI in relation to other matters, but also in relation to putting in place the BOSI security for the 2002 and 2004 loans. That separate conflict of interest issue will be considered in due course.
24. On the negligence issue, however, the trial judge concluded as follows at para. 50 of his judgment:
“However, in my view, the plaintiff’s allegations in this regard are also completely unfounded. His allegations against the defendant’s solicitors in relation to the 2007 mortgage rest crucially on the assumption that the 2002 mortgage wrongly included the common areas of the Lindville Development. However, for the reasons set out earlier in my judgment, I have concluded that the common areas were indeed included – and properly included – in the 2002 mortgage. That being so, the defendant’s solicitors could not be found liable for any wrongdoing or negligence in respect of the 2007 mortgage when it was clear that all parties intended the existing security to continue and to be extended to cover additional loans. Of necessity, this included the common areas. I would therefore dismiss the plaintiff’s second allegation.”
25. This Court is satisfied that in order to successfully challenge the trial judge’s conclusions in relation to negligence on the part of the solicitor defendants, he would have to have succeeded in overturning the trial judge’s conclusions in relation to the common areas. Not having done so, the appeal on the negligence issue must inevitably fail.
Third issue – BOSI’s alleged representation on 12th March 2010 that it would fund the Ashley development to completion
26. By April 2008 the appellant wanted to purchase additional land for development which was immediately adjacent to the Ashley site. This site is referred to as the Five Firs site. He wanted to build two more houses on this site and sought funding from BOSI both for the purchase cost and the cost of construction, rolled up interest and stamp duty. Having applied for a facility he received a facility letter dated 3rd April 2008. This loan was stated to be for a period of three years and in the amount of €1.88 million. The specified security was a first charge over the Five Firs land, an extension of the BOSI charge over the adjoining Ashley land, as well as an extension of the BOSI mortgage and charge over the Lindville lands which still comprised three completed houses.
27. The trial judge noted in particular a condition precedent to drawdown which was contained in this 2008 facility letter as follows:-
“Before release of funds in respect of the construction finance the Bank to be in receipt of confirmation from the borrower’s solicitors that a minimum of two houses of the four in phase one at [Ashley] have contracted sales in place.”
Having drawn attention to this clause, the trial judge went on to state that “the plaintiff at all times has accepted that no contracted sales in Ashley were ever put in place.”
28. The trial judge noted that this facility letter was to be accepted by the appellant not later than the 3rd May 2008 but that it was not signed until 17th November 2008. The letter specified that these funds had to be drawn down by the 3rd April 2009. While at this time it was anticipated that the Five Firs purchase would take place shortly after the 3rd April 2008, in fact that did not occur until November 2008. The appellant sought to lay emphasis on these facts, according to the trial judge, in order to show that there was some flexibility on the part of BOSI in relation to financing. In that regard, as stated, this facility letter was not signed by the appellant until November 2008 even though it had specified that it must be accepted by 3rd April 2008. He says that he was advised by Mr. Daly of BOSI that when it was signed in November 2008 instead of April 2008 “all dates would go forward” and that he should have “no concerns about the drawdown date for the loan”. The trial judge noted that there was no dispute about that, since the bank had later written to the plaintiff stating that the new latest date for drawdown would be 20th November 2011, which was in fact two years from acceptance of the loan. Nevertheless, as noted also by the trial judge, the condition precedent to drawdown, namely that his solicitor must provide “confirmation from the borrower’s solicitors that a minimum of two houses of the four in phase 1 at [Ashley] have contracted sales in place” still had to be complied with.
29. In 2009 the appellant made a further application to BOSI for funding. This was turned down because there was still a requirement that two pre-sales be confirmed as set forth above before the funding for the completion of the development could be drawn down. The trial judge noted that BOSI had gone on to state that it would reconsider the proposal “in the light of any potential sales of property – specifically the sale of the Lindville houses which would reduce the BOSI debt”. This letter also confirmed that the drawdown, subject to the two pre-sales, was valid until 20th November 2011. The trial judge stated that this pre-sale requirement before any further funding could be drawn down in order to complete the Ashley development was still in place, and that this was an important fact given the appellant’s contention in the proceedings that BOSI, (through Mr Aidan McCarthy) had made an express representation to him on the 12th March 2010 “that BOSI would fund the project through to completion” (i.e. irrespective of completed sales).
The meeting on 12th March 2010:
30. By this time the financial crisis was well underway, and like many other developers of property the appellant found himself in some financial difficulty since there was little or no demand for the houses that he had built and wanted to build. He and the bank discussed these issues and his financial needs. In fact the bank appointed new personnel to deal with developers in this sort of difficulty, including the plaintiff.
31. The appellant made the case in the High Court that the bank breached a representation made to him, upon which he relied and was entitled to rely, on the 12th March 2010 as he and Aidan McCarthy of BOSI were walking the Ashley site. The trial judge notes that this representation was that BOSI would finance the houses and sites at Ashley to completion if the appellant gave BOSI additional security over two unencumbered houses that he owned in Douglas, which had a combined value of €500,000. Before setting out his conclusions in relation to this alleged representation the trial judge discussed the context in which the meeting on the 12th March 2010 took place, and he reviewed the evidence that the appellant had given, and also that given by Aidan McCarthy of the bank. He first of all referred to the 2007 loan in the sum of €4.34 million which had been due for repayment by March 2009, but which had been extended by 12 months to March 2010. There was also the 2008 loan in the sum of €1.8 million which included the purchase monies for the Five Firs land. Even though the appellant had been granted planning permission for two houses on the Five Firs land, these had not been built. This loan included funds for the construction of those two houses, and these had to be drawn down not later than 20th November 2011, but that drawdown, as has already been referred to, was at all times subject to the pre-condition of his solicitor’s confirmation of contracts in existence for two pre-sales on the Ashley site.
32. In the light of these circumstances, the trial judge was satisfied that the appellant’s financial position was “extremely fragile” by the time he met with Aidan McCarthy on the 12th March 2010, exacerbated by the state of the country’s economy, and the fact that while he had spent some €1.4 million on the partial construction of the houses on the Ashley site, none was completed and they remained unsold. The site in its unfinished state was unsightly for any persons who might be interested in buying a house at Ashley. He could not satisfy the pre-sale pre-condition for drawdown. The trial judge noted also that one particular possible purchaser wanted confirmation that funding was in place for the build out the remaining houses on the Ashley site to completion, and that in response to that concern, Aidan McCarthy had written a letter dated 17th February 2010 to Savills, the selling agents, in the following terms:
“Dear Catherine,
As discussed, Pat O’Connor has advised the Bank that you currently have a live prospect for number six Ashley which is presently under construction.
I confirm that the Bank, subject to a satisfactory contract of sale being achieved, and the Bank being satisfied with same, we would support the completion of number six to the showhouse standard including relevant landscaping, site access, tarring, lighting and footpaths would be completed for the developed area of the site.
Yours sincerely,
Aidan McCarthy, BOSI.” [emphasis added]
33. Insofar as the appellant was seeking to characterise this letter as one where the bank stated that it would support the completion of number 6 to showhouse standard, the trial judge said that such an interpretation was not open in the light of the full text of the letter. By that he meant that the bank had indicated its support for the completion of number six, “but only subject to a satisfactory contracted sale being achieved” and that “the plaintiff appeared to read in the letter only of what he wanted to read”. The trial judge concluded that this letter was consistent with the earlier BOSI position that it would provide financing only upon confirmation of concluded contracts for two houses, albeit that in relation to number six it was relaxing this requirement in the event that it received a single concluded contract in relation to that particular house. He went on to state:-
“However, it is clear that BOSI was not offering to provide financing for the completion of the site in any way which would lead the plaintiff to believe that BOSI was waving its condition precedent about completed sales”.
34. In relation to the meeting which took place on 12 March 2010 on the Ashley site and upon which the appellant relies for his representation argument the trial judge thought it appropriate to set out the plaintiff’s evidence from Day 2, page 127 of the transcript as follows:
“So we walked out from no.3 and we walked up the site and we were about at number two when Aidan McCarthy said to me he said Pat, he said, you have two houses that are unencumbered over in Douglas and he said if you’re prepared to put those two houses into the pot, the bank will support the completion of the estate and on that basis that I was understanding that to mean that the Bank were going to give me finance if I gave them additional security of two houses unencumbered which I believe at that time were valued at €285,000 each or thereabouts depending on the market, and I agreed on that basis that I was in return having an agreement with the Bank to provide full funding to completion of the estate.
So, Mr. McCarthy then said that he would have to get the bank’s quantity surveyor a Mr. Eoin Stack to value all of the remaining works to be completed on site and do a report and to that end I called over my son Cathal who was with me…”.
35. The trial judge then described this evidence as being the height of the plaintiff’s evidence in respect of his case against the bank that Aidan McCarthy had made a representation to them upon which he relied. He stated that, according to the plaintiff, the nature of that representation was that if he gave the additional security of two houses to the bank, it would in return provide full funding for the completion of the estate.
36. Having so stated, the trial judge then considered the evidence that had been given by Mr. McCarthy. He summarises that evidence between paras. 76 and 84 of his judgment. Mr. McCarthy had referred to an earlier meeting with Mr. O’Connor on the Ashley site in February 2010 on which occasion it was clear that the development was only partially completed, that the access to the showhouse was unfinished, and that the common areas were unsightly and unfinished. He had gone on to state that by 12th March 2010 no sales had materialised and he had sought a further meeting. He had also earlier given evidence that the 2007 loan agreement had been fully drawn down since 20th September 2009, that direct debits in respect of interest had been rejected and had not been discharged and that the account was overdrawn in the sum of €62,815.48 sent and was therefore in default.
37. Mr. McCarthy stated in his evidence that at this meeting Mr. O’Connor had told him that the overall appearance of the site was contributing to the lack of offers and that he wanted to develop the site, but needed further finance in order to do so, and in particular to complete the common areas which, he believed, was putting off potential buyers.
38. Mr. McCarthy stated in his evidence, according to the trial judge, that he told Mr. O’Connor that given the specific precondition contained in the 2008 loan facility letter that the bank would advance further funds only if contracted sales were in place, the bank would require an additional security over the plaintiff’s unencumbered investment properties. According to Mr. McCarthy, he also told Mr. O’Connor that even though his statement of means had referred to his principal private residence as being unencumbered and having a value of €1,150,000, this would not be sought as additional security for the proposed construction finance. He also told Mr. O’Connor at the meeting that since Mr. O’Connor was continuing to devote his time and energy into upgrading the Ashley site in order to secure a sale, the bank would not require him to commit his rental income from his investment properties to the bank, and that, instead, Mr. O’Connor could use that rental income in order to finance his living expenses.
39. According to the trial judge, Mr. McCarthy went on to state in his evidence that in accordance with BOSI policy, it would have to retain a quantity surveyor in relation to the actual amount of finance that would be required to complete the common areas or to complete the property itself, and accordingly that any further application for funding by Mr. O’Connor would have to be accompanied by such a report from a quantity surveyor.
40. In relation to whether Mr. McCarthy did or did not make a representation as alleged by Mr. O’Connor at that meeting, the trial judge stated that his evidence was “clear and unambiguous”, and was stated in the following terms by reference to the transcript:-
“Your honour and I hope I am as clear as I possibly can [be] on this. I agreed nothing with Mr. O’Connor on that site. What I agreed to do was make a proposal to the Bank. I outlined that proposal to Mr. O’Connor and that proposal was part of the meeting that we had and the strategy discussed.”
41. The trial judge went on to note that Mr. McCarthy had categorically stated that under no circumstances would he have made any representation to Mr. O’Connor that the bank would have provided finance to complete the development at Ashley without any preconditions. He said that he was an experienced banker and would never make any representation of that nature, and moreover, that he did not have the power to make any such representation because any such loan could only be approved by the credit committee, and only after all the relevant documentation had been obtained. He characterised the discussion on 12th March 2010 as being simply a discussion in general terms about how the bank and Mr. O’Connor might move forward together in an effort to ensure the best outcome for him and the bank by permitting further finance to complete the common areas so that potential purchasers would be encouraged to buy so that some profits would be generated in order to reduce the banks loan exposure and/or to complete another house which in turn could be sold.
42. The bank obtained a quantity surveyor report from Mr. Eoin Stack, and he gave evidence by reference to his witness statement which was accepted in full. As noted by the trial judge, his report suggested that the outstanding work at Ashley would have to be carried out in three phases. Phase 1 comprised the works required to complete units one, two and four externally and to complete the common areas including roads, parks etc in order to facilitate the proposed sale of the completed showhouse on the site. Phase 2 comprised the works required to complete units one, two and four internally, but with only unit two having the fit out completed to showhouse standard, and the works required construction finished units five and six externally. Phase 3 then comprised the works necessary to complete the internal fit out of units one and 4 to showhouse standard, and to complete units five and six internally to showhouse standard.
43. At para. 86 of his judgment, the trial judge notes that the bank approved another facility in May 2010 on foot of which a sum of €225,000 was released to the appellant to enable him to complete the common areas at Ashley, and to complete phase 1 of the works set out in Mr. Stack’s report. The May 2010 facility letter indicated approval for total borrowings of €5.4 million. Apart from the sum of €225,000 which was drawn down in order to complete those works, this facility was for the purposes also of refinancing the 2007 and 2008 borrowings in respect of which a sum of €5.1 million was owing, and to cover rolled up interest of €80,000. That loan agreement was accepted by the plaintiff on 9th June 2010 after he had received legal advice. His signature on the acceptance form was witnessed by his solicitor, Mr. O’Keeffe.
44. That 2010 facility letter gives rise to the appellant’s fourth issue in these proceedings, which will be dealt with shortly, and which is an allegation of deceit and undue influence in relation to the amalgamation of the 2007 and 2008 facilities with the 2010 facility. For the moment, however, it is necessary to set out the trial judge’s conclusions in relation to the appellant’s allegation that Mr. McCarthy made a representation at the meeting which took place on 12th March 2010, that BOSI would fund the Ashley development to completion.
45. The trial judge’s conclusions on the third issue regarding the representation contained at paras 90-92 of his judgment. Rather than summarise these conclusions, it is convenient to set out them in full:
“90. It may well be that the plaintiff left that meeting of 12th March 2010 in the full knowledge – as he believed – that he had full funding to complete the Ashley and Five Firs development in total. However, there was absolutely no foundation for the plaintiff’s belief or knowledge in that regard. Indeed it is absolutely fanciful for the plaintiff to suggest otherwise. The plaintiff is an experienced property developer. He had been negotiating loan facilities and loan agreements with BOSI for over eight years at this period in time. He had at this stage, no less than five facility agreements concluded with BOSI. He was developing properties in three separate sites – Lindville, Ashley and Five Firs. He was an experienced negotiator who was at all times legally advised as to the full effect of loan agreements and contractual obligations. Throughout his evidence, he seemed quite clear about various legal obligations. Indeed, when the contractual obligations were in his favour, he seemed particularly attuned and to legal niceties. It was only when legal obligations were sought to be construed against him that he sought to contend that they had no application or that they could be explained away on the basis of some vague representations made by some bank official on some unknown date. It is quite clear from the evidence that there was no such representation made by Aidan McCarthy that BOSI would finance the development through to completion. It is also quite clear from the evidence that there was absolutely no agreement between BOSI and Mr. O’Connor that BOSI would complete the developments through to completion. The only agreement which BOSI maintained at all times both before and after 12th March 2010 was that BOSI was prepared to honour its loan facility agreement provided that the condition precedents were met (i.e. that there would be a minimum of two contracted sales in Ashley before construction finance for the two houses in Five Firs was advanced.
91. Moreover the plaintiff elsewhere in his evidence sought to argue that by virtue of the fact that BOSI had sought to rely on Mr. Stack’s QS report that that showed an indication that BOSI was prepared to agree to finance the development to completion. It shows nothing of the sort. The only reason Mr. Stack was retained was because BOSI was of the view that perhaps the full €750,000 did not need to be drawn down to construct both houses because there had been a drop in construction costs for the construction of houses between 2008 and 2010 given the conditions in the market.
92. The only witnesses to the alleged representation made on 12th March 2010 by Mr. McCarthy, on behalf of BOSI, where Mr. O’Connor and Mr. McCarthy. Having heard the evidence of both witnesses in great detail on this point, I am quite satisfied that Mr. McCarthy made no representation of any kind to Mr. O’Connor that if he granted extra security, BOSI would fund the development through to completion and I make a finding of fact in that regard. Mr. O’Connor either misheard or misunderstood what was said by Mr. McCarthy.”
46. The trial judge has clearly stated that he has made a finding of fact in this regard. Accordingly, the appellant faces the same uphill battle which he faced in relation to the earlier common areas issue by reference to the principles in Hay v. O’Grady. He must satisfy this court on appeal that there was no credible evidential basis for his conclusion as to fact.
47. The appellant’s written submissions and indeed his notice of appeal are extensive, running to many pages even on this single issue. He sets out at great length the many ways in which he considers that the trial judge erred in his consideration of the competing versions of what occurred both at the meeting on the 12th March 2010, and both before and after it. But what he has failed to do is establish any basis for deciding that there was no evidence given by the bank upon which the trial judge could properly rely as the basis for his conclusions regarding the alleged misrepresentation. Clearly the evidence given by Mr. McCarthy was evidence which he was entitled to prefer over other evidence given by Mr. O’Connor. Where there is evidence given by one side, and very different evidence given by the other, the trial judge must consider each, but eventually decide on the basis of all the evidence which he has heard, and by reference to any available documentary evidence, and all the surrounding facts and circumstances of which he has been apprised during the hearing, which evidence he considers to be more probably descriptive of the correct state of affairs, and which evidence to reject. His conclusions are reached on the balance of probabilities. In this case that is what the trial judge did. In his judgment he has made it abundantly clear that he has preferred the evidence of Mr. McCarthy to that of Mr. O’Connor. He has identified the evidence which he relies upon for his overall conclusion that the bank did not represent that it would provide full funding for the completion of Ashley in the way contended for by Mr. O’Connor. His reasoning is clear. In this Court’s view there was evidence which he was entitled to accept which supports the conclusion that he reached. Even though there was contrary evidence given by Mr. O’Connor, this Court may not interfere with the trial judge’s findings of fact on this issue.
48. The Court wishes to make it clear to Mr. O’Connor that even though the Court’s conclusions are stated relatively briefly, regard has been had to his very extensive written submissions, his oral submissions, as well as the contents of his notice of appeal.
Fourth issue – the amalgamation of the 2007 and 2008 loans
49. The appellant has sought to characterise the calling of the meeting for the 12th March 2010 as a strategy whereby it sought to induce him into providing the bank with further security even though it knew that he was not a suitable client for further borrowings, in breach of good banking practice. He considers that he was deceived by Mr. McCarthy as to the true nature of the funding being provided on the basis of Mr. Stack’s report, and that at the 12th March 2010 meeting he was duped into providing additional security to the bank on a false promise that full funding would be provided in order to complete the development at Ashley. In his written submissions he has alleged undue influence and “economic duress” against the bank. He considers that the bank in all the circumstances known to it at the time took unfair advantage of him, knowing the difficult financial position that he was in at this time, and in effect tricked him into giving the bank additional security.
50. As seen above, this meeting resulted in a new loan facility in May 2010 (the 2010 facility). It was in the sum of €5.4 million, of which €225,000 was released to facilitate the completion of the common areas of the Ashley in order to help the sale of the houses there, and €5.1 million was allocated to clear what was already owed on the 2007 and 2008 facilities which were in default. The balance represented rolled-up interest. The trial judge noted that the appellant had signed his acceptance of this 2010 loan facility letter on the 9th June 2010 and that his signature was witnessed by his solicitor.
51. The appellant has submitted that the trial judge failed to take proper account of the all the relevant facts relating to the amalgamation of the 2007 and 2008 loans, and that this was not discussed by the bank with him at the time. He says that at a meeting with Mr. McCarthy in May 2010 he was told by him that this amalgamation was solely for accounting purposes, so that there would be just one loan account instead of two or three. He says that he was never told that “the 2008 facility was being withdrawn and / or cancelled, either by Mr. McCarthy or by his own solicitors.
52. The trial judge found as a fact that he was so aware by the 8th June 2010. The appellant submits that the judge erred in this conclusion because he failed to have regard to the fact that Mr. O’Keeffe’s notes to which he referred in his evidence were not contemporaneous notes, but rather were constructed in 2011 after the appellant had spoken to Mr. O’Keeffe’s partner, Mr Riordan. The appellant has stated his view that Mr. O’Keeffe gave false evidence before the trial judge and that this is not referred to in his judgment.
53. The appellant has stated that by the date of the May 2010 loan facility, there was still life left in the 2008 facility since drawdown had to be completed by November 2011, and there was still a sum of €750,000 available to be drawn down on it. He says that by the amalgamation of that loan with the 2010 loan he lost the benefit of that facility, and that this was never explained to him. However, he overlooks the fact that the pre-sales condition to further drawdown was still in place, and for the reasons already stated, there were no such pre-sales in place, partly because the common areas were incomplete making the entire site unsightly for prospective purchasers. There was evidence given, as already set forth, that the partial drawdown of €225,000 from the 2010 facility was to enable the common areas to be finished out in order to better attract potential purchasers.
54. The trial judge set out the competing arguments in relation to this issue. He noted the appellant’s allegation of fraud and deceit on the part of the bank in relation to the amalgamation of the 2007/2008 loans. He noted the bank’s evidence that the appellant was fully informed about that amalgamation with the May 2010 facility, and that additional funds were being advanced with the provision of additional security by him. The bank’s evidence was that this was all clear from the facility letter itself, and in addition that Mr. McCarthy had told the appellant about it when he collected the facility letter from Mr. McCarthy, and further that the appellant had received his own independent advice on the matter as evidenced by the fact that his acceptance of the facility was witnessed by his own solicitor.
55. The appellant gave evidence in the High Court that when he collected the 2010 facility letter from Mr. McCarthy he saw that it was not in compliance with what he thought was agreed with Mr. McCarthy at the 12th March 2010 meeting, and he says that he went to see his solicitor. The trial judge stated at para. 100 of his judgment that this non-compliance was “because the development finance in the loan agreement was limited to €225,000 and also because it was due to be repaid in six months, i.e. in December 2010 and not in November 2011 as his 2008 loan advised”.
56. The trial judge has set out an account of evidence given at trial in relation to this matter both by the appellant and by Mr. McCarthy. During his cross-examination of Mr. McCarthy, the appellant had asked why “any man in his right mind would give up the April 2008 loan because it permitted construction finance of €750,000 until November 2011 and it was impossible to obtain finance from any other bank at that time”. The trial judge notes Mr. McCarthy’s reply which he says was “clear”, which was:
“The plaintiff had simply run out of money and run out of options. The February 2007 loan had been drawn down in full; the funds available under the April 2008 loan could not be drawn down until the plaintiff had obtained pre-sales. He could not obtain pre-sales because of the unfinished condition of the estate. He desperately needed finance to complete the common areas in Ashley which might then, with a fair wind, permit to sell the showhouse. If he sold the showhouse he then might be able to sell another house. If he achieved these two pre-sales then he might obtain further construction costs to finish out the other houses.”
57. The trial judge stated that Mr. McCarthy’s evidence was credible and showed clearly the commercial imperatives which compelled the appellant at that time to refinance his 2007 and 2008 loans into the May 2010 facility. He stated that there was a clear commercial logic for the bank, but that it also had a clear commercial logic for the appellant, despite the fact that the plaintiff was now trying to portray it differently. The trial judge set out at some length the reasoning behind the May 2010 facility, according to the evidence given by Mr. McCarthy, what he also referred to, but the appellant complained about, in relation to the 2008 loan facility being taken away from him by the 2010 facility, and that this deprived him of the ability to drawdown the remaining €750,000 for the construction of Ashley by November 2011. In that regard, the trial judge stated the following:
“However, what Mr. O’Connor conveniently ignores at each and every occasion was that he could not draw down this construction finance at his own discretion. It was subject to a condition precedent which required a contractual pre-sale of one of the houses at Ashley. He never fulfilled this condition precedent. Even up to the date of the receivership there were no pre-sales at Ashley. Thus he never could have drawn down these funds, even if the May 2010 loan agreement had not been put in place.”
58. The trial judge went on to consider the evidence in relation to the legal advice which the appellant had available to him before he signed his acceptance of the 2010 loan facility, his signature being witnessed by Mr. O’Keeffe, his solicitor. The trial judge refers to what he describes as Mr. O’Keeffe’s contemporaneous note of a meeting with the appellant on 8th June 2010. He sets out the contents of this note. Having done so, he expresses following conclusions:
“113. What is of importance in the above contemporaneous note, is that it is noted that the existing loan offer (i.e. the April 2008 loan offer) is now “off the table”. It is clear therefore that the plaintiff was absolutely aware from his meeting with his solicitor that the April 2008 loan was “off the table”. It is not only clear that he was aware of it and that his solicitor was aware of it but that his solicitor advised him on this very point. Despite this, Mr. O’Connor sought to portray himself in court as a man who was oblivious of the fact that the April 2008 loan was no longer in existence, or that it was amalgamated into the May 2010 loan agreement, that he had been deceived into giving up this April 2008 loan, and that BOSI fraudulently misrepresented the position to. It is clear that the plaintiff is wholly misguided in relation to this issue and that he was fully aware of it.
114. I therefore find as a fact based on the evidence of the plaintiff, Mr. O’Keeffe and Aidan McCarthy that the plaintiff was fully aware as at 8th June. 2010 before he entered into the May/June 2010 loan agreement that the April 2008 loan was being withdrawn and being reissued/amalgamated in the May/June 2010 loan agreement and that he entered the loan agreement in 2010 on that basis.”
59. Having expressed these conclusions, the trial judge went on to refer to a telephone conversation which the appellant had with Aidan McCarthy on 8th June 2010 at about 6015 p.m. The plaintiff apparently kept a contemporaneous note of this telephone conversation. The contents of that note are set out in the trial judge’s judgment. He also refers to a letter which the appellant then wrote to Mr. McCarthy which is dated 10th June 2010, and again the entire contents of that letter set forth in the trial judge’s judgment. He refers to the fact that the appellant had sought to contend that this letter formed part of his acceptance of the loan offer letter dated 24th of May 2010, and to the fact that Mr. McCarthy on behalf of the bank did not accept that it formed part of the loan offer obligations. The trial judge concludes that “In my view it is clear that there was no agreement on the part of the Bank that the plaintiff’s letter dated 10th of June 2010 was incorporated by an agreement into the loan agreement of 24th May/9thJune 2010”.
60. Trial judge went on to set out what Mr. O’Keeffe (solicitor) had said in his contemporaneous note of a telephone conversation he had with the appellant on the 9th June 2010, part of which, as noted by the trial judge, states “knows giving security now for small money but keeps it going – not getting anything in writing because needs a price for sale of first one to set a floor”. The judge stated:
“… it is clear from this note that Mr. O’Connor knew full well that he was giving extra security for ‘small money’. But of course Mr. O’Connor was giving extra security to BOSI in order to ensure that the February 2007 loan which was in arrears and in default would not be called in. It would instead be refinanced. Thus the extra security which the plaintiff gave in terms of its houses was not only for the development finance to complete the common areas of €225,000, but also as extra security to refinance [the] February 2007 loan which was in default.”
61. At paras. 120-122 of his judgment, the trial judge concludes as follows on this issue:
“120. It is common case that there were no contracted sales at Ashley before the loan facility of 2010. Indeed, it is common case that there were no contracted sales at Ashley before 20 November 2011 (i.e. the date of the expiry of the drawdown). That being so, and given that the condition precedent had not been fulfilled, it clearly follows that BOSI was under no contractual obligation to advance the money under the terms of the April 2008 loan offer to the plaintiff. Thus, even taking the plaintiff’s case at its height, it is abundantly clear, that even if the April 2008 loan facility letter had continued and being until 20th November 2011 there would have been no contractual obligations on BOSI to advance the €750,000 construction costs for Five Firs.
121. This is important because the plaintiff’s case is that the 2010 facility (which refinanced the 2007 and 2008 facility) put a new timeline in place which made it more difficult for him. However, even if he is correct in that submission (and in my view he is not), even if the 2008 loan facility had continued in being, the plaintiff was unable to satisfy the conditions precedent. There were no contracted sales before November 2011 and therefore the plaintiff himself was unable to comply with the terms of the facility letter of April 2008 from BOSI. Indeed I am absolutely at a loss to understand why the plaintiff believes he has any case in this regard.”
62. The appellant, despite the length of his written submissions and despite his oral submissions, has not persuaded this Court that there was no evidence which the trial could have accepted as a basis for his conclusions. Again, the Hay v O’Grady principles present a difficulty for the appellant. The trial judge has reached very clear conclusions of fact and he has made clear the evidence on which he has based these conclusions. The Court appreciates that the appellant has given other evidence. But as already stated, the trial judge is in a position to assess the evidence adduced by each party, and must reach a conclusion as to which evidence is to be preferred where it is conflicting evidence. This is what the trial judge has done on this issue, and in the Court’s view he was entitled on the evidence to reach those conclusions and there is not a basis on which this Court should interfere with same.
The fifth issue – whether the bank breached a promise that it would provide €100,000 to complete the Ashley showhouse
63. The appellant gave evidence that Savills had advised him that in order to assist with sales of the Ashley houses, a house should be finished out to a high standard as a show house. He gave evidence that on 24th February 2009 he had telephoned Mr. Daly of BOSI and had requested further funding of €100,000 for that purpose. It will be recalled BOSI had issued a loan approval letter dated 5th February 2007 in the sum of €4.34 million to enable the appellant, inter alia, to purchase the Ashley site and the cost of constructing the proposed houses at Ashley.
64. The appellant’s case is that when during a telephone call to Mr. Daly on the 24th February 2009 he sought this funding for the showhouse, and Mr. Daly agreed to it, it was intended by both to be an additional sum of €100,000 and not as part of the 2007 sanction. However, as the trial judge noted at para. 143 of his judgment, Mr. Daly had a different version of events as contained in his witness statement (which was used as his direct evidence and on which he was cross-examined). That evidence is set forth from paras. 25 and 35 of his witness statement, as follows:
“25. In respect of the showhouse funding, Mr. O’Connor sought approval to use €100,000 of funds towards the completion of a showhouse. Given that these funds were intended for the completion of construction works, the Bank’s opinion was that use of these funds for showhouse renovations constituted an amendment from the purpose of the original offer letter. I recall seeking credit approval to allow funds be diverted towards the completion of a showhouse which was refused by the Bank. I have no recollection of apologising to Mr. O’Connor for delays in the process.”
35. I can categorically confirm that I never advised either Mr. O’Connor or Corbel Developments Limited to proceed with the fit out of the showhouse. I consider this comment to be entirely untrue. I do not recall advising Mr. O’Connor that the proposal could not be made due to issues with the Bank. If the Bank had no appetite to provide additional funding to Mr. O’Connor Ashley, this message was conveyed to Mr. O’Connor professionally and in a factual manner. I do not recall instructing Mr. O’Connor to advise Mr Cathal O’Connor to proceed with the fit out of the showhouse.”
65. The trial judge noted in his judgment that Mr. Daly’s evidence was that he did in fact seek credit approval for this €100,000 but he was told that it was going to be declined. The trial judge also stated Mr. Daly’s recollection that he remembered asking whether the funds in the February 2007 loan could be diverted towards completing a showhouse and that this also was declined. On this issue, trial judge concluded as follows:
“146. Having considered and assessed the evidence on this matter I am of the view that no representation was made by Mr. Daly to the plaintiff that BOSI would definitely advance a sum of €100,000 to the plaintiff to complete the showhouse. It may well be that Mr. Daly indicated to Mr. O’Connor that he would seek BOSI approval for this request. It may also be that Mr. O’Connor heard what he wanted to hear and took that as BOSI approval of his request. However, in the event, BOSI approval was not forthcoming and the €100,000 was not advanced for the expenditure of the showhouse. If Mr. O’Connor spent €100,000 on completing the showhouse, he did so based on a misunderstanding and not based on any representation made by BOSI or based on any agreement with BOSI.”
66. The appellant submits that the trial judge erred by not having regard to his contemporaneous note of his conversation with Mr. Daly of BOSI on the 24th February 2009, as this was the only contemporaneous note of what was said in that call. In that regard he drew attention to the fact that Mr. Daly when being cross-examined on his witness statement had stated that he had no recollection of the telephone call on the 24th February 2009. However, the trial judge clearly did have regard to this note because he actually sets out its contents in his judgment as follows:
“24/2/09. 12.45pm. Gavin Daly of BOSI rang to go ahead with showhouse, 100k BOSI will treat it as part of Ashley 104”.
It was immediately after he had set forth the contents of the appellant’s contemporaneous note that the trial judge went on to state, as noted above, that Mr. Daly had a different version of events and then referred to what he had stated in his witness statement at paras. 25 and 35 as quoted above. In this Court’s view it was certainly open to the trial judge to prefer the evidence of Mr. Daly as he gave it in his witness statement, and as he spoke to that evidence when asked about it by the appellant during his cross-examination, over the evidence contained in the brief contemporaneous note of the telephone call on the 24th February 2009 even where that note is accepted as being contemporaneous and the only such note of the conversation, over the appellant’s own evidence. The note is very brief, and the trial judge was entitled to conclude that it did not support a representation by Mr. Daly such as the appellant asserts, namely that an additional sum of €100,000 would be made available for the completion of the showhouse. He was entitled to accept Mr. Daly’s evidence of seeking an approval for that additional sum and that it was declined.
67. The appellant complains also that the trial judge failed to properly consider Cathal O’Connor’s evidence regarding proceeding with the showhouse fit-out works after what he describes as the promise by Mr. Daly on that date. It is true that this evidence is not referred to. But on the other hand, any evidence of what Cathal O’Connor did after that conversation that his father had with Mr. Daly cannot assist in determining what exactly was said between them, and therefore could not assist the trial judge in determining whether what was said amounted to a representation to the appellant that additional funding would be provided for the showhouse. Accordingly the Court also dismisses the appeal on this issue.
Sixth issue – Joint Receivers
68. The appellant challenged the validity of the appointment of the receivers; but in the course of the hearing (Day 4) he confirmed to the trial judge that such challenge related only to his contention in relation to the common areas. As appears, that no longer subsists. He also claimed damages against the receivers. The trial judge identified just three issues that remained in relation to the receivers, namely:-
(i) conflict of interest;
(ii) their failure to properly maintain the assets in the receivership; and
(iii) permitting the Five Firs planning permission to lapse.
(i) Conflict of interest:
69. The appellant’s case in relation to conflict of interest is simply that Mr. Cotter ought not to have accepted an appointment as receiver over his assets because in 2007 and again in 2010 he had assisted the appellant in relation to his funding applications to BOSI. Mr. O’Connor’s evidence is summarised in the judgment of the trial judge. He apparently had not billed the appellant for any work he did for him in 2006/2007 because it was not significant. The work appears to have consisted of making a few telephone calls by way of introducing the appellant. Mr. Cotter also saw his involvement as a favour to the appellant whose brother in law was a colleague of his since the 1980s. He was able to confirm that the appellant was not set up as a client on the Ernst & Young system. The trial judge considered Mr. Cotter to be a reliable and trustworthy witness. The trial judge then set out a history of Mr. Cotter’s involvement from 2000- 2006. Mr. Cotter’s evidence was that the appellant had not consulted him in relation to the 2007 loan facility and that apart from perhaps meeting him on the street or at a social function he had no further contact with the appellant until after his appointment as joint receiver.
70. Mr. Cotter gave evidence of what checks he carried out within his firm to establish that no conflict arose. Firstly the firm would have done a conflicts check, and no conflict was identified. Secondly, as a member of the Chartered Accountants of Ireland he was subject to its Code of Ethics, and would have to consider whether any relationship he had with the appellant would breach that code if he accepted the bank’s appointment of receiver. Having considered the nature of the relationship, the size of the fees paid, if any, and how recent any relationship was (2007 being the last occasion on which he gave any assistance to the appellant), he was satisfied that there was no material relationship and that no conflict arose.
71. The trial judge was satisfied that no conflict of interest existed between the appellant and Mr. Cotter, and he set out five reasons for arriving at that conclusion:
(i) he had not acted for the appellant for at least five years,
(ii) the nature of the involvement in late 2006 which involved introducing the appellant to Mr. Barry in BOSI, rather than giving advice as such;
(iii) the appellant conducted all his own negotiations with BOSI,
(iv) the receivership arose out of the 2010 loan facility and not the 2007 facility, and
(v) the appellant gave no evidence of having made any payment to Ernst & Young for any assistance given by Mr. Cotter, and the last payment of any fees to that firm had been back in 2002/2003.
72. The trial judge concluded that the appellant’s allegation of a conflict of interest such that he should not have taken the appointment as receiver was “utterly without merit”.
73. Once again, the appellant is confronted by the principles in Hay v. O’Grady. The trial judge made a finding of fact that there was no conflict of interest arising on the evidence which he was satisfied to accept. The appellant submits that the trial judge erred by failing to consider whether the appointment as receiver was invalid by reason of Mr. Cotter failing to enquire of the bank if there were any misrepresentations by the bank or other breaches by the bank, prior to accepting his appointment. That is a ground contained in the appellant’s notice of appeal. But given the trial judge’s conclusions on the question of misrepresentation, and this Court’s conclusion in that regard on this appeal, there can be no merit in that point.
74. There are many other grounds of appeal under this heading but for the most part they seek to attack the validity of the receivers’ appointment by reason of alleged flaws in the deed of appointment, and in the mortgage documentation. In the High Court the appellant had attempted to argue that there were defects e.g. by the absence of any seal on the deed of appointment. The trial judge engaged with the appellant on that issue but ruled that it was not pleaded and was not in the case. The appellant agreed not to pursue the point, but now on this appeal sought to agitate it afresh on the basis that he had misunderstood what he was being asked to do by the trial judge. This Court is satisfied that the appellant clearly agreed not to pursue the point regarding the sealing of the documents, and that it would not therefore be appropriate to permit him to advance arguments in relation to it on this appeal.
75. In this Court’s view the trial judge was entitled to conclude on this issue as he did, on the basis of the evidence which was given.
(ii) Failure to maintain the assets and maximise the rental value:
76. The appellant had alleged that the receivers had failed to properly take care of and secure the property at Ashley from vandalism, and that they were now in disrepair. He also alleged that certain materials such as scaffolding and hoardings had been removed. In relation to the latter, however, it was clear that such property did not in fact belong to the appellant, but to the Corbel Developments Limited which is not a party to the proceedings. The trial judge noted in his judgment that the appellant accepted that point when it was raised against him in the High Court.
77. In relation to the failure to protect the houses themselves from acts of vandalism, Mr. Cotter gave evidence and the trial judge refers to that evidence. Mr. Cotter felt that the receivers had taken reasonable steps to protect the properties but accepted that there had been two minor acts of vandalism when some teenagers got into one of the properties. Thereafter some repairs had been carried out, and a security firm had been engaged to carry out daily visits.
78. There were also incidents of windows being broken. These were fixed, and thereafter the windows and doors were boarded up. A security person was engaged to make a daily visit. He went on to state, according to the judgment, that as soon as the houses could be sold the boarding would be removed, but that this could not be done at the moment as the appellant’s lis pendens remained on the property. Neither could the properties be rented out because they were unfinished. It appears that just one of the houses is rented out. This was the showhouse.
79. Mr. Cotter gave evidence of other work and repairs carried out on various dates as the judgment records, including the cutting of grass and general tidying.
80. The trial judge was satisfied by the evidence given that the receivers had taken reasonable steps to maintain the property, and to protect it from being vandalised. He concluded that the appellant’s claims in this regard were without any foundation. On the evidence before him that was a conclusion that the trial judge was entitled to reach and the appellant has not satisfied this Court of any error by the trial judge in his approach to this issue..
(iii) allowing the Five Firs planning permission for two houses to lapse:
81. The trial judge noted that this allegation had not been pleaded in any way in the proceedings, and nor had it been referred to in the appellant’s lengthy witness statement, nor during his six days of evidence during the hearing. The trial judge noted that it was raised for the very first time at the conclusion of the appellant’s son’s evidence (Cathal O’Connor). When objection was raised about it being raised in this way for the first time, it appears that the appellant was insistent upon being permitted to argue it, and stated that it had only just come to his attention. The trial judge notes in his judgment that the respondents “quite generously” consented to the amendment of the pleadings in this regard.
82. It should be clarified that the Five Firs site on which it was proposed to build two houses was immediately adjacent to the Ashley site, and later became part of an enlarged Ashley site. There was a planning permission for the construction of two houses on the Five Firs site.
83. The trial judge heard evidence from Ms. Stokes from Lisney estate agents who prepared a report for the receivers in 2012. This report had identified two problems with the development. Firstly the garden for no. 4 Ashley was very small and required more space, and secondly that the development as a whole had very little parking space. The report recommended that one of the sites be given over to providing more such space, and that another of the sites should be developed in a smaller way. For these reasons the existing planning permission was allowed to lapse, as they wished to carry out the recommendations and apply for a new permission for these revisions.
84. The Lisney report apparently went on to state that if these modifications to the development were carried out, the value of the other houses on the site would increase, and maximise the return on any sales. These advices had been accepted. Mr. Cotter gave evidence in that regard.
85. The trial judge concluded that the receivers had sought professional advice and had followed that advice in the interests of maximising the value of the property as a whole. He concluded that in such circumstances it was reasonable that the existing planning permission should be allowed to lapse, and that the allegation against that the receivers were in breach of their professional duty as receivers was unfounded.
86. The appellant has failed to identify any basis on which this Court could interfere with the trial judge’s conclusion on this issue.
Seventh issue – claims against solicitors
87. The appellant makes claims that his former solicitors were negligent and acted in breach of contract in the provision of services to him, and that they had a conflict of interest when retained by him.
Conflict of Interest:
88. The appellant alleges that his former solicitors, Mr. Riordan and Mr. O’Keeffe, had a conflict of interest in acting both on his behalf and on behalf of BOSI in relation to the 2007 loan, 2008 Loan and the 2010 loan, as a result of which he claims he suffered loss and damage. His claim is entirely grounded on his own evidence whereas the respondents, Mr. Riordan and Mr. O’Keeffe, gave evidence on their own behalf, but also called an expert witness namely, Mr. Michael Carrigan, solicitor, a consultant in the firm of Eugene F. Collins Solicitors.
89. It should be explained at this juncture that the appellant was from time to time represented by two solicitors, James Riordan and Darren O’Keeffe, who, when he initially attended with them, were partners in M.J. Hogan & Sons, and were subsequently partners in the firm of James Riordan & Partners. BOSI was represented by other solicitors in those firms. It appears that the appellant first attended with Mr. Riordan not so much looking for legal services, but for the purpose of obtaining an introduction to BOSI because he was aware that Mr. Riordan acted on behalf of BOSI.
90. The appellant relies upon the Solicitors (Professional Practice, Conduct and Discipline – Commercial Property Transactions) Regulations 2010 (S.I. 366/2010) (the “2010 regulations”). These regulations prohibit a solicitor from acting on behalf of both a borrower and a lender in the same commercial property transaction. While acknowledging that these regulations did not come into operation until 1st December, 2010, and therefore post-dated all of the transactions the subject of these proceedings, the appellant contends that at the time of the 2010 loan, the possibility of the introduction of these regulations was under discussion and well known in the solicitors’ profession. On this basis he contends that the solicitors should not have acted both on his behalf and on behalf of BOSI in the 2010 loan transaction.
91. However, there can be no question of the retrospective application of these regulations, regardless as to whether or not Mr. Riordan and / or Mr. O’Keeffe were aware or should have been aware that consideration was being given to their introduction.
92. Of much more relevance to this issue is the guide to good professional conduct of solicitors in Ireland that applied at the time the solicitors provided services to the plaintiff. That was the second edition of that publication, which was published in 2002 (“the 2002 Guide”). Mr. Carrigan deals with the recommendations of that Guide insofar as relevant to these proceedings in his evidence. The relevant provisions of the 2002 Guide may be summarised as follows:-
(1) A solicitor acting for a client in relation to any particular transaction is obliged to take all reasonable steps to ensure that his client’s interests are fully protected;
(2) The relationship of solicitor and client is a fiduciary relationship;
(3) A solicitor, or a firm of solicitors, should not act for both vendor and purchaser in a transfer of property for value at arms length;
(Mr. Carrigan was of the opinion that (3) would apply equally to acting on behalf of a borrower and lending institution in the same transaction.)
(4) There are exceptions to (3), the most relevant of which is that the parties are established clients of the solicitor and where both are clearly advised at the outset by the solicitor of the desirability of separate independent representation, but each agrees that the solicitor should continue to act for both;
(5) If a conflict of interest arises, the firm must cease to act for either client in the matter.
93. The evidence established that both parties were aware that the same firm of solicitors was acting on behalf of each party. Indeed, Mr. O’Connor specifically went to Mr. Riordan in the first place because he knew his firm acted on behalf of BOSI. However, it appears the solicitors did not advise the parties of the desirability of obtaining independent legal representation. While this is unfortunate, and is prohibited under the 2010 regulations, and subsequently, the Solicitors (Professional Practice, Conduct and Discipline-Convincing Conflict of Interest) Regulations 2012, it does not follow that the solicitors have a liability to the appellant merely because they were not acting in compliance with the 2002 guidelines. It is true that by acting on behalf of both parties to each of the loan transactions, they placed themselves in a situation where a conflict of interest could arise. However, this does not, of itself, give rise to a liability in damages. For a liability in damages to arise, an actual conflict of interest must arise, not just the potential for it, and there must be some causal link between a loss claimed and the alleged conflict. It is necessary therefore to consider:-
(1) The services provided by the solicitors to the appellant;
(2) The duties owed by the solicitors to the appellant in the provision of those services;
(3) The manner in which the services were provided and in particular whether or not the duties owed to the appellant were fulfilled; and
(4) The losses which the appellant claims to have suffered by reason of the solicitors acting whilst having a conflict of interest and without having advised him to take independent advice.
94. Before conducting this analysis, it should be noted that the appellant is relying on a decision in Murray and Whelan v O’Donnell, Dalton, Hogan, unreported, High Court 7th October 2004, in which Quirke J. stated the following in relation to solicitors acting for both a vendor and a purchaser in conveyancing transactions:
“Conflicting interests are bound to arise in such circumstances and I have no doubt whatsoever that the duty upon a solicitor who is acting on behalf of both parties in the circumstances which have arisen in this case is particularly onerous, such a solicitor is under an obligation to explain carefully and in the greatest possible detail to both the vendor and purchaser what is involved in the transaction and in particular he is under a duty to identify with precision the property to be transferred and the title of that property together with any limitations upon that title and any risks attendant upon the transfer and upon the transaction generally.”
In that case, Quirke J found that what he described as a virtual litany of acts and omissions of serious negligence on the part of the defendants and concluded that these had caused the plaintiffs loss and damage.
The Services provided:
95. At the outset, it should be observed that Mr. Carrigan gave evidence that, as a general rule, a solicitor is not responsible for the commercial decisions of his client, although he considered that a solicitor should raise with his client the wisdom of any decision if it appears to the solicitor that the decision being made by the client is not, or may not be, in the best interest of the client. He stated that the extent to which a solicitor ought to do this must be assessed by reference to the experience or vulnerability of the client concerned. The more experienced the client is in a given field the more knowledge he may be assumed to have, although this does not relieve the solicitor from his/her general duty to ensure his/her client’s interests are at all times fully protected.
96. In this case, the evidence established that the appellant was an experienced property developer with prior experience of dealing with financial institutions in connection with the provision of funding for such developments. This was the background to the retainer by him of the solicitors. He had received a loan facility in 2002, having a value of €820,000 already referred to above in respect of which the solicitors had no involvement. He received another loan from the respondent in 2003, in the sum of €750,000 the purposes of which were to restructure the 2002 loan and to fund the construction of two houses at Lindville. This loan was also secured over the sites at Lindville, but was repaid in full by 21st April 2005. He received a further loan in 2004, in the sum of €900,000 to fund the construction of four more houses in Lindville, also secured by the same property. This loan was repaid in full by 20thApril 2007, but out of the proceeds of the 2007 loan.The solicitors did not act on his behalf in respect of either of the 2003 or 2004 loans.
97. Subsequently, however, the solicitors acted on his behalf in connection with the 2007 loan, the 2008 loan and the 2010 loan. In providing services in connection at the 2007 loan, the solicitors were not consulted by him in relation to the terms of the letter of loan offer. Accordingly their instructions were to implement the loan on his behalf in accordance with the terms of the letter of offer. This required them to ensure that he provided BOSI with whatever security he had agreed to provide as a condition precedent to the drawdown of the loan, to ensure that the security provided did not extend to other property or assets not required by the letter of offer, to register the deed of mortgage and charge in the Land Registry and to furnish a certificate of title to BOSI’s solicitors at the conclusion of the transaction. The same services were required by the appellant of the solicitors in connection with the 2008 and 2010 loans, but in those transactions the solicitors did provide advice in relation to the letters of offer.
Duties owed by solicitors in the provision of services:
98. In his expert opinion to the court, Mr. Carrigan states that:-
“While the borrower’s solicitor should be satisfied that his client fully understands the consequences of default pursuant to the terms of security documentation the only issue for him generally will be to ensure that the security document accurately reflects what is set out in the letter of loan offer issued to the borrower and that the property to be secured is limited to that specified in the letter of loan offer and does not extend to other property or assets of the borrower.”
Manner in which services were provided:
99. Firstly, it should be observed that the appellant makes no complaint that any of the security documentation which he completed for the purposes of the 2007, 2008, and 2010 loans was otherwise than in accordance with his instructions. Having heard the evidence of the parties, and having considered the expert opinion of Mr. Carrigan, and having considered all of the plaintiff’s submissions in this regard, the trial judge concluded that:
“there is no evidence that the solicitor defendants failed to protect Mr. O’Connor’s interests in any way in respect of the three relevant transactions – the 2007 Loan, the 2008 Loan and the 2010 Loan.”
100. In addition to providing the necessary services to the appellant in connection with the granting of security to the bank for the purpose of drawing down each of the loans, Mr. O’Keeffe also advised the appellant in relation to the letters of offer issued by BOSI in relation to the 2008 and 2010 loans. He makes no complaint about the advice given in relation to the 2008 loan. He does make a complaint however in relation to the advice he received as regards the 2010 loan.
The complaint arising out of conflict of interest allegation:
101. It is very difficult to identify precisely what the appellant claims that he has lost by reason of the solicitors’ alleged conflict of interest. However, an analysis of the pleadings and the evidence that Mr. O’Connor gave in the High Court, as well as his submissions before this Court, suggests that he makes the following complaints as to the prejudice he suffered by reason of the same:-
(1) Firstly, in this Court he submitted that if Mr. O’Keeffe had declared his conflict of interest as required by the 2002 Guide, he (Mr. O’Connor) would have gone to another solicitor and that such other solicitor would have examined the 2002 security at the time of acting on behalf of the appellant in connection with the 2007 loan. He argues that such an examination would have disclosed that BOSI had more security than that to which it was entitled over the lands at Lindville and that this could have been corrected at that time, and that as a consequence he has suffered a loss.
(2) Alternatively, in relation to this same heading of loss, his evidence at trial was to the effect that the solicitors failed to examine the extent of the security that he provided in 2002 when acting on his behalf in connection with the 2007 loan, by reason of their conflicting obligations to BOSI, and that had they done BOSI would have been provided with security over just one house in Lindville, and the security would not have extended to the common areas, on which he claims there was scope to carry out some development at a profit.
(3) The appellant also said in evidence that if Mr. O’Keeffe had informed him that there was no security in place for the 2003 loan and the 2004 loan and if Mr. O’Keeffe had advised that, as a result, the 2004 mortgage (over Lindville) was no longer valid, he would have been entitled to ownership of unencumbered properties at Lindville. By this he presumably means that since the 2003 and 2004 loans had been repaid, he could have asked BOSI to release Lindville from its security, but of course it continued to be part of the security required by BOSI for the 2007 loan, which was in the sum of €4.34m.
(4) The appellant further contended that, Mr. O’Keefe did not declare this conflict of interest to him because of the fee income his firm was receiving from BOSI, and that, as a result, he suffered an interference with his “economic and contractual relations”. He alleges that Mr. O’Keefe failed to act independently in a non-conflicted manner and that as a result Mr. O’Keeffe failed to advise him properly in relation to the 2010 loan facility letter. At the trial of the proceedings, the appellant claimed that Mr. O’Keeffe advised him to write to BOSI himself about the terms of the 2010 loan facility letter, though Mr. O’Keeffe denied doing so.
(5) At the hearing of this appeal he argued that if he had had independent representation in 2010, his solicitors would have sent the letter that he himself sent on 10th June 2010 in relation to the terms of the 2010 loan facility letter, instead of advising the plaintiff to do so. He argued that a letter from a firm of solicitors of standing would have carried more weight in this regard than his own letter.
102. The arguments made by the appellant on this appeal in relation to the 2002 security, including those referred to at sub paras (1) and (2) above, appear to be a way of trying to get around the findings of fact of the trial judge that:
“it was at all times the plaintiff’s – and the Bank’s – intention to mortgage and charge the common areas to BOSI and that the plaintiff at all times actually knew that he was in fact mortgaging the common areas of Lindville and the relevant sites to BOSI in September 2002.”
103. Apart from this, the trial judge also heard evidence that it was extremely unlikely the common areas had any value at all. The appellant claimed that there was some possibility of developing what he regarded as an excess of lands within the common areas, but the respondents called expert evidence to the effect that it was highly unlikely that any planning permission for such development would ever be granted for a variety of reasons, not least of which was that the local authority had taken the common areas in charge (under pressure from residents) and also that the plaintiff had already made two planning applications in respect of the lands that he considered were surplus to the requirements of the common areas, and these had been refused.
104. The trial judge also noted, at para. 198 of his judgment that:-
“Mr. Carrigan gave evidence that where a loan, offered by a lending institution, involved the extension of an existing charge, it would not be normal for either the borrower’s solicitor or the lending institution’s solicitor to review the terms of an existing charge unless they were specifically requested to do so, either by the borrower or the lending institution or unless the particular facts of the case called for such a review. Thus, in his expert opinion, the defendant solicitors were not required to review the extent of the 2002 mortgage on behalf of the plaintiff or to otherwise advise the plaintiff in relation to the 2002 Lindville charge whether at the time of the 2007 transaction, the 2008 transaction or the 2010 transaction. In addition, and looking at the transaction as a whole, Mr. Carrigan was of the view that the defendant solicitors had discharged their duty of care to the plaintiff.”
105. The appellant’s claim that Lindville could have been released from the 2002 mortgage following repayment of the 2003 and 2004 loans is manifestly unsustainable , as that security was required in connection with all subsequent loans, including the 2007 loan, part of which was used to repay the 2004 loan.
106. As to the appellant’s argument. that the letter he himself wrote to BOSI on 10th June 2010 would have carried more weight coming from a firm of solicitors, and would have been sent by any other firm acting on his behalf (who would not had a conflict of interest), and that by implication he thereby suffered damage, this complaint cannot be sustained in the light of the finding of the trial judge that even if he was correct in his submission that the 2010 loan facility put a new timeline in place (and the trial judge stated that he did not consider the appellant to be correct in that regard) and the 2008 loan facility had continued in being, he remained unable to satisfy the conditions precedent to that facility. In other words, even if the appellant’s letter of 10th June 2010 was accepted by BOSI as forming part of the revised facility, he could never have availed of the facility because he did not achieve the sales required to access funds. Hence the failure of such a letter to have been sent on his behalf by a solicitor cannot on the facts as found and upheld have caused the appellant loss or damage.
107. Aside altogether from that, it is difficult to see any substance in the point the appellant makes in this regard. The letter which he sent to BOSI when returning acceptance of the 2010 Facility was essentially an attempt to alter the commercial terms of the agreement offered by the bank. While solicitors may from time to time assist clients with such communications, whether the solicitor does so or the client does so directly is unlikely to have any influence on the outcome of what is essentially a commercial negotiation. There was certainly no evidence that any such effect was likely.
108. While the solicitors were, throughout their dealings with the plaintiff, in a situation that had the potential to give rise to a conflict of interest, no such conflict actually materialised. Moreover, this was a state of affairs with which the appellant, an experienced businessman, was fully acquainted from the outset. While the solicitors should have complied with the 2002 Guidelines and advised him of the desirability of obtaining independent advice, their failure to do so did not result in any negligence on their part in the handling of his affairs, and nor did it cause him any loss or damage. It is clear to us that the solicitors discharged their duties to him in a satisfactory and professional manner. He has failed to establish that he has suffered any loss by reason of the fact that the solicitors acted for both him and for BOSI, and did so without complying with the 2002 guidelines.
109. This Court is satisfied that the conclusions made by the trial judge are correct both as regards the claim of negligence made against the solicitors and as to conflict of interest. No conflict of interest actually arose, despite the potential for such a conflict. The Court is also satisfied that no case of negligence has been made out as alleged and that the trial judge was correct in this respect.
Consumer Credit Act, 1995:
110. Finally, and briefly, it is necessary to deal with the appellant’s appeal against the conclusion by the trial judge that the appellant was not a consumer for the purposes of the 1995 Act, and the Consumer Protection Code 2006. The trial judge referred to the definition of “consumer” in s. 2 of the Act of 1995, being:
“1. A natural person acting outside the person’s business or
2. Any person or person of a class declared to be a consumer in an order made under subs. 9.”
111. Having considered the evidence which he had heard over some three weeks of hearing, the trial judge expressed himself as being satisfied, and found as a fact, that:
“Mr. O’Connor was engaged in the business of property development and that all of his actions in relation to any Bank loans which he took out from the defendant Bank were loans taken out in the course of his business” and that “in those circumstances Mr. O’Connor is clearly not a consumer within the meaning of the Consumer Credit Act 1995.”
Indeed, by signing the loan documentation the appellant himself acknowledged that he was not a consumer within the meaning of the 1995 Act.
112. It is clear, however, that while there was reference to the 1995 Act and the definition of “consumer” therein, the appellant was making the case that the 2010 loan in the circumstances in which that loan arose constituted a breach by BOSI of the Consumer Protection Code 2006. He submitted that the 2010 loan facility was an unsolicited pre-approved loan for which he had not made application, and referred to the fact that the bank itself had called the meeting, and had then made an offer of this additional finance and sought additional security.
113. The Consumer Protection Code 2006 contains a definition for “consumer” that very much mirrors that contained in s. 2 of the 1995 Act. The appellant does not come within that definition in either the Code or the Act. The Act contains no definition of “a customer”. However, the Code contains such a definition, and states that Chapter 1 of the Code applies in respect of customers as defined, whereas the remainder of the Code applies in respect of “consumers”.
114. Accordingly it is only Chapter 1 of the Code upon which the appellant could place any reliance. A “customer” is defined as meaning “any person to whom a regulated entity provides or offers a service the subject of this Code, and any person who requests such a service”. The appellant is clearly within that definition. Chapter 1 contains a list of 12 ‘General Principles’ in accordance with which a regulated entity must conduct its business with its customers. The appellant has not sought to rely upon any of these general principles. Rather, he sought to rely upon the obligation not to offer unsolicited pre-approved credit facilities. That is the first regulation contained in Chapter 4 of the Code. It applies only in respect of such loans to a “consumer”. It does not apply in respect of someone who is not a consumer, such as the appellant.
115. Even though the trial judge did not address that particular submission by the appellant by reference to the Code, the appellant made submissions in that regard before this Court, However, for the reasons just stated, the Code does not assist the appellant.
116. For all these reasons, the Court considers that the appeal should be dismissed.
117. It follows that the appeal (2015/225) against the High Court judgment in favour of the bank must also be dismissed, and that any lis pendens that remains registered against any of the lands forming the bank’s security should be vacated.
Allied Irish Banks PLC -v- Ivan Yates
[2012] IEHC 360 (21 August 2012)
JUDGMENT of Ms. Justice Dunne delivered the 21st day of August 2012
The respondent herein was served with a bankruptcy summons issued on the 14th May, 2012. He has now sought to have that bankruptcy summons dismissed.
Background
The bankruptcy summons was issued in respect of the respondent ( hereinafter referred to as “the debtor”) herein on the 14th May, 2012, in respect of the sum of €3,692,852.13 being the sum claimed by the applicant on foot of particulars of demand served on the debtor in or around the 6th April, 2012. The said sum is stated to be due on foot of a guarantee dated the 13th April, 2010, and made between the debtor of the one part and the applicant of the other part, whereby the debtor agreed to pay on demand all the liabilities due and owing by Celtic Bookmakers Limited (now in liquidation) to the applicant herein, including those liabilities due pursuant to a letter of sanction dated the 26th February, 2010, issued by the applicant and addressed to the borrower as supplemented and replaced by a letter of sanction dated the 23rd November, 2010 subject to the principle limit of €6,769,000 together with interest thereon from time to time. The bankruptcy summons herein was served on the debtor on the 14th June, 2012, by ordinary prepaid post pursuant to an order for substituted service granted on the 6th June, 2012. By notice of motion dated the 25th June, 2012, the debtor sought to have the bankruptcy summons issued on behalf of the applicant dismissed on a number of grounds.
The Grounds for Seeking the Dismissal of the Summons
Six grounds were relied on by the debtor in seeking the dismissal of the summons namely,
(i) That he did not owe any amount to the applicant.
(ii) That in the event that he owed any sum, the sum due is lower than the sum of €3,392,852.13 specified in the summons.
(iii) That the debtor was not served with a valid four day demand notice prior to applying for the issue of the summons as required by statute.
(iv) That the bank did not demand payment of the debt claimed on more than one occasion prior to applying for the issue ofthe summons.
(v) That prior to applying for the issue of the summons the applicant did not lodge with the proper office of the court, bills, notes, guarantees, contracts, judgments or orders referred to in the affidavit on foot of which the summons was issued and
(vi) That the applicant failed to serve a true copy of the affidavit on foot of which the summons was issued on the debtor.
The Law
There are a number of provisions on the Bankruptcy Act 1988, (hereinafter referred to as “the Act”) which are of relevance. Firstly, s. 7(1)(g) provides as follows:-
“An individual (in this Act called a “debtor”) commits an act of bankruptcy…
(g) if the creditor presenting a petition has served upon the debtor in the prescribed manner a bankruptcy summons, and he does not within fourteen days after service of the summons pay the sum referred to in the summons or secure or compound for it to the satisfaction of the creditor.”
Section 8(5) provides:-
“(5) A debtor served with a bankruptcy summons may apply to the Court in the prescribed manner and within the prescribed time to dismiss the summons.
(6) The Court
(a) may dismiss the summons with or without costs, and
(b) shall dismiss the summons if satisfied that an issue would arise for trial.”
It would also be helpful to refer to the provisions of O. 76, r. 11 of the Rules of the Superior Courts. It provides as follows:-
“r. 11(1) A creditor desirous that a bankruptcy summons may be granted shall, not earlier than four clear days after he shall have served a notice in the Form No.4, file in the proper office a copy of such notice, together with an affidavit in the Fonn No.5 of the truth of his debt made by himself or by any other person who can swear positively to the facts verifying the truth of his debt, and that no form of execution has issued in respect of such debt and remains to be proceeded upon, and shall lodge with the proper officer any bills, notes, guarantees, contracts, judgments or orders referred to in his affidavit together with the summons which it is proposed to issue.”
The Issues
The first issue raised on behalf of the debtor was to the effect that he did not owe the amount alleged to be due. That point was expanded upon by him in his affidavit grounding this application and the point made was that he had signed a number of documents at various times in his capacity as a director of the company Celtic Bookmakers Limited and that the copy guarantee purported to have been signed by him was a poor and indistinct photocopy and for that reason he was unable to assess whether he had signed that guarantee. At the hearing of the application before me, it was accepted on behalf of the debtor that the document relied on by the petitioner had indeed been signed by the debtor and was authentic. Accordingly that issue was not pursued.
The second issue raised by the debtor relates to what is alleged to be an overstatement of the amount actually due. This arises in a number of ways. The first of these is stated to be an overpayment to the receiver of the company in the sum of €162,000 as a result of an excess of fees charged by a receiver over the assets of the company. A decision was made on the 2nd December, 2010, to appoint a receiver and it is stated by the debtor that the receiver, Neil Hughes had indicated that the costs of the receivership would not be more than €100,000. In fact, the sum of €312,000 approximately was paid in respect of receiver’s fees and receiver’s legal fees arising out of the sale of the assets of the company. Reference was made in this context to what was described as a “kicker payment” as part of the contract for sale in respect of the Lombard Street, Dublin premises to a third party. It is not necessary to set out all the details in relation to this issue save to say that it was contended that a minimum sum of €162,000 was wrongfully paid by the petitioner to the receiver in respect of fees. Mr. Hughes swore an affidavit in response to this issue on the 13th July, 2012 on behalf of the applicant and disputed very much the contention that there was an agreement to the effect that the costs of the receivership would be a maximum of €100,000. The applicant has also disputed the allegation that the sum alleged to be due has been overstated by the sum of €162,000 and Paul Dowling in his affidavit sworn herein on behalf of the applicant made the point that there was no agreement between the applicant and the debtor as to the level of the receivers fees. In addition it was pointed out that the receiver was appointed pursuant to a deed of charge and as is usual the deed of charge contained a provision to the effect that the receiver acted as agent of the company.
Other matters were referred to on behalf of the debtor as giving rise to the question as to whether the amount claimed was correct or not. One of these related to the fact that the bank apparently continued to apply charges for items such as night safe lodgements in respect of outlets no longer trading. No figure was given in respect of this item and no evidence was put before the court to substantiate this claim and for that reason, I cannot rely on this allegation as demonstrating that the sum said to be due has been overstated. The second matter is an issue in relation to the question of interest which was dealt with by the debtor at para. 14 of his affidavit sworn herein on the 23rd June, 2012. He stated that it was represented to him at the commencement of the receivership by the bank and by Neil Hughes that the interest running on the debts owed by the company would be frozen as of the date of the company entering receivership in January 2011. He brought the fact that those interest charges continued to arise to the bank’s attention in 2011. He said that at a meeting held in May 2011, he was told by Barry Tierney and Philip McDermott of the applicant that these were “suspense interest charges” and mere “bookkeeping procedures by the bank” and further that “these would not be pursued”. Nevertheless those charges have been pursued and a sum of €240,000 is claimed to have accrued since that date on the figures given in the bankruptcy summons. Mr. Dowling on behalf of the applicant stated at para. 16 of his affidavit sworn on the 13th July, 2012, that no agreement was reached between the bank and the debtor that the bank would suspend interest payments on the company’s liabilities to the bank. He noted that a request was made on behalf of the debtor that the bank would agree not to charge any further interest on the company’s liabilities in the course of the receivership process. In support of that contention, he relied on a document which came from Mr. Somers who was advising the debtor dated the 26th May, 2011, headed “Debt restructuring proposal/settlement” in which it was stated in the final section headed “Settlement proposal”:
“Ivan and Deirdre have noted that AIB continues to charge interest after the 4th January, 2011, on the company’s debts and they request, as a helpful gesture, that AIB would agree not to charge any further interest during the receivership process. An indication from AIB, perhaps by the end of June, as to their response to this settlement proposal would be appreciated”.
Mr. Dowling in his affidavit, while he referred to the Debt restructuring proposals/settlement document did not deal with the points made by the debtor as to the meeting held in May 2011, attended by two representatives of the applicant. I note that the meeting is stated to be a meeting held in May 2011, and the date of the debt restructuring proposal/settlement is stated to be the 26th May, 2011. There is an issue as to whether or not Mr. Tierney and Mr. McDermott did in fact indicate to the debtor that the interest running on the debts would not be pursued.
Counsel on behalf of the debtor having referred to the decision in the case of O’Maoileoin v. Official Assignee [1989] I.R. 647, In Re Sherlock [1995] 2 I.L.R.M. 493 and to the decision in the case of the Minister for Communications, Energy and Natural Resources and M O ‘C. v. M W and R. W. [201OJ 3 I.R. 1, noted that, given the dispute on the basis that the sum claimed was excessive because of the fees charged by the receiver to the company and the alleged overcharging of interest, the applicant sought to rely on a provision of the guarantee which provides as follows:-
“In consideration of the bank agreeing at my/our request to give time to make continued advances or otherwise give credit … the guarantor hereby agrees to pay and satisfy to the bank on demand all sums of money which are now or shall at any time hereafter be owing to the bank anywhere on any account whatsoever whether from the borrowers solely or from the borrowers jointly …”
The guarantee continues as follows:-
“A certificate by an officer of the bank as to the amount for the time being due from the borrower to the bank or where the amount so due exceeds the amount up to which the guarantee may be enforced a certificate to that effect but without specifying the amount so due by the borrower and as to interest after demand from time to time payable hereunder shall be conclusive evidence for all purposes against the guarantor.”
The point was made on behalf of the applicant that there was no dispute about the accuracy of the figures claimed in the proceedings. On the contrary, the point is made by the debtor that the sum claimed is excessive for the reasons explained above. On that basis, the applicant has sought to distinguish the authorities referred to above, namely, 0’Maoileoin v. Official Assignee [1989] I.R. 647, In Re Sherlock [1995] 2 I.1.R.M. 493 and the Minister for Communications, Energy and Natural Resources and M.O’C. v. M Wand R.W. [2010] 3 IR 1.
I propose to refer to a number of passages from those judgments. The issue in 0’Maoileoin focused on the appointment of a receiver by way of equitable execution and whether that amounted to a stay of execution in respect of the portion of the debt payable to the receiver. Hamilton P. as he then was reviewed the case law extensively and having done so, stated:
“These cases clearly establish that the bankruptcy code, having regard to the consequences which flow from an adjudication of bankruptcy, is penal in nature and that the requirements of the statutes must be complied with strictly; that the debtor’s summons to be served within the provisions of s. 21 of the Bankruptcy Ireland (Amendment) Act, 1872, must be served in the prescribed manner and the amount due in accordance with a judgment, when a judgment is relied upon, must be accurate and that a claim for an amount in excess of the amount due in accordance with such judgment would render the notice defective and a subsequent adjudication void.”
In the case of In Re Sherlock, Murphy J. held that where the amount said to be due on foot of the notice requiring payment and on the bankruptcy summons is in excess of the amount actually owed, this constitutes a substantial defect rendering the notice and the summons defective. Therefore, failure to respond to the summons could not constitute an act of bankruptcy with the result that the subsequent adjudication was void. That was a case in which it emerged that on foot of a garnishee order a sum in addition to that which was anticipated to be recovered on foot of the garnishee order, in respect of interest, was also paid to the creditor. Murphy J. noted in the course of his judgment as follows:-
“Whilst it seems that this payment in respect of interest was not foreseen by the consent order of the 19th March, 1993, it is clear that the defendants in the proceedings, including the applicant, Gerard Sherlock, are entitled to credit for the interest which accumulated between the 11th January, 1993 and the making of the order in March of that year as against the principal sum of £167,506.92. In other words he is and was entitled to a credit of something in excess of £1,000 against the amount of the principal sum. I have no doubt whatever that the failure to give credit for this sum was due to an oversight. Furthermore, there can be no doubt that, on any computation, the amount due by the bankrupt far exceeds the minimum sum required to found an order for adjudication. Nevertheless, the question remains whether this error invalidates the bankruptcy summons and in turn the order for adjudication based on it.”
Murphy J. went on to consider the decision in the case of 0’Maoileoin referred to above and referred to a number of the authorities cited by Hamilton P. in the course of that case. He concluded by stating:-
“It seems to me that in applying those principles to the present case where I have accepted that the sum demanded of the debtor exceeded the amount due by more than £1,000, it follows that the cause shown must be allowed and the adjudication set aside.”
Finally I will refer very briefly to the decision in the case of Minister for Communications v. M W In that case McGovern J. referred to the decision in 0’Maoileoin v. Official Assignee and also to the decision In Re Sherlock. He considered in that case that an issue arose as to whether or not interest on foot of a judgment could be claimed for a period in excess of six years and if not, whether the sum claimed was correct, given that an issue was raised, he was satisfied that the issue in question was one which necessitated the dismissal of the summons.
The applicant in considering these authorities sought to rely on the certificate in relation to the amount due and specifically on a decision in a case, Bache and Company v. Banque Vernes [1973] L.L.R. 437, to the effect that a conclusive evidence clause was binding according to its terms. I will return to a consideration of that judgment at a later stage. The applicant also submitted that even if the debtor was entitled to challenge the certificate, this was a case in which there was an undisputed sum in excess of €1,900 and it was contended that that being so, that the summons cannot be challenged unless no sum whatsoever is due or if a sum less than €1,900 was due. This was based on the wording contained in the bankruptcy summons to the effect that “unless you shall within the time aforesaid apply to the court to dismiss a summons on the ground that you are not indebted to the said Allied Irish Banks plc in any sum or that you are only indebted to Allied Irish Banks plc in a sum less than €1 ,900 …” Reference was also made to the proviso on the second page of the bankruptcy summons which states:-
“If, however, you are not indebted to the said Allied Irish Banks plc in any sum or are only indebted to Allied Irish Banks plc in a sum less than €1,900 you must make application to the court within fourteen days after service hereof, to dismiss the summons, by filing in the Examiners Office, Four Courts, Dublin, an affidavit in the prescribed form, stating that you are not so indebted, or only so to a lesser amount than €1,900 …”
It was contended on behalf of the applicant that the inference to be drawn from the bankruptcy summons is that a challenge to the summons could only be made if no sum whatsoever was due or if a sum less than €1,900 is due. It may be that on one view such an inference is open to be drawn from the wording of the bankruptcy summons but such an inference flies in the face of the long and well established authorities to which reference has already been made. Indeed, the judgment of Murphy J. in In re Sherlock and the authorities cited by Hamilton P. in the decision in O’Maoileoin such as that in Re. Collier [1891] 64 L.T. 742 and in Re. Debtor, ex parte a debtor [1908] 2 K.B. 684 have made this clear. In the latter of those cases, Cozens-Hardy M.R. stated as follows:-
“This appeal, though it relates only to a small amount, undoubtedly raises a point of importance. The petitioning creditors obtained a final judgment against the debtor. Certain sums were either paid or allowed by way of set-off so that the amount of the judgment debt was reduced. A bankruptcy notice was served on the debtor, and in the margin of that notice there are inserted certain figures which bring out the result that a sum of £984. 7 s. 1d. is the balance of the amount due on the final judgment. The bankruptcy notice proceeds in the usual form requiring payment and stating that a non compliance with the bankruptcy notice will involve the consequences, which to some extent are penal consequences, of bankruptcy. The amount claimed in the bankruptcy notice was not due. There was a mistake in the calculation of interest. For the present purpose I care not what the precise amount of the mistake was. It was, I believe, between one and two pounds. But putting aside the question of amount, this was a bankruptcy notice which said ‘If you do not pay a judgment debt which is due and also a further sum which is not due you are liable to be made bankrupt’. It is said that is a formal defect which can be set right under s. 143, subs. (1), of the Bankruptcy Act, 1883, and that we ought to disregard it or treat it as formal and amend the bankruptcy notice and allow the bankruptcy proceedings to go on. On principle I am not prepared to accede to that argument. I cannot regard it as a mere formal defect that you claim payment from a man of that which never was due from him. It is not necessary to say that there was any attempt on the part of the petitioning creditors wilfully to exact payment of that which they knew was not due. My judgment does not depend upon that. It seems to me that a defect of this kind is substantial, that it is not formal, and does not fall within the language ofs. 143. So much in point of principle.”
Thus, I think it is clear beyond doubt that if the amount claimed on foot of the bankruptcy summons is in excess of that which is actually due, then in those circumstances there is no obligation to pay the amount claimed on foot of the bankruptcy summons and a failure to pay on foot of that summons will not constitute an act of bankruptcy. Therefore, I disagree with and do not accept the submission on behalf of the applicant to the effect that the application to dismiss the summons can only be brought if there is in fact no sum due at all or alternatively a sum less than €1,900.
The view I have just expressed leaves open the question as to the status of the certificate relied upon by the applicant in relation to the amount said to be due. If the conclusive evidence clause is binding on the debtor, then, in those circumstances, the applicant contends that no issue can be raised by the debtor in relation to the amount due on foot of the certificate. Accordingly, it is necessary to consider the arguments in relation to the certificate in this case. I have had the benefit of helpful written submissions in regard to this issue from both sides. Those furnished on behalf of the debtor made a number of points, namely, that the certificate was undated, that whilst the amount due is said to be due as of the 6th April, 2012, the certificate was never made available to the debtor prior to the service of the affidavit in which it is exhibited and he was not previously aware of its existence, the certificate is unsealed and finally, it was noted that, contrary to the express requirements of the guarantee, no officer of the bank is named in the certificate or avers on affidavit to having prepared the certificate. Instead the certificate purports to emanate from the bank as a corporation and is signed by two authorised signatories on behalf of the bank.
Accordingly, it was submitted on behalf of the debtor that:
(a) That there was at least an arguable case as to whether reliance on such a clause is invalid as contrary to public policy and/or the Constitution particularly in the context of a penal process such as bankruptcy.
(b) It is well established that such clauses should be construed strictly against the bank, meaning that the failure to identify the officers of the bank certifying the liability on the face of the certificate must be fatal.
(c) It should not be possible to rely on such a certificate so as to exclude a deduction from the amount claimed arising from a mistake oflaw or an equitable set off.
(d) In light of the strict construction given to such clauses and guarantees generally, the language used in the guarantee must be interpreted to mean that the debtor has agreed only to reply the amount actually due and owing from the company and not the amount certified.
I now want to consider the decision in the case of Bache and Company v. Banque Vernes [1973] L.L.R. 437 in more detail. In that case, the plaintiffs were commodity brokers on the London Commodity Exchange and they demanded a bank guarantee before entering into buying and selling transactions on behalf of their customer, a French trading company. The defendants, who were the trading company’s bankers, gave the guarantee which contained a conclusive evidence clause. The plaintiffs carried out various transactions for the trading company and subsequently there was alleged to be a balance due to the plaintiffs. The trading company failed to pay and a notice of default was served on the defendants on the 25th July, 1972. On the 28th July, 1972, the plaintiffs issued proceedings against the defendants claiming £60,000 under the guarantee. Judgment was given for the amount claimed and the defendants appealed on the grounds that the amount claimed was not correct and the conclusive evidence clause was contrary to public policy and invalid because (i) it attempted to oust the jurisdiction of the courts and (ii) made the brokers judges in their own cause. Denning M.R. in the course of his judgment noted that a claim in relation to the validity of a conclusive evidence clause had not come before the courts previously but he noted that a similar clause appeared in the Encyclopaedia of Forms and Precedents. He continued at p. 439:-
“The question is whether that conclusive evidence clause is conclusive against the party who signs the guarantee. Is he compelled to pay under it, even though he alleges that the accounts are erroneous? As a matter of principle I should think the clause is binding according to its terms. In Halsbury’s Laws of England, Vol. 15 at p. 278, it is said that:-
‘The tendering of evidence which by statute or by agreement of the parties is declared to be conclusive, precludes evidence to the contrary, which is inadmissible, unless the evidence adduced is inaccurate on the face of it or fraud is shown …”‘
Denning M.R. then went on to refer to a decision of the High Court of Australia, Dobbs v National Bank of Australasia Limited [1935] 53 C.L.R. 643. That case concerned a guarantee given to a bank which contained a similar clause. Denning M.R. continued as follows:-
“It was argued before the High Court of Australia that that claim was contrary to public policy as tending to oust the jurisdiction of the court. But the court rejected that submission, saying at p. 654:-
‘It is a mistake to suppose that the policy of the law exemplified in the rule against ousting the jurisdiction of the court prevents parties giving a contractual conclusiveness to a third person certificate as some matter upon which the rights a obligations may depend … there are many familiar kinds of contracts containing provisions which make the certificate of some person, or the issue of some document, conclusive of some possible question.”‘
The principle in that case was accepted by counsel appearing on behalf of the French bank, but it was sought to be distinguished because the certificate was to be given by the manager or officer of the branch at which the customer kept his account. It was argued that such a person was comparable to a named architect or an engineer but the argument was that as there was no definite or nominated person in the case before the court and that it was the brokers themselves who gave the certificate for their own benefit, that the authority of that decision should be distinguished. Denning refused to accept that distinction. He stated:-
“The brokers must act by a manager in the office, just as a bank does. So, here it seems to me the notice of default given by the English brokers is perfectly good. There is no public policy against it. On the contrary the public policy is in favour of enforcing it. … This does not lead to any injustice because if the figure should be erroneous, it is always open to the French trading company to have it corrected by instituting proceedings against the brokers, in England or in France, to get it corrected as between them.”
He went on to state:-
“I would only add this: this commercial practice (of inserting conclusive evidence clauses) is only acceptable because the bankers or brokers who insert them are known to be honest and reliable men of business who are most unlikely to make a mistake. Their standing is so high that their word is to be trusted. So much so, that a notice of default given by a bank or a broker must be honoured. It ranks as equivalent to, if not higher than, the certificate of an arbitrator or engineer in a building contract. As we have repeatedly held, such a certificate must be honoured, leaving any cross claims to be settled later by an arbitrator. So, if a banker or broker gives a notice of default in pursuance of a conclusive evidence clause, the guarantor must honour it, leaving any cross claims by the customer to be adjusted in separate proceedings.”
It was submitted on behalf of the debtor that one could not stand over the reasoning adopted in that passage in the Ireland of today having regard to the economic crisis which has been contributed to by what was described as “unreliable and dishonest actions on the part of senior bankers”.
It will be noted from the passages cited above that Denning M.R. in the course of his judgment made reference to the decision in the case of Dobbs v. National Bank of Australasia Limited and in that case some useful comments were made in relation to the nature of such certificates. Having cited the particular clause in that case, the court stated:-
“This clause does not purport to impose upon the bank the necessity of obtaining the certificate it prescribes. It is not a qualification of the undertaking to pay contained in the first clause. It does not make a certificate a condition precedent to recovery. The promise remains a promise to pay the amount owning; it does not become a promise to pay the amount owing if certified or a promise to pay only what is certified as owing. The bank could recover without the production of a certificate if, by ordinary legal evidence, it proved the actual indebtedness of the customer. But the clause, if valid, enables the bank by producing a certificate to dispense with such proof. It means that for the purpose of fixing the liability of a surety, the customer’s indebtness may be ascertained conclusively by a certificate. It was contended, however for the appellant that upon its true construction, the clause did not make the certificate conclusive of the legal existence of the debt but only of the amount. It is not easy to see how the amount can be certified unless the certifier forms some conclusion as to what items ought to be taken into account, and such a conclusion goes to the existence of the indebtedness. Perhaps such a clause should not be interpreted as covering all grounds which go to the validity of a debt; for instance, illegality, a matter considered in Swan v. Blair. But the manifest object of the clause was to provide a ready means of establishing the existence and amount of the guaranteed debt and avoiding an inquiry upon legal evidence into the debits going to make up the indebtedness. But the manifest object of the clause was to provide a ready means of establishing the existence and amount of the guaranteed debt and avoiding an inquiry upon legal evidence into the debits going to make up the indebtedness. The clause means what it says, that a certificate of the balance due to the bank by the customer shall be conclusive evidence of his indebtedness to the bank. Upon this construction the appellant contends that the clause is void. The contention is based upon the view that it attempts to oust the jurisdiction of the court upon an issue essential to the guarantor’s liability and to substitute for the judgment of the court the determination or opinion of an officer of the bank. This argument appears to us to involve a misunderstanding of the principle upon which it professes to rely. It confuses two different things. A clear distinction has always been maintained between negative restrictions upon the right to invoke the jurisdiction of the courts and positive provisions giving efficacy to the award of an arbitrator when made or to some analogous definition or ascertainment of private rights upon which otherwise the courts might have been required to adjudicate. It has never been the policy of the law to discourage the latter. The former have always been invalid. No contractual provision which attempts to disable a party from resorting to the courts of law was ever recognised as valid. It is not possible for a contract to create rights and at the same time to deny to the other party in whom they vest the right to invoke the jurisdiction of the courts to enforce them. The parties may agree in the sense of arriving at a common intention as to their future action but, because they do not contemplate legal relations, avoid the creation of rights and thus preclude resort to the courts (See Rose and Frank Company v. J.R. Compton Brothers Limited; Cohen v. Cohen).”
The passage above cited is a useful explanation of the nature and purpose of such certificates. Thus, it seems to be clear that the conclusive evidence clause can be relied on by a bank against a surety in a case such as this. The reliance on such a clause does not oust the jurisdiction of the courts – it simplifies the proofs in respect of the amount alleged to be due. It is also clear that in certain cases the certificate can be challenged, for example, in circumstances involving illegality or fraud. No such issue has been raised in the present case. Nonetheless, that decision left open the possibility of challenging the validity of the underlying debt referred to in the certificate.
Reference was made on behalf of the debtor in the course of the submissions to a number of statutory provisions granting conclusive evidential status to either a certificate or statement made by named individuals. In that context, I was referred to the decisions in the case of Maher v. A.G. [1973] I.R. 140 and The State (MacEldowney) v. Kelleher [1983] I.R. 289. Those decisions relate to conclusive evidence clauses incorporated into statutory provisions and it seems to me that the fact that such statutory provisions were found to be unconstitutional does not avail the debtor in this case. A unilateral statutory provision conferring such status on either a certificate of statement made by a specific individual is entirely different from the situation in which two parties mutually agree how they will determine certain issues that may give rise to disputes between them. I do not think that the situations are analogous.
I would also observe in relation to the certificate at issue herein that the existence of or furnishing of the certificate referred to in the guarantee is not a prerequisite to claiming judgment from a debtor. As was noted from in the decision in Dobbs v. National Bank of Australasia Limited referred to above, the bank can recover without the production of a certificate if by ordinary legal evidence it proves the actual indebtedness of the customer. The clause, assuming it is valid, enables the bank by producing a certificate to dispense with proof of the amount of the indebtedness.
That gives rise to the question as to whether or not the certificate in this case could be said to be valid. It was argued on behalf of the debtor that on a strict construction of clause 5 of the guarantee, that the certificate herein did not comply with the terms of the clause. Reference was made in this context to Lewison on The Interpretation of Contracts and in particular to a passage at para. 13.06 in which it was stated: “A certificate need not be in any particular form, but it must be clear and readily understandable and must be given by the person named or described in the contract”. The certificate in this case is in the following terms: “Allied Irish Banks, plc hereby certifies that at 6th April, 2012, the sum of money specified below is and remains owing to Allied Irish Banks, plc by the party specified below on the account specified below”. A sum is then given, the borrower is identified and the accounts are also identified. After that it is stated that the common seal of the bank was affixed in the presence of two authorised signatories. The certificate therefore appears to be a certificate of the bank itself as opposed to an officer of the bank as referred to in the guarantee. Lewison in the paragraph referred to said:-
“However some contracts also prescribe fonnal conditions of validity for a certificate or determination; and in such cases the court may adopt a relatively strict approach to the question of whether the form of the certificate satisfies the contractual requirements. Thus in order to be valid the certificate must be given by the person named or described in the contract.”
Having referred to a number of authorities Lewison went on to state:-
“In Equitable Trust Company of New York v. Dawson Partners Limited, a contract required a certificate to be issued ‘by experts who are sworn brokers’. A certificate by a single broker was held to be bad. Lord Sumner said:-
‘There is no room for documents which are almost the same, or which will do just as well. Business could not proceed securely on any other lines’.”
Thus it was contended on behalf of the debtor that there was no evidence either in the certificate or before the court that the certificate at issue here was prepared by an officer of the bank. On the contrary, the certificate is stated to be from the bank as a corporate entity. It was submitted that, as the basis of a court deferring to such a certificate is the purported reliability of the certifying party and that in circumstances where no such party can be identified, the certificate could not stand.
The further question was raised as to whether the certificate could be regarded as conclusive if an issue arose as to a question of law or the right to an equitable set off. Reference was made to the decision of the Supreme Court of New South Wales in the case of Shomat Pty Limited v. Rubenstein, an unreported judgment of the Supreme Court of New South Wales Equity Division, 4th December 1995, in which Young J. made a number of pertinent observations. In dealing with a conclusive evidence clause, he stated at p. 12:-
“In National Australia Bank Limited v. Samson, 9th September, 1991, unreported, I said that clauses such as 6(e) ‘providing for certificates of this nature must be strictly construed’. The reason is that parties who have agreed to forego their rights to dispute the quantum claimed by the other party to the financial transaction expect that the certificate will be given fairly and in proper form. Again, in the instant case it is clear that the certificate does not, as clause 6(c) says it should, indicates the date upon which the amount set out in the certificate is due and owing.
Mr. Newlinds says that it is too great a requirement of form to say that the certificate must on its face indicate that it is given by a duly authorised person. As there are so many defects in the form of the statement/certificate, this point is not decisive, but I would respectfully disagree with the submission. It is usual where there is a precondition to a certificate being effective that the certificate should show on the face of it that the preconditions have been fulfilled; …
Mr. Black then goes further. He says that clause 6(c) requires for good reason that the certificate states that the amount is secured by the mortgage. Again, this is not said in the certificate/statement. I would agree with this submission also.
For completeness I should note that it was also argued that a certificate under a clause such as 6(c) cannot affect questions of law (Hall v. Westpac Bank Corp. Limited, Waddell J. 18th July, 1986, unreported (the Court of Appeal dismissed an appeal from this decision without dealing with this point). Nor is such a clause effective to deny equitable set off: Long Leys Company Pty Limited v. Soapdale Pty Limited [1991] 5 B.P.R. 11512. However, it is not necessary to discuss these matters further except to say that I respectfully agree with both statements.”That decision was relied on to argue that the certificate could not defeat a question of law or deny an equitable set off.
It was argued that the latter part of that decision was consistent with the decisions of Clarke J. in the case of Moohan v. S. & R. Motors [2008] 3 IR 650 and Murphy J. in Hegarty and Sons v. Royal Liver Friendly Society [1985] I.R. 24. Those cases involved the interpretation of building contracts as to whether an equitable set off could be invoked so as to reduce the amount due pursuant to a certificate expressed to be conclusive as to the amount due and owing. In the Moohan case, Clarke J. stated at p. 660:-
“The default position is that a party is entitled to a set off in equity in relation to any cross-claim arising out of the same contract. Thus if a builder is owed money on foot of a construction contract, the employer is prima facie entitled to a set off in equity, in principle, in respect of any defective works. The question which arises is as to whether that prima facie position has been displaced by the terms of the contract. There is no doubt but that the parties are free to agree that there will be no set off. The question is whether they have in fact done so. I am not satisfied that the balance of the authorities favours the view that the current standard form RIAl template does give rise to an agreement to exclude a set off, at least, and this is the only issue relevant in this case, in circumstances where the contract is completed to the stage of a certificate of practical completion having been issued by the architect and where, therefore, any entitlement to arbitration on the part of the employer is immediate. It is, of course, the case that Finlay P. in John Sisk and Son Ltd. v. Lawter Products B. V. [1976-1977] I.L.R.M. 204, had significant regard to the fact that, in the case then under consideration, there was no immediate right to arbitration as the contract was ongoing.
In those circumstances I am satisfied that, as a matter of construction of the contract in this case, the defendant is prima facie entitled to a set off in respect of any cross-claim which it can maintain. However, that set off arises in equity and is, as I have previously noted, subject to the defendant itself having done equity.”
A right to a set off in this case is said to be due to the bank’s overpayment of the receiver out of company monies in breach of an alleged prior agreement; the bank’s failure to stop accruing interest on the account in breach of an alleged prior agreement; and the bank’s continued charging of bank charges in circumstances where none should have arisen after the date upon which the company went into liquidation although as I have said earlier, the debtor cannot rely on this point in my view.
Much of the argument in this case centred on the role of the conclusive evidence clause. I think it can be seen from the authorities referred to, that the use of a conclusive evidence clause is something which contracting parties are free to provide for in a contract of guarantee. The fact that such a clause may be used does not in my view preclude a party from raising an equitable set off or counterclaim in respect of the sum claimed against them. That much is clear from such cases as Moohan referred to above. It is also clear, I think, that if such a clause is to be used, a certificate provided on foot of such a clause must comply strictly with the terms provided for in the particular contract. Thus, in this case there is an argument as to whether the certificate in this case complies with the requirement that it be a certificate of an officer of the bank. As has been seen from some of the authorities referred to in Lewison, referred to above, if a certificate calls for completion by “brokers” it is not sufficient for a certificate to be furnished by a broker. Therefore, there is undoubtedly an argument to be made as to the validity of the certificate in this case. It seems to me that in this regard, the debtor has raised an issue which, to paraphrase the words of McGovern J. in Minister for Communications v. M.W cited above, is a real and substantial issue and one which is, at least, arguable and which has some prospect of success. (See p. 9 of the judgment in that case).
I think it is also clear from the authorities that such a certificate cannot be relied on to affect any question of law that might arise between the parties (see, for example, Shomat referred to above). I think there can be no arguing with the proposition that such a certificate could not be relied on in the event of illegality or fraud.
I would add one further note of caution as to the use of such certificates. Reference was made in the course of the decision in the case of Bache and Company referred to above, to the fact that a certificate of a bank or a broker must be honoured as it ranks “as equivalent to, if not higher than, the certificate of an arbitrator or engineer in a building contract”.
Some misgivings were voiced by counsel on behalf of the debtor as to the standing of banks in the light of the current economic crisis. I do not think it is necessary for me to express any view on that particular argument but I would say this – I do not think that the position of a bank or a broker or someone in a similar position is entirely analogous with the position of an arbitrator, an engineer, or an architect in a building contract case for this reason- an arbitrator or an engineer or an architect is an independent third party who is not affected by the giving of the certificate in any way and does not benefit from the giving of the certificate. If one looks at the position of an architect in a standard building contract case, one would see that the architect is an independent person employed by the customer who pays the architect’s fees, the architect certifies the sums due to the contractor; the customer is then obliged to pay the contractor and obviously, the architect derives no benefit from the certificate issued in respect of the funds due to the contractor. The position of a bank issuing its own certificate either through a manager or officer or other designated person employed by the bank is different and as such one may have to be somewhat more circumspect in accepting that such certificates are unlikely to be mistaken. I do not think one could be as sanguine as Denning M. R. in giving such certificates the status “as equivalent to, if not higher than, the certificate of an arbitrator or engineer in a building contract”.
It is clear from the authorities to which I have referred above that an error on the face of a certificate can clearly be challenged. But it seems to me there must also be an argument in an appropriate case for a challenge to be made to a conclusive evidence certificate in the event that it could be demonstrated that there was a significant error in the figures certified, whether that error appeared on its face or otherwise. I derive some support from a very recent decision of the Court of Appeal in the case of North Shore Ventures Limited v. Anstead Holdings Inc and Others [2012] 1 Ch. 31 and to a number of passages commencing at para. 45 of the judgment, to which I was referred. It is stated therein by Sir Andrew Morritt C. at para. 46 as follows:-
“46. It is necessary to consider these rival submissions in stages. I start with the proposition, which was not disputed, that conclusive evidence clauses are to be strictly construed with any ambiguity being resolved in favour of the guarantor: see British Linen Asset Finance Ltd v Ridgeway [1999] G.W.D. 2- 78. The first step must be to ascertain what it is that the Guarantors agreed to pay. In my view it is clear that they agreed to pay as primary obligors the actual indebtedness of Anstead to North Shore. This is clear from the definition of indebtedness in clause 1.2 which, by clause 2, the Guarantors agreed to pay. They did not agree to pay the indebtedness as certified, rather the entitlement to certify was limited to the indebtedness for the time being.
47. It follows that the decision of this court in I.I. G. Capital L.L. C. v. Van Der Merwe [2008] 2 All ER (Comm) 1173 is distinguishable because in that case the terms of the guarantee were materially different. As indicated by Waller LJ in para 31 the definition of ‘guaranteed moneys’ which the guarantors agreed to pay included those ‘expressed to be due, owing or payable, to the Lender from or by the Borrower’. He considered that this provision, with others, showed that the guarantors were undertaking more than a secondary obligation, thereby approximating a performance bond; see, by way of contrast, the decisions on such questions of construction of Blair J in Carey Value Added SL v Grupo Urvasco SA [2010] 132 Con L.R. 15 and Sir William Blackbume in Vossloh AG v Alpha Trains (UK) Ltd [2010] 132 Con L.R. 32.
48. The second step must be to ascertain of what the certificate was conclusive evidence. Both the terms of clause 3.4 and of the certificate show that it was the amount for the time being of the indebtedness and/or the amounts due to North Shore, namely quantum. I have great difficulty in seeing how a certificate as to ‘amount’ due could be conclusive as to either the fact of the variation or its legal effect. The former would seem to be outside any reasonable limit as to what is meant by ‘amount’, the latter is a question of law which is not a matter for evidence whether conclusive or otherwise. It would follow that in those respects the certificate is not conclusive: see, for example, Jones v Sherwood Computer Services plc [1992] 1 W.L.R. 277, 284- 287 and Mercury Communications Ltd v Director General of Telecommunications [1996] 1 WLR 48, 58.
49. In that connection we were referred to the decision of this court in Bache & Co (London) Ltd v Banque Vernes et Commerciale de Paris SA [1973] 2 Lloyd’s Rep. 437. There a conclusive evidence clause was upheld as effective in accordance with its terms and not contrary to public policy. The dispute was as to the amount of the liability. The ground relied on by Lord Denning M.R. was that if the certificate was erroneous the surety could recover the excess paid by him to the creditor from the debtor. There was no such issue as arises in this case. Further I cannot see any basis on which the guarantors could recover any excess from either North Shore or Anstead. North Shore would contend that the sum paid was properly due by the guarantors as primary obligors under the guarantee; the latter would say that the amount of the excess was not due by Anstead to North Shore because of the variation so that there was no basis on which it could be obliged to refund the guarantors the amount of any excess.”
In para. 50 of the judgment Sir Andrew Morritt referred to the passage quoted from the judgment of Lord Denning M.R. as to the commercial practice being acceptable because bankers or brokers are known to be honest and reliable men of business who are most unlikely to make a mistake. He then commented as follows:-
“Whatever the force of that statement in 2011 it cannot apply to North Shore. Megaw L.J. recognised that such a certificate would not be conclusive in cases of fraud or mistake on the face of the certificate. Scarman L.J. relied on the fact that there was nothing to preclude a subsequent adjustment between debtor and creditor. For my part I do not consider that the decision in the Bache case precludes a conclusion in this case that the certificate does not prevent the Guarantors relying on the November variation to the Loan Agreement as a partial defence to the claim from North Shore. However in view of the dictum of the High Court of Australia in Dobbs v National Bank of Australasia Ltd [1935] 53 C.L.R. 643, 651 to which Tomlinson L.J. has referred and my conclusion in relation to the third of the steps to which I have referred, and to which I now tum, I would not determine this part of the appeal on the ground that the certificate cannot be conclusive as to the existence and effect of the variation.”
He then went on to consider whether there was, as it was contended on the behalf of the guarantors a manifest error in the case of the certificate used in that case.
That case is a useful summary of the limits as to the extent to which such a certificate can be relied on although that was not the basis of the decision. Summarising the position in this case, there are a number of issues that have arisen relating to the fees due to the receiver and to the question of the charging of interest on the amount of the debt due by Celtic Bookmakers Limited to the applicant. The certificate relied on by the applicant does not preclude the debtor from challenging the amount said to be due either on the basis that the sum demanded is overstated as alleged or on the basis that the debtor is entitled to a set off in respect of the alleged overpayments. In this case, I am satisfied that having regard to the decision of McGovern J. to which I have referred, who in turn relied on the well known ex tempore decision of the Supreme Court in the case of St. Kevin’s Company against a Debtor (unrep., Supreme Court 27th January, 1995) that so far as the amount due by the debtor to the applicant is concerned, the debtor has raised issues which have to be litigated separately outside the bankruptcy process. The issues raised are real and substantial and have some prospect of success. For that reason, I would indicate at this stage that I will dismiss the bankruptcy summons.
A number of other issues were raised by the debtor in seeking to challenge the validity of the summons. One of those related to the question as to whether or a valid four day notice was served prior to applying for the issue of the summons. Given that I have decided to dismiss the bankruptcy summons it is not necessary to decide that issue. Having said that, the issue that arises relates to a time period during the period when the petitioner and the debtor were in negotiation with a view to trying to resolve the issues between them. There was indeed a formal demand on the 13th March, 2012, which sought payment by the 13th May, 2012, and undoubtedly that was in the context of the discussions taking place. Subsequently the reasons that have been described previously for the bankruptcy demands were subsequently sent by the petitioner on the 6th April, 2012, and complaint was made that no explanation was given at that time for the demand given the letter of the 13th March, 2012, which requested monies to be paid by the 13th May, 2012. I have some doubts in respect of the argument put forward by the debtor that in the circumstances, the letters of the 6th April, 2012, were not valid demands, but having said that it is as I have pointed out not necessary for me to decide that issue.
The fourth issue relates to an alleged to demand payment of the debt more than once. In regard to that issue I note that McGovern J. in the course of the judgment in Minister for Communications v. M W. at p. 8 made the following observation:-
“In my mind, there is some uncertainty as to whether it is necessary to make a demand more than once. But I am quite satisfied that in this case, a claim for the costs in some form has been made of the applicants on more than one occasion.”
In the present case, I think it is equally clear that demand has been made of the debtor on more than one occasion. There was the letter of the 13th March, 2012, and subsequently there was a demand made on the 6th April, 2012. There was a previous demand on the 4th April, 2012, which was withdrawn at the debtor’s request. In all the circumstances I am satisfied that there was a demand on more than one occasion, whether or not that is strictly necessary.
The fifth issue raised, relates to the provisions of O. 76, r. 11(1) and the requirement contained therein to lodge “bills, notes, guarantees, contracts, judgments or orders”. The applicant argued that this issue was now moot as the court had granted liberty to issue the summons. In the affidavit sworn on behalf of the applicant in respect of the application for the issue of a bankruptcy summons reference was made to the guarantee in this case and it was duly exhibited in that affidavit. It is manifestly clear that the applicant relied on the guarantee as the basis for the application for the issue of the bankruptcy summons. Reference was also made to a number of other documents, namely a mortgage dated the 24th January, 2006, between the debtor and the petitioner, a mortgage debenture from the borrower and two assignments of Key Man life policies from the borrower. The latter documents were not lodged prior to the application to issue the bankruptcy summons.
Notwithstanding, the bankruptcy summons was issued and in such circumstances it seems to me that it would be open to the court to consider an application to permit the late lodgement of those documents in an appropriate case or to deal with the matter pursuant to the provisions of the Rules of the Superior Courts in regard to non compliance with the Rules. This is not a case in which there is any suggestion of any prejudice occasioned to the debtor by virtue of the failure. I do not think that this gives rise to a basis for the dismissal of the bankruptcy summons.
The final issued raised on behalf of the debtor was an apparent failure to serve the debtor with a true copy of the affidavit on foot of which the summons was issued. The applicant is unable to confirm whether this is so nor not. As mentioned previously, the bankruptcy summons in this case was served by ordinary prepaid post on foot of an order of the court, the applicant having been unable to serve the debtor personally. It is thought by the bank that if the debtor is correct in saying that the affidavit was not served that it may have been that the affidavit in respect of the debtor’s wife was placed in the envelope with the summons for the debtor in this case. The affidavit in each case is, in substance, identical and it is submitted on behalf of the bank that it is difficult to see what, if any prejudice could have been suffered by the debtor if in fact the position is that the affidavits were mixed up in the posting of the bankruptcy summons and the affidavits. Obviously, it goes without saying that a bankruptcy summons should be served with the correct affidavit. In the context of this case, it is clear that no prejudice has been suffered by the debtor by any error in the service of the affidavit. There is a conflict on the affidavits in relation to this issue but the bank has put forward a possible explanation for an error if such an error occurred. I do not think it is necessary for me to resolve this conflict, given the fact that I have already decided to dismiss the bankruptcy summons herein.
In conclusion, for the reasons already outlined in relation to the matters referred to above, I am obliged to dismiss the bankruptcy summons herein having regard to the provisions of s. 8 (6) (b) of the Act.
Trustee Savings Bank v. Maughan
[1992] 1 I.R. 490
Costello J.
Costello J.
8th October, 1991
On the 15th June, 1987, the Trustee Savings Bank Dublin instituted proceedings by summary summons claiming £17,624.17 and continuing interest against the defendant, Mr. Maughan, in respect of money lent by way of overdraft facility on a current account opened in August, 1983. I will refer to these proceedings as “the first proceedings”. The bank’s application for summary judgment was successfully resisted and the proceedings were adjourned for plenary hearing. Mr. Maughan filed a defence which contained formal denials, a specific denial that the rate of interest charged by the bank was an agreed rate, and a claim to set-off, against any sum awarded to the bank, the damages to be awarded to him in the second proceedings.
The bank’s claim has escalated dramatically. The overdraft facility granted to Mr. Maughan in 1983 was £7,000. At the date of the hearing (in July of this year) the bank’s claim on foot of this account amounted to £32,906.01. The evidence established that the bank had compounded interest annually and that in addition had charged a default rate of interest at 6% over its normal rates for overdrawn current accounts. The issues in these proceedings are whether it was entitled
(a) to compound interest on the outstanding debt, and
(b) to charge default rates of interest; to these issues I will now turn.
Mr. Maughan was a new customer with the bank in the month of August, 1983. He had met its assistant general manager (banking), Mr. Carroll, socially and arranged to call into his office on the 11th August. At that meeting it was agreed that the bank would lend to Mr. Maughan £5,000 to enable him to purchase shares in an exploration company then much in the news, Aran Energy Limited. The defendant signed an application form which stated:
“I hereby apply to open a Current Account in the Trustee Savings Bank Dublin subject to the Rules and Regulations of the Bank.
I declare that the account will not be operated either wholly or partly as a business account.
I understand that charges may be made on this account, at a scale that the bank may from time to time decide.”
This application was accepted by the bank and I think a contractual relationship was thereby established. On the same day the plaintiff was given a cheque book.
There were no further immediate discussions or communications relating to the terms of the parties’ contract. It is important and relevant to note what steps the defendant took after the 11th August. On the following day he went to a firm of stockbrokers and bought 10,000 Aran Energy Shares at 91p per share. He became liable to pay a sum of £9,318.05 but immediate payment was not required.
This investment proved to be a most unfortunate one and on the 19th August he sold half of his holding at a price of 76p per share (which produced £3,734.30). He settled his account with the brokers by selling some other shares he held and by drawing a cheque on the 22nd August on the bank for £4,228.44. This cheque was debited to his account on the 25th August, 1983.
On the same day on which he had drawn the cheque the bank wrote him a letter which would not have reached him until, at the earliest, the 23rd August. This letter advised him that a facility had been sanctioned subject to the “conditions as set out hereunder”. This was followed by a paragraph which read:
“£5,000 in the way of overdraft on the usual terms and conditions including interest repayable on demand. The current rate of interest is 19%, and the facility extends until the 17th August, 1984, at which time it will be reviewed.”
I do not think that this letter was effective to impose any new terms into the original loan agreement of the 11th August which had been largely performed on the day of the letter’s receipt. So, I must turn to that contract to see what rights were conferred by it on the bank and in particular whether under the original contract it obtained the right to compound interest and to interest at a default rate.
The parties’ original contract was partly oral and partly written. Mr. Carroll agreed with Mr. Maughan that the bank would lend him £5,000 to enable him to purchase shares and that the loan would be by way of an overdraft facility on a current account. Mr. Maughan signed the application form to which I have referred. Neither in the oral contract nor the application form was any express reference made to the paymentof interest or the rate of interest. By signing the form Mr. Maughan agreed to be bound by the bank’s “Rules and Regulations” but these have nothing to say about interest payment. By signing the form he acknowledged that “charges may be made on this account at a scale that the bank may from time to time decide”, but the evidence from the bank supports the conclusion to be drawn from the ordinary meaning of these wordsthis sentence refers to bank “charges” and not to interest which might be payable on outstanding loans.
When a customer borrows from a bank he knows that he will have to pay interest on any outstanding balance and there must be a term implied in the parties’ original contract that the defendant would pay interest on any sum overdrawn on the account to be opened at the bank’s prevailing rate on overdrafts on current accounts. But I can find no justification for implying a term into the original contract entitling the bank to capitalise any outstanding interest either annually or at any other interval of time. Nor do I think that a term is to be implied that the bank could charge a higher rate of interest to be determined by it at its discretion in the event of default in repayment of the sums due on the current account. As far as the original loan of £5,000 is concerned, therefore the bank is only entitled to charge simple interest on any outstanding balance at its current rates.
Mr. Maughan’s relations with the bank did not stop with the loan enabling him to purchase the Aran Energy shares. In September, 1983, he approached Mr. Carroll again for a further loan of £2,000 to enable him to purchase shares in an exploration company quoted on the English stock exchange called Flair Resources Ltd., and Mr. Carroll agreed to extend the overdraft facilities to £7,000. On the 16th September, 1983, Mr. Maughan bought 2,000 shares in this company and on the 22nd September, 1983, drew a cheque for £2,497.63 on his account to pay for this transaction. This transaction was also an unprofitable one and the defendant later sold these shares at a loss, lodging the net proceeds (£1,629.62) in his account on the 29th December, 1983.
This second loan was made after the bank had sent to Mr. Maughan its letter of the 22nd August, 1983. So when he applied for a further loan he must be taken to have agreed to be bound by its terms. This means that two-sevenths of the sum advanced by the bank are subject to the contractual terms contained in that letter and so a question arises as to whether by virtue of those terms the bank is entitled (a) to compound interest annually, and (b) to charge a default interest rate on part of the outstanding sums due to it.
I construe the letter of the 22nd August as follows:
(a) that the loan of £5,000 by way of overdraft facilities on a current account with the bank was to be extended to the 17th August, 1984;
(b) that on the 17th August, 1984, the situation would be”reviewed” by the bank, which meant that it could, at its discretion, extend the period of the loan and that if it did not do so any sums then outstanding on the account would be immediately repayable;
(c) that interest would be payable on all sums outstanding on the account. The rate could vary from time to time. The rate current at the date of the transaction was 19%.
There is nothing in these terms which would entitle the bank to charge compound interest or interest at a specially high default rate. And I cannot agree that entitlement to do so arises from the reference in the letter to the loan being “on the usual terms and conditions”. I think the test to be applied is what a customer receiving this letter would reasonably understand it to mean. In view of the fact that a review of the facility was to take place in a year’s time which might or might not mean that the loan would then be called in I do not think that this letter could reasonably be understood as entitling the bank (a) to compound outstanding interest at the end of the year, or (b) to charge interest at higher rates if default in payment was made should the facility be extended.
At the end of a year the situation was to be reviewed. This means that new terms might or might not be negotiated, but it cannot mean that the customer was agreeing that the terms on which reliance is now placed would be included in the contract should the facility be extended. In the event the bank extended the facility without any express agreement to do so, and no new terms were agreed to by the parties when that was done.
There is an additional reason why I should conclude that the contract does not contain a term relating to compound interest. Even if it was the bank’s current practice to compound interest annually this did not entitle the bank to do so under the contract I am considering. Parties may expressly agree that compound interest should be paid on an outstanding loan, or such an agreement can be implied, or in some cases it can be shown that it is payable by virtue of a custom of the trade. In this case a trade custom is not relied on nor is it suggested that an agreement to pay compound interest is to be implied. What is claimed is that the terms of the letter of the 22nd August, when accepted, entitled the bank to compound interest. In this connection a passage from Paget’s Law of Banking (10th ed.) at p. 247 is relevant. After observing that as a general principle the law leans against compound interest the author points out that a clear manifestation to charge such interest is required by the law of mortgages. The principle that such interest cannot be charged in the absence of special agreement was, it is pointed out, recently applied by the Court of Appeal in Bank of Credit and Commerce International S.A. v. Blattner (Unreported, Court of Appeal, (England), 20th November, 1986) when holding that a mortgage under which the mortgagor consented to pay to a mortgagee bank all monies due “so that interest shall be computed according to agreement or failing agreement at the usual mode of the bank” did not entitle the bank to compound interest, notwithstanding evidence that it was the bank’s practice to charge compound interest. I think that principle can properly be applied to a loan by a bank other than a loan secured by a mortgage. This means that when a contract is concluded which states that it is subject to the bank’s “usual terms and conditions”an entitlement to compound interest does not arise even if a practice exists to charge such interest unless the term relating to such interest is brought to the customer’s attention and accepted either expressly or impliedly by him. As this was not done in this case the claim for compound interest must fail.
And there is an additional reason why the claim to interest at a default rate must also fail. A term in a contract that a bank is entitled to charge a higher rate of interest in the event of default may be void as being a penalty. It can be justified, however, if such a term is a genuine pre-estimate of the bank’s loss in the event of default made by the parties. The agreement to pay a default rate of interest must therefore be an express one, and an attempt to incorporate such a term by reference to “usual terms and conditions” which are not brought to the customer’s attention cannot be successful because no genuine mutually agreed pre-estimate would have been made.
The letter of the 22nd August did not confer, therefore, any entitlement on the bank to either compound interest or interest at default rates. It follows therefore that no part of the bank’s debt carried interest other than simple interest at the bank’s current rates. On this basis the bank’s claim at the date of the hearing is £21,313.14.