Guarantee Issues
Cases
Carey Value Added, S.L. v Grupo Urvasco, S.A.
[2010] EWHC 1905 (Comm) 132 Con LR 15
MR JUSTICE BLAIR
The nature of the Deed of Guarantee and Indemnity
It is not in dispute that unless the right is expressly excluded, a guarantor can prima facie avail himself of any right of set-off possessed by the primary debtor against the creditor (BOC Group plc v Centeon LLC [1999] 1 All ER (Comm) 53, Rix J, affmd 63 ConLR 104). Carey’s fundamental submission is that this principle does not apply here, because the Deed of Guarantee and Indemnity takes effect as equivalent to a performance bond. Mr Miles QC points out that characterisation in this regard is bedevilled by terminology, and the Deed is best described, he says, not as a performance bond but as a “demand bond”. It is not, however, a matter of the label to be attached, but a question of the substance of the obligations. (This point is common ground.) The distinction is, he submits, between a primary, independent obligation, and a secondary obligation. He submits that the Deed in this case created a primary, independent obligation, so that the principal debtor’s defences are unavailable for set off.
In support of its case, Carey places considerable reliance on IIG Capital LLC v van der Merwe [2008] 2 Lloyd’s Rep. 187, [2008] 2 All E.R. (Comm) 1173. In that case, the directors of a company executed “deeds of guarantee” in favour of a lender. The loan agreement was governed by New York law, under which the directors argued that reasonable notice of the demand for repayment should have been given. The company had (it was argued) a complete defence to the claim, and the directors sought to rely on that defence against liability on the guarantee. It was held however both by the master, and by Lewison J ([2008] 1 All E.R. (Comm) 435), and by the Court of Appeal that the guarantee imposed a primary obligation on the directors, who had bound themselves to pay on demand as primary obligors the amount stated in a certificate.
Having set out the applicable principles, Waller LJ (with whom Lawrence Collins and Rimer LJJ agreed) said at [30] that the question at the end of the day was what, on the true construction of the deeds of guarantee, the directors agreed. He continued:
“31. I turn thus to the operative language of the deeds of guarantee. By condition 2.1 the guarantor (Mr or Mrs Van Der Merwe) agreed “as principal obligor” “not merely as surety” that “if … the guaranteed moneys are not paid in full on their due date … it (the guarantor) will immediately upon demand unconditionally pay to the Lender (IIG) the Guaranteed moneys which have not been so paid”. The Guaranteed moneys are defined as “all moneys and liabilities … which are now or may at any time hereafter be due, owing or payable or expressed to be due owing or payable, to the Lender from or by the borrower … “. The obligation to pay moneys “expressed to be due” “upon demand” “unconditionally” as “principal obligor” “not merely as surety” would indicate that the Van Der Merwes were taking on something more than a secondary obligation.
32. Clause 4.2 then provides that “A certificate in writing signed by a duly authorised officer … stating the amount at any particular time due and payable by the Guarantor … shall save for manifest error, be conclusive and binding on the Guarantor for the purposes hereof”. I agree with the judge that that clause puts the matter beyond doubt. Any presumption has by the language used been clearly rebutted. Apart from manifest error, the Van Der Merwes have bound themselves to pay on demand as primary obligor the amount stated in a certificate pursuant to clause 4.2.”
(There was held to be no manifest error in that case, and at the hearing of this application Grupo Urvasco made it clear that no such contention is advanced on its behalf in this case.)
The correct question, Carey submitted, is as set out in Waller LJ’s judgment in IIG at [8], namely whether Grupo Urvasco was assuming a secondary liability dependent on the primary liability of Grupo Hotelero Urvasco, or whether it was assuming a primary liability independent of the liability of Grupo Hotelero Urvasco. It is accepted (at least on this summary judgment application) that if the liability is secondary in nature, Grupo Urvasco can rely on Grupo Hotelero Urvasco’s defences. Thus the issue on the application is to identify the nature of the obligations assumed by Grupo Urvasco under the Deed, which is a matter of construction of the wording and context of the Deed.
For Grupo Urvasco, Mr Mark Hapgood QC submits that there is a profound conceptual flaw in Carey’s case. The distinction which it draws is between two possibilities, namely secondary liability or primary liability. But to say that someone is primarily liable begs the question of the content of that primary liability. To say that someone is primarily or secondarily liable is meaningless, since it depends on the definition of the liability in question, and in either case, the liability may be co-extensive with that of the underlying debtor and, he submits, is in this case. As to demand bonds, typically these are short instruments (unlike the present Deed of Guarantee and Indemnity), since there is no need for the extensive language found in guarantees to preserve the beneficiary’s rights in case of variation of the underlying contract and so forth (this is to be found in clause 6 of this Deed). IIG is, he submits, an unusual case explained by the wording of the instrument in question.
I agree with Mr Hapgood that the difference between secondary liability and primary liability is not in itself decisive. It was clearly not treated as such in IIG: in the passage from Waller LJ’s judgment at [32] that I have set out above, he concludes that the defendants bound themselves to pay on demand as primary obligor the amount stated in a certificate. It was the fact that a certificate in the prescribed form was agreed to be conclusive and binding on the defendants save in the case of manifest error which clinched the argument in IIG’s favour (see [32], and Lewison J, [2008] 1 All E.R. (Comm) 435 at [51]). In any case, the language of primary and secondary liability is routinely found in the same contracts, and is not in itself a guide to the content of the liability. Thus it has been said, in my view rightly, that the mere incorporation of a principal debtor clause will not usually suffice in itself to determine the nature of the contract. To take the familiar distinction between a guarantee and an indemnity, a principal debtor clause will not automatically convert one into the other (Andrews and Millett, The Law of Guarantees, 5th edn (2008), 1-014). In fact, although Carey’s skeleton argument at one point makes reference to an indemnity, it is Carey’s case (as I have explained) that the Deed in question took effect as a performance bond, or as it preferred to put it, a demand bond. Its case is that the demand as certified (such certification being conclusive) gives rise to the liability, as in the IIG case. This is the case which it must make out to be entitled to summary judgment.
As Tuckey LJ pointed out in Gold Coast Ltd v Caja de Ahorros del Mediterraneo [2002] 1 All ER (Comm) 142 at 147, on-demand guarantees or performance bonds have now been a feature of commercial life for many years. Such instruments are neither guarantees nor indemnities—the analogy drawn in the case law is with letters of credit (Edward Owen Engineering Ltd v Barclays Bank International Ltd [1978] QB 159 at 171, Lord Denning MR). As Carnwath LJ explained in Marubeni at [23], “”demand bonds” (however described) are a specialised form of irrevocable instrument, developed by the banking world for its commercial customers. They have been accepted by the courts as the equivalent of irrevocable letters of credit”. Often, as the cases show, they provide for payment of, or up to, a specified amount, upon the making of a demand that conforms with the requirements of the instrument (for example as regards any supporting documents), and which is made within the validity period of the instrument. The issuer is not concerned with disputes between the parties as to the underlying contract. There is no standard nomenclature by which such an instrument can automatically be classified however, and the authorities make it clear that the nature of the instrument in question is a matter of construction of the instrument as a whole without any preconceptions as to what it is (Gold Coast at [15], IIG at [7]).
It has also been held that the absence of language appropriate to a demand bond in a transaction outside the banking context creates a strong presumption against the interpretation of the instrument as a demand bond (Marubeni at [30], and IIG at [8] to [9]). Plainly, the use of words such as “on demand” do not in themselves have the effect of creating a demand bond (IIG [2008] 1 All E.R. (Comm) 435 at [25]). On the other hand, the avowed purpose of the instrument (Hyundai Shipbuilding & Heavy Industries Co Ltd v Pournaras [1978] 2 Lloyd’s Rep 502 at 508) and the overall context of the contractual arrangements (Centeon at p. 66) may be relevant in determining whether on-demand type liability has been created. Outside the banking context, IIG is an example of a case in which, on the language in question, the presumption referred to in Marubeni was rebutted.
With those principles in mind, I come to the language of the Deed of Guarantee and Indemnity. By clause 2:
“[Grupo Urvasco] irrevocably and unconditionally:
(a) guarantees to the Losan Entities [that is Carey] punctual and complete performance by the Obligors [that is Grupo Hotelero Urvasco] of the Guaranteed Obligations;
(b) [this has to do with the lease of the property]
(c) undertakes with the Losan Entities to be responsible as primary obligor for any failure by an Obligor to perform, discharge or fulfil for whatever reason any of the Guaranteed Obligations when due and promptly on demand by any Losan Entity:
(i) fully, punctually and specifically perform or procure to be performed the relevant Guaranteed Obligations as if it were itself a direct and primary obligor to the Losan Entities in respect of such Guaranteed Obligations and be liable as if the Transaction Documents had been entered into directly between the Guarantor and the Losan Entities;
(ii) pay the amount of any Guaranteed Obligation which has not been paid by the relevant Obligor and without any deduction or withholding; and
(d) undertakes with the Losan Entities to indemnify any of them immediately on demand against any cost, loss or liability suffered and expenses incurred by any Losan Entity:
(i) in consequence of an Obligor’s failure to perform any of its obligations under the Transactions Documents;
(ii) if any obligation guaranteed by the Guarantor is or becomes unenforceable, invalid or illegal.
The amount of the cost, loss or liability shall be equal to the amount which that Losan Entity would otherwise have been entitled to recover under the Transaction Documents.”
“Guaranteed Obligations” are defined as in clause 1.1 as “all obligations of the Obligors under or in connection with the Transaction Documents”.
Taking the points in the order set out in its skeleton argument, first, Carey relies on the fact that the Deed imposes obligations on Grupo Urvasco which are expressly described as being “primary” (clause 2.1(c)) and by way of “indemnity” (clause 2.1 (d)). In the language of clause 2.1(c), it emphasises the words “primary obligor” and “on demand”. Grupo Urvasco is to be liable as if the Loan Agreement had been entered into directly between it and Carey. It has to pay without any deduction or withholding. In the language of clause 2.1(d), it emphasises the obligation to indemnify Carey immediately on demand, an obligation that subsists even if any obligation guaranteed by the guarantor is or becomes unenforceable, invalid or illegal. Carey submits that these words are clearly indicative of a primary liability, and are very similar to the wording in IIG.
Second, it is said that clause 20.6 of the Deed of Guarantee and Indemnity contains an express provision for Carey to certify conclusively the amount due from Grupo Urvasco under the Deed. Clause 11(a) of the Loan Agreement made similar provision as to amounts payable under the Loan Agreement by Grupo Hotelero Urvasco. Thus a certificate from Carey stating the amount due under the Loan Agreement is conclusive. Therefore, it is submitted, Grupo Urvasco is bound by Carey certifying that sums are due under the Loan Agreement and under the Deed. Again, IIG is relied on in this regard.
Third, Carey submits that the Deed contains a range of other terms which support the primary and independent nature of the obligations it undertook. By clause 3.2, the indemnities referred to in the Deed are, “continuing obligations of Grupo Urvasco, separate and independent from the other obligations of Grupo Urvasco and shall survive the termination of this deed or any Transaction Document [which includes the Loan Agreement]”. Thus, it is said, any link between the liability under the Loan Agreement and liability under the Deed is severed. By clause 6(g) of the Deed, the obligations of Grupo Urvasco under the Deed are not affected by any act, omission, matter or thing which, but for clause 6, would reduce, release or prejudice any of its obligations under the Deed, including, and whether or not known to it or Carey (or others), any unenforceability, illegality or invalidity of any obligation of any person under the Transaction Documents or any other document or security. Thus, it is submitted, even if Carey is unable to enforce the Loan Agreement, the Deed of Guarantee and Indemnity remains enforceable. By clause 20.4 of the Deed, all monies payable by Grupo Urvasco under the Deed:
“… shall be paid in full without set-off or counterclaim of any kind and free and clear of, and without any deduction or withholding of any kind …”
The combination of these matters, it is submitted, demonstrates a clear and unanswerable case that the obligations of Grupo Urvasco under the Deed are primary, separate and independent.
In response, Grupo Urvasco submits that it is of significance that the Deed is not called an “on demand bond”, and is specifically expressed to be supplemental to the SPA. The definition of “Guaranteed Obligations” means (it is said) actual obligations of Grupo Hotelero Urvasco. As regards clause 2.1(c), it is said that Carey has emphasised some parts of the wording, whilst minimising the effect of other parts. In particular, Grupo Urvasco relies on the fact that it is liable for any failure by Grupo Hotelero Urvasco to perform or discharge the Guaranteed Obligations when due. This, it submits, shows that its liability is co-extensive with that of Grupo Hotelero Urvasco. The liability of Grupo Urvasco is not unconditional and arising only on the presentation of a demand by Carey, but conditioned on there having been a failure by an Obligor (i.e. Grupo Hotelero Urvasco) to perform, discharge or fulfil its own obligations when due. This is made clear, it is said, by the words “which has not been paid by the relevant Obligor” in Clause 2.1(c)(ii). The clause does not include the “unconditionally” and “not merely as a surety” language relied on by Lewison J and the Court of Appeal in the IIG case. As regards clause 2.1(d), the indemnity clause, it is specifically provided that, “The amount of the cost, loss or liability shall be equal to the amount which that Losan Entity would otherwise have been entitled to recover under the Transaction Documents”. This shows, it is submitted, that Carey is only entitled to the amount which it would in fact have been entitled to recover from Grupo Hotelero Urvasco under the Loan Agreement.
As regards clause 20.6, it is submitted that the certification provided for is only as to amount and not as to liability. It does not impose an unconditional liability to pay upon a certified demand being made. It is different from the equivalent clause in the IIG case where the certification was both as to amount and as to whether that amount was “due” and “payable” i.e. liability (see Lewison J, ibid, at [51] ). Carey is thus wrong, it is said, to characterise the certification under clause 20.6 as extending to the amount being “due” under the Deed and/or Loan Agreement. This is the one word which is conspicuous by its absence from clause 20.6.
As regards the other matters relied on by Carey, it is said that clause 6(g) does not impact on the right of rescission contained in clause 6.17 of the SPA because rescission is a concept different from “unenforceability, illegality or invalidity”. It is submitted that clause 20.4 precludes Grupo Urvasco from relying on its own rights of set-off against Carey in relation to monies payable by it under the Deed, but does not preclude rights of set-off available to Grupo Hotelero Urvasco being relied on in order to ascertain what monies, if any, are in fact payable by Grupo Urvasco under the Deed.
Discussion and conclusion
In his lucid submissions on behalf of Carey, Mr Robert Miles QC pointed out that there is no dispute that Carey has advanced some €49m to Grupo Hotelero Urvasco, of which nothing has been repaid. The parent company should therefore now be required to pay on its guarantee. It is, he says, a matter of timing. Should it transpire in the Loan Agreement Proceedings that Grupo Hotelero Urvasco has a good claim, then to that extent the guarantor will fall to be reimbursed. In the meantime, Grupo Urvasco should make payment without regard to the underlying dispute. The certification provisions (which featured centrally in his argument) were clearly intended to have that effect, and should be enforced as such.
On its part, Grupo Urvasco places central reliance on clause 6.17 of the SPA, which gave the borrower a right to rescind upon failure to advance any tranche due to be advanced. The clause provided further that upon such rescission the borrower should not be obliged to repay the loan. Although in dispute, its case is that its obligation to repay the loan has by virtue of an expressly negotiated term ceased altogether. Mr Mark Hapgood QC says that this is only one of three rights to rescind given by the SPA, and that taken as a whole, the agreement is more like a joint venture agreement than a conventional loan.
In fact, neither party has suggested on the summary judgment application that the factual matrix is of any particular significance in construing the Deed of Guarantee and Indemnity. Carey’s case that the Deed took effect as a demand bond is squarely based on the construction of the terms of the instrument, which require close consideration.
A convenient starting point is to identify what was the subject matter of the obligation. In IIG, the case on which Carey principally relies, the relevant provision is set out in the judgment of the Court of Appeal at [6]. At first instance, Lewison J said at [48]: “The definition of “Guaranteed Monies” … is of considerable significance. It includes not only those monies which HPIE [the borrowers] actually owe IIG but also monies “expressed to be due, owing or payable” by HPIE to IIG. These words point towards the conclusion that the Guaranteed Monies may extend beyond what is actually owing by HPIE to IIG; and hence that the liability of Mr and Mrs Van Der Merwe is not necessarily co-extensive with that of HPIE”. The use of the words “expressed to be” means that the definition in IIG is (in my view) appreciably wider than the definition of “Guaranteed Obligations” in the Deed of Guarantee and Indemnity, which in clause 1.1 are defined as “all obligations of the Obligors under or in connection with the Transaction Documents”.
In IIG, the guarantor agreed that if the Guaranteed Moneys were not paid in full on their due date, it would immediately upon demand unconditionally pay them to the lender. There is in my view force in Grupo Urvasco’s submission that this is wider language than in the present case. By clause 2.1(c) of the Deed of Guarantee and Indemnity, Grupo Urvasco undertakes to be responsible as primary obligor for any failure of Grupo Hotelero Urvasco to discharge any of the Guaranteed Obligations when due. This tends to suggest that the guarantor’s liability is the same as that of the borrower (see e.g. Centeon at p.67g). It is correct (as Carey points out) that clause 2.1(d) creates an obligation on Grupo Urvasco to indemnify Carey. However the clause is qualified by the proviso that the amount in question shall be equal to the amount that Carey would otherwise have been entitled to recover under the Loan Agreement. It is correct, as Carey says, that there is a certification provision in the Loan Agreement as well as in the Deed of Guarantee and Indemnity. Nevertheless, the language of clause 2.1(d) appears to me to be the language of co-extensive liability, and certainly not indicative of the unqualified liability which arises under a demand bond.
The crucial point in my view, in agreement with Carey, is as to the effect of the certification and conclusive evidence provision. A conclusive evidence clause was upheld in the context of bank guarantees in Bache & Co (London) Ltd v Banque Vernes et Commerciale de Paris S.A. [1973] 2 Lloyds Rep 437. That case concerned such a clause contained in a bank guarantee issued to commodity brokers on behalf of its customers. It was held that the conclusive evidence clause was valid and that if notice of default was given it was binding according to its terms. In IIG at [12], Waller LJ records the defendant directors’ submission that since the case was concerned with a performance bond being given by a bank, it was not an authority which assisted to any great degree in a case outside that context. He said, “I, of course, understand that submission but it goes no further than requiring an anxious scrutiny of the language of the clause used in any particular case in order to ascertain whether the guarantee is secondary or primary”. In the result, the clause in IIG was upheld as having the effect contended for by the lender.
In IIG, the relevant clause provided that a “certificate in writing signed by a duly authorised officer … stating the amount at any particular time due and payable by the Guarantor…shall, save for manifest error, be conclusive and binding on the Guarantor for the purposes hereof” (see [6] of the judgment of the Court of Appeal). Clause 20.6 of the Deed of Guarantee and Indemnity is drafted in different terms, and the parties are in disagreement as to whether it makes any difference of substance. Clause 20.6 provides that:
“Any certification or determination by [Carey] of a rate or amount under any Transaction Document or this deed is, in the absence of manifest error, conclusive evidence of the matters to which it relates.”
The word “rate” clearly refers to an interest rate, and I do not think that this is in dispute. Carey submits that the reference to “amount” means the amount due. Grupo Urvasco submits that it means the amount advanced.It seems to me that either reading is a possible one, and the question is which is the correct one in context, and again, IIG is important in that regard. As I have said, the certificate in IIG was as to the “amount at any particular time due and payable”. Those words are missing from clause 20.6. There is in my view a major difference between a certificate as to “amount” and a certificate as to “amount due and payable”. I do not consider it appropriate to construe the clause so as to include the absent words. It can, and in my view should, be construed as referring to the amount advanced.
A further point is made in a leading work on the law of guarantees, O’Donovan and Phillips, The Modern Contract of Guarantee, English edition, 2003, in which the authors say at 5-104:
Conclusive evidence clauses will be interpreted strictly, with any ambiguity being resolved in favour of the guarantor. Thus, the clause will not readily be construed as being conclusive of the legal existence of the indebtedness or as precluding the guarantor relying on any equitable set off since this operates to reduce or extinguish the claim itself.
The fact that conclusive evidence clauses are strictly construed also means that the guarantor may raise arguments as to whether the document served upon him can properly be described as a “certificate” or “statement” and as to whether the person who has signed the certificate comes within the class of persons authorised to do so.
This passage is referred to in IIG at [13] without any suggestion that it does not accurately state the law, and in my view, the views expressed in it are correct. In so far as there is any ambiguity in clause 20.6, it should be resolved in favour of Grupo Urvasco. On that basis also, I conclude that a certificate under clause 20.6 is not conclusive evidence as to liability.
In view of that conclusion, for the purposes of the summary judgment application I can deal with Carey’s third set of points relatively briefly. In agreement with Carey, I consider that clause 20.4 of the Deed of Guarantee and Indemnity is capable of excluding the right of set-off possessed by the primary debtor against the creditor, and is not limited to precluding Grupo Urvasco from relying on its own rights of set-off against Carey in relation to monies payable by it under the Deed. As regards clause 6.17 of the SPA, this is (to put it neutrally) an unusual provision. Each party takes a wholly different view as to its effect and application, and Grupo Hotelero Urvasco may entirely fail to make out its case on it in the Loan Agreement Proceedings. If it is correct, its obligation to repay the loan has ceased by virtue of its rescission. In this regard, I consider it arguable that clause 6(g) does not impact on the right of rescission contained in clause 6.17 of the SPA because rescission is a concept different from “unenforceability, illegality or invalidity”. If Grupo Hotelero Urvasco makes out its case on clause 6.17, it is therefore arguable that there is no liability under the Deed of Guarantee and Indemnity.
Grupo Urvasco has demonstrated, in my judgment, that it is well arguable that this is not an instrument which contains language appropriate to a demand bond. Further, it is a transaction outside the banking context, and subject to the presumption expressed in Marubeni against the interpretation of the instrument as a demand bond. That presumption is not in my view rebutted. I consider that Grupo Urvasco has a real (in the sense of a realistic as opposed to fanciful) prospect of successfully defending the claim. It follows that Carey is not entitled to summary judgment. I am grateful to both parties for their assistance.
First National Commercial Bank plc. v. Anglin
[1996] IESC 1; [1996] 1 IR 75 Murphy J.
1. The proceedings herein were commenced by summary summons issued on the 28th July, 1992, in which the plaintiff claimed as against the defendant the sum of Stg. £950,000 together with interest on foot of a guarantee dated the 1st February, 1989, whereby the defendant purported to guarantee the payment by Thousand Oaks Ltd. of all or any monies due by that company to the plaintiff up to, but not exceeding the sum of Stg. £950,000 together with interest thereon.
2. The matter came before the Master of the High Court pursuant to notice of motion dated the 28th October, 1994, grounded upon the said summons and the affidavit of Derek William Hawkins sworn therein on the 18th October, 1994.
3. In an affidavit sworn on the 20th January, 1995, the defendant disputed the plaintiff’s claim herein on grounds which included the following:-
“3. I firstly beg to refer to the guarantee which was entered herein dated the 1st February, 1989. I note that the guarantee is under seal. I also note that my signature is on the guarantee. I have to say first of all, that I did not sign this guarantee on the 1st February, 1989. On that occasion, and for a considerable period of time thereon, I was out of the United Kingdom and in Austria on business during that whole week in February of 1989. I further say that I signed no document in the company of Andre Axelsen, who is the company secretary of the Merrion Group, which was the holding company of Thousand Oaks Ltd. Accordingly, I say and believe that the guarantee which is purported to be entered herein is defective relating to two material aspects.
And therefore I say and believe and have been informed by my legal advisors that it is void and inoperative. I say at the very least, that since I could not have signed the guarantee in the presence or in the witness of the said person, or on the date the guarantee is purported to be signed, that this matter should go to plenary hearing.”
4. The Master of the High Court directed that the case be placed in the judges list, and prior or subsequent to that direction further affidavits were sworn in the matter before the case came before the President of the High Court on the 20th February, 1996. Costello J. (as he then was) rejected the contention that there was credible evidence of a real bona fide defence to the plaintiff’s claim and held that the plaintiff was entitled to judgment in the amount claimed.
5. The agreed note of the ex tempore judgment of the President of the High Court identifies seven possible defences which the Court had distilled from the voluminous documentation submitted to it. Those suggested defences included the following:-
1. Fraud by the plaintiff.
2. Forgery by the plaintiff of the guarantee.
3. The allegation that the guarantee was not executed until September, 1989.
4. The defence of “non est factum”.
5. The absence of independent legal advice for the defendant as to the effect of the guarantee.
6. That the bank was in breach of a duty to the plaintiff in respect of security given by the principal debtor.
7. That the transaction was an improvident one.
6. On the appeal to this Court, counsel on behalf of the defendant relied exclusively on the contention that his client had executed the guarantee not in February but in September, 1989. He contended that there was evidence that such was the case and if accepted, it followed that the guarantee was void as having been given for a past consideration. Counsel – rightly in my view – abandoned the other grounds which had been relied upon before the President of the High Court. Not merely were those grounds wholly unsustainable but they involved an allegation that the plaintiff was guilty of fraud and that the two distinguished firms of solicitors who acted in the matter were at least guilty of gross negligence if not actual fraud. I would like to think that the potential defence to the effect that the defendant did not understand the nature of a guarantee or his potential liability on foot thereof was equally improbable.
7. For the court to grant summary judgment to a plaintiff and to refuse leave to defend it is not sufficient that the court should have reason to doubt the bona fides of the defendant or to doubt whether the defendant has a genuine cause of action (see Irish Dunlop Co. Ltd. v. Ralph (1958) 95 I.L.T.R. 70).
8. In my view the test to be applied is that laid down in Banque de Paris v. de Naray [1984] 1 Lloyd’s Law Rep. 21, which was referred to in the judgment of the President of the High Court and reaffirmed in National Westminster Bank Plc v. Daniel [1993] 1 W.L.R. 1453. The principle laid down in the Banque de Paris case is summarised in the headnote thereto in the following terms:-
“The mere assertion in an affidavit of a given situation which was to be the basis of a defence did not of itself provide leave to defend; the Court had to look at the whole situation to see whether the defendant had satisfied the Court that there was a fair or reasonable probability of the defendants having a real or bona fide defence.”
9. In the National Westminster Bank case, Glidewell L.J. identified two questions to be posed in determining whether leave to defend should be given. He expressed the matter as follows:-
“I think it right to ask, using the words of Ackner L.J. in the Banque de Paris case, at p. 23, ‘Is there a fair or reasonable probability of the defendants having a real or bona fide defence?’ The test posed by Lloyd L.J. in the Standard chartered Bank case, Court of Appeal (Civil Division), Transcript No. 699 of 1990 ‘Is what the defendant says credible?’, amounts to much the same thing as I see it. If it is not credible, then there is no fair or reasonable probability of the defendant having a defence.”
10. I turn then to apply those principles to the facts of the present case.
11. The defendant is a civil engineer. At all material times he was the chairman of Thousand Oaks Ltd. and managing director of its parent company. The guarantee the subject matter of these proceedings, was required by the plaintiff as part of the security for a loan of £4,050,000 to Thousand Oaks Ltd. to enable that company develop, or re-finance the development, of 17/21 Dod Street, London E.14, and to develop the site into ten self-contained commercial units. This substantial transaction was negotiated over a period of time. The facility letter from the plaintiff to Thousand Oaks Ltd. dated the 12th October, 1988, expressly and unequivocally refers to the personal guarantee of John Joseph Francis Anglin (known as Sean Anglin) for Stg. £950,000 and a further personal guarantee of one Osmond Kilkenny for Stg. £50,000. That facility was accepted by a resolution of Thousand Oaks Ltd. and a certificate of that resolution signed by Mr. Anglin as chairman of the company and Andrew Axelsen as secretary thereof and dated the 25th October, 1988, was furnished to the plaintiff. Thereafter Messrs. Berwin Leighton and Theodore Goddard dealt with the legal documentation as solicitors on behalf of the plaintiff and the borrowers respectively. On the 15th December, 1988, Messrs. Berwin Leighton forwarded draft security documents to Theodore Goddard for their consideration. These included what was described as an “unlimited guarantee” for John Joseph Francis Anglin and a request that Mr. Anglin should sign his name in the two forms which he used namely, “John Joseph Francis Anglin” and also “Sean Anglin”. That letter incidentally sought confirmation that the individual guarantors understood the nature of the obligations they were undertaking by executing said documents. In their reply of the 16th December, 1988, Theodore Goddard explained that both guarantors had previously given guarantees and it was felt that they were fully conversant with the obligation that they were taking upon themselves. On the 19th December, Messrs. Berwin Leighton forwarded to Theodore Goddard – at the latter’s request – schedules to the two draft guarantees limiting the figures to be included therein to the sum of £50,000 in the case of Mr. Kilkenny and £950,000 in the case of Mr. Anglin. On the 20th December, 1988, and again on the 23rd December, 1988, facility letters were reissued by the plaintiff, in each case referring to a guarantee by Mr. John Joseph Francis Anglin in the sum of £950,000. The later of these facility letters was accepted by the directors of Merrion Property Developments Ltd., again in a resolution certified by Mr. Anglin. The facility letter was accepted on behalf of Thousand Oaks Ltd. by an endorsement thereon which appears to have been signed by Mr. Anglin, in the presence of Mr. Axelsen, on the 12th January, 1989.
12. In a letter which bears date the 13th February, 1989, Theodore Goddard returned to Messrs. Berwin Leighton all of the required legal documentation including a guarantee by “J.J.F. Anglin” expressed to be “executed in escrow”.
13. Mr. Simon John Kildahl a partner in the firm of Berwin Leighton who handled the transaction on their behalf has sworn that the letter bearing date the 13th February, 1989, was in fact received by his firm on the 13th January, 1989, at 4.20 p.m. Understandably, the defendant in these proceedings has expressed surprise that such an error could be made. Notwithstanding the improbable nature of such an error, it seems to me that the internal evidence does confirm the sworn evidence of Mr. Kildahl in this behalf. The reality of the transaction was that the lawyers on behalf of the lenders and the borrowers were drafting, checking and, where appropriate, executing all the documentation and putting it in place to enable the transaction to be completed by the draw down, at the earliest practicable date, of a sum in excess of £750,000. Clearly the arrangement between the solicitors was to have the documentation in place in the office of the lenders’ solicitors and held by them in escrow subject to and conditional upon the advance being made. The internal evidence shows that the draw down was planned for the 1st February; that it took place on that date and subsequent to it, that correspondence took place between the solicitors seeking and providing copies of the documentation that had been executed. In particular Messrs. Theodore Goddard wrote on the 7th February, requesting copies of the security documentation given at the completion meeting of the 1st February, and that letter crossed one from Messrs. Berwin Leighton forwarding the documentation dated the 3rd February, 1989, which claims to have included all of the relevant documents and an index thereto which expressly identifies the guarantee given by the defendant and dated in that index as of the 1st February, 1989.
14. I would have no difficulty in accepting that the defendant did not sign the guarantee on the 1st February, 1989. I doubt that he was at the meeting between the solicitors which completed the transaction. Indeed it would be to avoid the necessity for inconveniencing the businessmen that these documents would be made available in advance and then dated as of the date when the transaction was perfected. Obviously the solicitors on behalf of the borrowers knew that the documents were undated when transmitted by them (as the completion date had not been then determined) and clearly they knew when they were returned to them on the 3rd February, 1989, that they had been dated as of the completion date. That no objection was made to that course confirms my understanding that it was the implicit, if not express, arrangement between the solicitors on behalf of their respective clients that this is the course that properly would be adopted. I have no doubt but that the guarantee was executed by Mr. Anglin not on, but before, the 1st February, and indeed before the 13th January, 1989. I believe there is no question whatever of that document having been executed subsequent to the 1st February, 1989, and certainly not as late as September of that year. In my view there is no credible evidence for the defence which the defendant seeks to assert. Furthermore it is in my view at least questionable whether the guarantee would have been invalidated if executed subsequent to the drawn down of the funds lent by the plaintiff to the principal debtor. In the first place, the loan was made expressly and unequivocally on terms that the guarantee would be given by Mr. Anglin in the sum of £950,000 as he recognises and, secondly, the guarantee in its terms extends to present as well as future indebtedness of the principal debtor.
15. In my view the defendant has not established on the facts, or on the law, a probable defence to the plaintiff’s claim herein. Accordingly I would dismiss the appeal and affirm the decision of the learned President of the High Court.
Commodity Broking Company Ltd. v. Meehan
[1985] IR 12
Barron J. 15
H.C.
Barron J.
7th February 1985
The defendant was at all material times the sole beneficial owner of the entire shareholdings in Pistola Investments Limited (“the company”). In the month of February, 1981, he approached the plaintiff with a view to opening with it an account on behalf of the company. He was given details of the terms upon which client accounts were accepted and some two weeks later returned and opened the account with a cheque for £2,000. At the same time he signed the standard form of client agreement clause 2 of which was as follows:
“All orders for commodities for future delivery executed by us for your account are so executed on the following terms:
A. All risks (financial or otherwise) are borne by you and The Commodity Broking Company of Ireland Limited (CBI) will be indemnified by you in the event of default of your obligations in this Agreement.
B. All deposits and margins shall be paid on demand. In the event of default of this condition, CBI have the right of closing any transaction without further notice and that any loss resulting shall be immediately refunded by you to CBI.”.
In addition, it was agreed that transactions on behalf of the company would only be carried out on the defendant’s personal instructions.
The company traded actively and extensively through the agency of the plaintiff in the futures market both in London and New York. Trading in futures is highly speculative and involves the payment of a small deposit at the date of each contract. If the price of the commodity rises, the transaction can be closed and a cash profit ensues. If the price falls, two options are open. The contract can be closed in which event a loss ensues. Alternatively the contract can be kept in existence in the hope of a reversal in the price trend. However in the latter case, the amount of the deposit must be at least equal to the loss
incurred. If it is not the broker makes a call on the client for an amount sufficient to put the transaction in credit after allowance for the amount of the deposit and any payments made on foot of earlier calls. If the call is not paid on demand then the broker has the right to close the transaction in accordance with the term of the client agreement to which I have already referred.
The company traded from February until early October, 1981. It was not successful in its dealings and by the beginning of October had lost approximately £40,000 Sterling. Early in October there was a sudden and unexpected drop in the price of copper which resulted in the deposits of the company in several transactions which had been undertaken in the New York futures market becoming uncovered. Calls were made on the company by the plaintiff and met to the extent of £23,000. The price slide continued and further calls were made by the plaintiff on the company on the 6th and 7th October, 1981, which the company did not meet.
This was a serious matter for the company but equally a serious matter for the plaintiff. On the 8th of October, Mr. Cunningham, the managing director of the plaintiff, went to see the defendant at his office in Upper Pembroke Street in order to see whether or not he could get payment of the calls which had been made. He explained the seriousness of the situation for his firm and indicated that if the loss could not be recouped from the company or from the defendant that it might not be able to continue in business. He asked the defendant to sign a letter on behalf of the company acknowledging the debt of the company which the defendant did. He also asked him to sign a guarantee of the company’s liability which he refused to do. Nevertheless, the defendant did not refuse outright to take any part of the responsibility of the company on to his own shoulders. He intimated to Mr. Cunningham that the company was insolvent and that he would try to repay the amount owing which at that date was approximately £36,000. At that date some of the transactions had not been closed and the final amount which would be owing was not then known to the parties. The defendant indicated that he would pay at the rate of £1,000 per month. The defendant gave no instructions to Mr. Cunningham as to whether or not the remaining transactions should be closed but left the matter entirely in the hands of Mr. Cunningham. He said in evidence that his reason for offering to pay the amount owing at the rate of £1,000 per month was that he felt obliged to make such offer because of the serious consequences for the plaintiff and that he said that he would do so only as a matter of honour.
On his return to his office Mr. Cunningham wrote to the defendant and had the letter delivered to the defendant by hand. It was as follows:
“Pistola Investments Limited Stg. £36,320 Dr.
Dear Fergus,
I refer to our meeting today when we discussed the above debt. I confirm your offer to repay the debt due to this company by paying us Stg. £1,000 per month commencing November 1981 and each subsequent month until
the debt has been repaid. I also confirm that the monthly sum could be greater than Stg. £1,000.
Please revert if you disagree with the above.
Yours sincerely.”
During the following week, the remaining transactions were closed and the debt increased by approximately a further £10,000. On the 19th October, 1981, when this had been ascertained, a further letter was written by Mr. Cunningham to the defendant and delivered by hand. It was as follows:
“Pistola Investments Limited – Stg. £14,001.28 Cr. – U.S. $123,787.50 Dr.
Dear Fergus,
Further to my letter of 8th October, I now confirm that the new debt on Pistola’s account is as shown above. I confirm that this will be re-paid by you personally to us at the rate of Stg. £1,000 per month commencing late October early November 1981 and each subsequent month until the debt has been re-paid.
I also confirm that we will debit interest to the account at the end of each six month period commencing April 30th 1982. This will reflect London inter-bank overnight average rate for the period in question.
Please revert soonest if you disagree with the above.
Yours sincerely.”
The clients agreement signed by the defendant did not provide for interest on the monies owing so reference to interest in this letter was probably prompted by a realisation that even repayment at £1,000 a month would leave the plaintiff with a substantial loss. Following the delivery of this letter, Mr. Cunningham arranged a further meeting at the defendant’s office for the same day. On this occasion he was accompanied by Mr. Patrick Brazil, another director of the plaintiff. At this meeting, the conversation was little different from that on the 8th of October. The question of interest was discussed, but the defendant refused to pay since he said that if he did so the debt would never be paid off. On his return to his office Mr. Cunningham again wrote to the defendant a letter which he had delivered by hand which was as follows:
“Dear Fergus,
I refer to our meeting yesterday and our subsequent telephone conversation this morning. The net position is now as follows:
U.S. $123,737.50 – 1.850 = Stg. £67,093.50 Dr.
Balance on sterling ledgers = Stg. £20,501.28 Cr.
Total: Stg. £46,292.22 Dr.
We have agreed to waive the interest on the above upon receipt of the monthly payments as outlined in my letter of yesterday’s date.
Yours incerely.”
No evidence was given in the course of the hearing as to the subject matter of the conversation on the telephone on the 20th October, 1981. There was no reply by the defendant to any of the letters written by Mr. Cunningham. The defendant made two payments only of £1,000 each. Various efforts were made to obtain further payments from December, 1981, to the following March, but to no avail. These proceedings were issued in June, 1982.
The statement of claim was delivered on the 15th June, 1982, and pleaded an agreement to indemnify the plaintiff in respect of the monies owing by the company to the plaintiff and to discharge such sum at the rate of £1,000 per month. It further pleaded that the agreement was induced by fraudulent misrepresentations by the defendant that he would indemnify the plaintiff by the agreed instalments and that he was and would be in a financial position to do so; and that on the faith of such representations, it forebore to sue the company and also waived interest owed by the company. At the hearing the allegation of fraudulent misrepresentation was not pursued. In answer to the claim that there was an agreement by the defendant with the plaintiff to indemnify the plaintiff against the loss sustained by payment of instalments at the rate of £1,000 per month the defendant submitted:
(a) that the arrangement reached was not intended to create a legal relationship;
(b) that if it was so intended, the arrangement amounted to a guarantee and not to an indemnity for which in any event no consideration had been given.
The facts which I find are as follows and in so far as there was a conflict between the evidence of Mr. Cunningham and Mr. Brazil on the one hand and the defendant on the other, I prefer the former. Credit was given by the plaintiff exclusively to the company even though it was agreed only to act on the express instructions of the defendant. When the company failed to meet the second series of calls, the defendant on its behalf in effect abrogated his obligation to instruct the plaintiff to close the defaulting transactions. Both meetings took place in the context that such transactions either had been or would be closed by the plaintiff in accordance with the terms of clause 2 of the client agreement.
The purpose of the meeting was to obtain payment from the defendant. No reference was made by either party to legal proceedings to recover the money from the company. The meetings took place because the company could not meet its calls and it was accepted that the company had no funds. Mr. Cunningham himself said that the question of suing the company was considered by the plaintiff but the idea was rejected because they had no way of knowing whether they could have recovered anything by such process.
There seems to have been little discussion at either meeting. Clearly, since the defendant refused to sign a guarantee it would seem that he was indicating that he would not accept legal liability for the company’s debt. I am not
however prepared to accept that he indicated that his promise to pay by instalments was as a matter of honour only. I do not accept that he placed this qualification on his offer. Admittedly, the letters from Mr. Cunningham put his understanding of what was said at the meetings in the strongest light from his point of view. His claim for interest in the letter of the 19th October was not substantiated in evidence and for this reason puts the value of the correspondence in jeopardy. Nevertheless, the defendant failed to answer any of the letters. It is clear from them that Mr. Cunningham believed that an arrangement had been arrived at under which the debt was to be paid by the defendant by instalments. The defendant was invited to revert if he disagreed with what the letter set out. Whether he failed to do so because he was aware that such an agreement had been reached or because he wished for his own purposes to permit Mr. Cunningham to continue in that belief is immaterial. He cannot now be heard to say the contrary. Even if he could have been, I am satisfied that he intended his promise to have legal effect. If not, why point out that the payment of interest would place an everlasting burden upon him.
I am also satisfied that the agreement was to indemnify the plaintiff and was not a guarantee. The defendant relied upon Harburg India Rubber Comb Company v. Martin [1902] 1 K.B. 778. In that case, the plaintiff had issued proceedings for a debt against a company of which the defendant was a director and substantial shareholder. He promised verbally to endorse bills of exchange in favour of the plaintiff to the extent of the debt. The plaintiff withdrew its proceedings and when the defendant failed to endorse the bills sued on foot of his verbal promise. He pleaded that the agreement was a guarantee and as it was not in writing was unenforceable. His contention was upheld. Vaughan Williams L.J. analysed the basis of the agreement at p. 787 in the following terms:
“It seems to me plain upon the evidence that the only matter which was present to the mind of the defendant, and was presented by him to Mr. Winter, was this: ‘Will you forbear for a time? Will you give the syndicate (this was a reference to the company), which I believe has a future before it, an opportunity of turning round? I believe that if it has that opportunity, it will do well and will be able to pay you. And to induce you thus to forbear I will give you bills which shall secure the payment at specified periods of the judgment debt, in case the syndicate does not pay you itself’.”
The present case is different. There was never any hope that the company could pay its debt. It was not an agreement by the defendant to pay if the principal debtor, the company, did not, which is the essential element of a guarantee; but an agreement to pay in any event, which is an indemnity.
The final issue is whether there is any consideration for the defendant’s promise. The consideration relied upon by the plaintiff is that it forbore to sue the company. In the Alliance Bank Limited v. Broom (1864) 2 Dr. and Sm. 289 the defendant who was a customer of the plaintiff bank was asked to give
security for money which he owed to the bank. He agreed to hypothecate certain goods in favour of the bank. When he failed to do so, the bank sought to enforce his promise, which he pleaded was given without consideration. He failed in this plea. It was held that he had by implication asked the bank to forbear and that he had received a sufficient degree of forbearance to amount to consideration for his promise. The Vice-Chancellor Sir. D.R.T. Kindersley said at p. 292:
“It appears to me that, when the plaintiffs demanded payment of their debt, and, in consequence of that application the defendant agreed to give certain security, although there was no promise on the part of the plaintiffs to abstain for any certain time from suing for the debt, the effect was, that the plaintiffs did in effect give, and the defendant received, the benefit of some degree of forbearance; not, indeed, for any definite time, but, at all events, some extent of forebearance. If, on the application for security being made, the defendant had refused to give any security at all, the consequence certainly would have been that the creditor would have demanded payment of the debt, and have taken steps to enforce it. It is very true that, at any time after the promise, the creditor might have insisted on payment of his debt, and have brought an action; but the circumstances necessarily involve the benefit to the debtor of a certain amount of forbearance, which he would not have derived if he had not made the agreement.”
In Miles v. New Zealand Alford Estate Company (1886) 32 Ch. D 266 a director and shareholder had sold certain property to the company. At a general meeting, several shareholders complained that the company had overpaid for the property . To still such criticisms, it was agreed that the company should pay a minimum dividend and that in any year in which it was not earned the vendor would make up the difference. He was subsequently sued on this agreement and it was contended that forbearance by the company to bring proceedings in relation to the sale was a sufficient consideration to make the agreement binding. Cotton L.J. at p. 283 in considering the proofs to establish consideration said:
“Now, what I understand to be the law is this, that if there is in fact a serious claim honestly made, the abandonment of the claim is a good “consideration” for a contract; and if that is the law, what we really have to now consider is whether in the present case there is any evidence on which the Court ought to find that there was a serious claim in fact made, and whether a contract to abandon that claim was the consideration for this letter of guarantee.”
Having considered the evidence he said at p. 285:
“The conclusion at which I have arrived is, that there is no evidence on which we ought to rely that there was in fact a claim intended to be made against Grant (the vendor), and, in my opinion, on the evidence before us, we ought not to arrive at the conclusion
that there was ever intended to be any contract by the company, much less that there was in fact any contract binding the company that that claim should not be prosecuted, and should be given up.”
Fry L.J. accepted the same test and took the view that there was no intention by the company to abandon its claim. At p. 300 he said:
“I think the true result of the evidence is to show that there was an expectation in the mind of Mr. Grant that if he gave this document no proceedings would be taken against him, that there was an expectation in the minds of many of those who were present, if they got this dividend they would take no proceedings; but it appears to me it is not right or competent for the Court to turn an expectation into a contract, and that is what I think we should do if we gave effect to this as a valid contract.”
Bowen L.J. dissented. He regarded consideration as being any forbearance to sue as a result of the express or implied request of the promissor. He regarded the decision of the trial judge “as finding that proceedings had been threatened, that Mr. Grant knew that they had been threatened, that he gave the guarantee in order to put an end to them, and that the proceedings were dropped in consequence of his giving that undertaking.”He regarded this as a finding that there has been consideration and in doing so he expressly followed Alliance Bank Ltd. v. Broom (1886) 2 Dr. & Sm. 289. The majority view that there should be an actual agreement to abandon threatened proceedings before there can be good consideration was not followed in later cases.
On similar facts, Alliance Bank v. Broom (1886) 2 Dr. & Sm. 289 was approved by the House of Lords in Fullerton v. Provincial Bank of Ireland [1903] A.C. 309. In the same case, the judgment of Bowen L.J. in Miles v.New Zealand Alford Estate Company (1886) 32 Ch. D. 266 was cited with approval by Lord Davey at p. 316.
In Combe v. Combe [1955] 1 All E.R. 767 the court had to consider whether there was consideration for a promise by a husband to pay permanent maintenance to his wife upon the dissolution of their marriage. The wife was not paid and after several years sued on the promise. It was held that there was no consideration since she had been entitled at all times to apply to the court for maintenance and such right would have been unaffected by her husband’s promise. Accordingly there had been no request to forbear. At p. 771 Denning L.J. said:
“I cannot find any evidence of any intention by the husband that the wife should forbear from applying to the Court for maintenance, or, in other words, any request by the husband, express or implied, that the wife should so forbear. Her forbearance was not intended by him, nor was it done at his request. It was, therefore, no consideration.”
In the same case Asquith L.J. said at p. 774:
“Finally, I do not think an actual forbearance, as opposed to an agreement to forbear to approach the Court, is a good consideration unless it proceeds from a request, express or implied, on the part of the promissor. If not moved by such a request, the forbearance is not in respect of the promise.”
In my view, these cases establish that the better view is that where a request express or implied to forbear from bringing proceedings induces such forbearance this amounts to good consideration. It is not necessary as the majority decided in Miles v. New Zealand Alford Estate Company (1886) 32 Ch. D. 266 that there should be an actual agreement not to sue.
The reality of the present case is that when the company was unable to meet its calls the plaintiff took steps to protect itself. So far as the plaintiff was concerned, the company was almost certainly unable to pay. Accordingly, every effort was made to ensure that a promise could be obtained from the defendant that he would pay instead. In the course of events, I can find no implied request by the defendant not to sue the company nor clearly any express request. Nor can I find that the defendant’s promise to pay influenced the plaintiff’s decision not to sue the company. The plaintiff did not deliberately refrain from suing the company. Had it seemed to it a sensible course to adopt, it would have done so. Its reason for not doing so was not the defendant’s promise to pay, but the realisation that it would be a fruitless exercise. If it had been deliberately misled by the defendant, either as to the solvency of the company or into not suing the company by reason of the payments made, the matter might have been otherwise. But there is no evidence to suggest any such calculated conduct on the part of the defendant nor is such a case made. Reluctantly I must hold that no consideration was given for the defendant’s promise.
In the circumstances the plaintiff’s claim must be dismissed.
Allied Irish Banks PLC -v- Ivan Yates
[2012] IEHC 360
Dunne J.he 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 size=”2″ face=”Verdana”> [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 varioustransactions 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. size=”2″ face=”Verdana”> [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.
M.C.and Margaret Molony v F.C. and J.H. and J.H. T/A H Brothers
M.C. (A Ward of Court suing by her committee Margaret Molony) and Margaret Molony v F.C. and J.H. and J.H. T/A H Brothers [2013] IESC 36
Judgment of Mr. Justice John MacMenamin delivered the 30th day of July, 2013.
1. This is an appeal against a judgment and order of the High Court (Feeney J.) delivered on the 17th May, 2013. In that judgment, the High Court declared that F.C., a nephew of M.C., a Ward of Court, exercised undue influence over his aunt, and that alleged gifts from her to him, amounting to in excess of €900,000 should be set aside.
The Supreme Court as a court of appeal
2. In view of the way the appeal proceeded, it is necessary to re-iterate the role of this Court and the effect of the legal authorities which govern this Court in the appeal process.
3. Article 34.4.1 of the Constitution provides that the Supreme Court is the Court of Final Appeal. This Court exercises an appellate jurisdiction from the High Court. The jurisdiction of this Court on such appeals is addressed in the case of Hay v O’Grady [1992] I.R. 210. This Court does not engage in a complete re-hearing of a case on appeal. It proceeds rather on the facts as found by the trial judge and his inferences based on these facts. As Hay v O’Grady makes clear, if the findings of fact made by a trial judge are supported by credible evidence, then this Court is bound by those findings, even if there is apparently weighty evidence to the contrary. This Court will only interfere with findings of the High Court where findings of primary fact are not supported by evidence, or cannot in all reason be supported by the evidence (see also Pernod Ricard and Comrie plc v Fyffes plc (Unreported, The Supreme Court, 11th November 1988)). Furthermore, in Hay v O’Grady, McCarthy J. pointed out that an appellate court will be slow to substitute its own inference of fact for that of the trial judge, where such inference depends upon on oral evidence or recollection of fact. In drawing of inferences from circumstantial evidence, an appellate tribunal is, of course, in as good a position as the trial judge (see also O’Connor v Dublin Bus [2003] 4 IR 459; Quinn (A Minor) v Mid Western Health Board and Another [2005] 4 IR 1).
4. It is necessary to re-iterate that these basic principles as the appeal, presented by F.C., the first named defendant in person, appeared to be premised on the assumption that there were some segments of evidence before the High Court judge which should have lead him to a different conclusion. The questions are whether the findings of fact are based on evidence; and whether inferences are correctly and factually drawn. Moreover, the Court would point out that the main evidence in defence of this claim came from F.C. himself. The trial judge rejected this evidence as being entirely unreliable on a range of the fundamental issues in the case.
The facts as found by the High Court
5. M.C. is a Ward of Court, so declared by order of the High Court, dated the 4th November, 2009. She was born on the 18th May, 1925, and is a widow without child, grandchild or other direct descendant. By order of the 27th January, 2010, Margaret McGreevy was appointed Committee of the person and of the estate of M.C. By further order, dated the 12th April, 2010, Margaret Molony, the second named plaintiff, was substituted as Committee of the estate and person of M.C.
6. F.C., the first named appellant, is M.C.’s nephew. As a child, he formed a close relationship with M.C. He spent some periods with her. When F.C. became an adult, he visited his aunt on a regular basis.
7. The second and third named appellants are brothers who live in the same county as F.C. They own a business hiring out agricultural machinery. F.C. is said to work in that business.
8. On the 25th February, 2006, when M.C. was residing alone in Dublin, she became unwell. She was admitted to hospital. At that time, she had no close relations in Dublin but had a number of relations in her own native county, including F.C. Contemporaneous hospital records show she was admitted to hospital in Dublin with a history of intermittent confusion, amidst neighbours’ concerns about her welfare. She remained in hospital until the 26th April, 2006.
9. Prior to her discharge, M.C. was adamant that she wanted to go home to her house in Dublin. A family meeting took place. There, a plan was devised that M.C. would instead return to her native county and live there with M.K., who was F.C.’s partner. For approximately the next four years, she lived at various different locations either under F.C.’s supervision, or actually living with him under the one roof. On the 11th March, 2010, she was admitted to a nursing home, where she now continues to reside.
10. In circumstances which are described below, M.C.’s house in Dublin was sold yielding a net balance of €2,717,313.05. Some of these monies were used to purchase a house in her native county. On the 2nd May, 2008, the balance of €1,938,453.40 was transferred into M.C.’s account. The trial judge found that from the 16th May, 2008, until the 14th May, 2009, eight withdrawals took place from that account. The largest withdrawal, some €500,000, was made on the 14th April, 2009. By then, over €400,000 was transferred, either into F.C.’s sole account, or joint accounts in the names of F.C. and M.C. In total, therefore, some €900,000 was transferred to accounts over which F.C. exercised effective control.
11. As outlined later, a substantial part of the monies were placed in a machinery hire business where F.C. worked with the second and third named appellants. In order to justify this disposal of the monies, F.C. claimed that in 2006, he had made a “gentleman’s agreement” with J.H., the second named appellant, that funds would be provided to purchase machinery for the business, and that F.C. would be given a wage as soon as the business was built up. J.H. and F.C. were to hold joint ownership of the machinery, and if the business did not prosper, the machinery would be returned to F.C.’s sole ownership. The trial judge rejected the appellant’s evidence that, while of full capacity, his aunt knew of, or agreed to this very unusual and unprofitable arrangement.
Evidence and findings on the capacity of the Ward
12. A range of expert evidence was available from social workers, consultant psychiatrists and other doctors regarding M.C.’s state of mind prior to, and during, the period that these transactions took place (2006 – 2009). The judge heard medical evidence from Dr. Niall Gormley, a consultant psychiatrist; Nurse Molony, Dr. Patrick Geoffrey O’Donoghue, a consultant psychiatrist; Ann Kelly, an occupational therapist, and Carsten Kohl, a social worker attached to the Protection Service for Older Persons in the county in question. This evidence established to the judge’s satisfaction that on admission to hospital on the 25th February, 2006, M.C. was already fragile, vulnerable, and suffering from the early stages of dementia.
13. The trial judge found on the evidence that, during 2007 and 2008, M.C.’s cognitive impairment progressed from mild to moderate. The Court concluded that, at no time during 2008 or 2009 did M.C. have the capacity to engage in complex financial transactions, even though she did retain some capacity to deal with day to day affairs. At the hearing, F.C. produced taped phone calls between himself and his aunt. It might be thought this was a very strange thing to do unless there was some reason for it. F.C.’s ostensible reason for doing this was to demonstrate that his aunt retained full decision making capacity. The judge, in fact, held that these tapes demonstrated precisely the opposite; that M.C. was a person manifesting moderate dementia with a significant inability to communicate in a logical and coherent manner.
The High Court’s findings on F.C. as a witness
14. The defence of the claims hinged on F.C.’s credibility. The judge found him to be an entirely unreliable witness. He concluded that his testimony was inconsistent, and that, when information and documents became available which demonstrated his initial evidence was incorrect, the appellant demonstrated a willingness to change his evidence without regard to the truth. The judge concluded that his evidence was “so unreliable and so inconsistent and shifting that I concluded that I was able to place little reliance on F.C.’s willingness to truthfully account for his dealings with his aunt’s monies”.
The law on undue influence
15. The learned trial judge had regard to the decision of this Court in Carroll v Carroll [1999] 4 I.R. 241. In Carroll, Denham J. outlined two classes of transaction which may be set aside on the grounds of undue influence. The first of these is where the court is satisfied that the gift(s) was the result of influence expressly used by the donee for that purpose; the second, where the relations between the donor and donee, at, or shortly before the execution of the gift(s), were such as to raise a presumption that the donee had influence over the donor. Feeney J. held the transactions in question here fell into the second class.
16. He quoted Denham J. in Carroll to the following effect:
“In such a case the Court sets aside the voluntary gift, unless it is proved in fact the gift was a spontaneous act of the donor acting under circumstances which enabled him to exercise an independent will and which justifies the Court in holding that the gift was the result of a free exercise of the donor’s will”.
The learned trial judge also referred to Reg. (Proctor) v Hutton [1978] N.I. 139; Inche Noriah v Shaik Allie Bin Omar [1929] AC 127; and Allcard v Skinner [1887] 36 Ch.D. 145.
17. Once a relationship giving rise to a presumption of undue influence is established, and where it has been shown in evidence that a donee has received a substantial benefit, the law provides the onus then lies on the donee to establish that the gift or transaction resulted from the free exercise of the donor’s will. That onus can be discharged by evidence showing the gift was the independent and well understood act of a person in a position to exercise free judgment. The Court held that the appellant had failed to discharge that onus.
The sale of M.C.’s Dublin property
18. The trial judge concluded on the evidence that when M.C. decided to put her house on the market, she was dependent on her nephew and that the house was sold at F.C.’s instigation and as a result of pressure from him. This conclusion was in part based on his conclusion that the nephew had taken part in preparing a forged letter. This letter purported to come from a “welfare inspector” in the Department of Social Welfare. F.C. claimed this forged letter was his aunt’s idea. His testimony at the trial was that he merely assisted in its preparation in that he obtained blank note paper from the Department of Social and Family Affairs. One can only describe as bizarre F.C.’s claim, made both to this Court and the High Court, that the letter was dictated or prepared by M.C. as part of a plan to ward off other family members who, F.C. claimed, were pressuring M.C to act in some manner against her, but in fact the nephew’s, interest. The judge concluded that the appellant’s explanation was concocted. The forged letter conveyed that, absent M.C.’s agreement to selling the house, the State would take possession of it and would be responsible for selling it. The closing paragraph said that an Inspector from the Department of Social and Family Affairs would be making a visit to F.C. and his aunt. The trial judge unsurprisingly concluded that the clear intent behind this letter was to put pressure on M.C. to sell, where the very existence and phraseology of the letter showed the aunt’s reluctance to do so. The trial judge held that F.C. also engaged in the preparation and completion of other forged correspondence necessary for the sale of the house. The effect of the sale was, of course, to realise the value of the aunt’s property into liquid cash.
The High Court’s findings on the financial transactions
19. The judge concluded that the circumstances in which M.C. resided, after coming out of hospital in Dublin 2006, created a situation where influence was readily acquired. He determined that the influence arose through disparities of age, mental and physical capacities between M.C. and F.C.
20. The High Court was satisfied from the evidence, that the large sums of money which had been removed from the bank account between May 2008 to April 2009 were as a result of F.C.’s express influence. He concluded that F.C. had sought to exercise control and dominion over M.C., and to ensure that she acted in accordance with his wishes and for his benefit. He found support for his findings by what he found were F.C.’s dishonest and misleading dealings with Mrs. Wardlaw, his aunt’s solicitor, and his clear steps to bring about the sale of the Dublin property. The judge had regard, too, to the fact that F.C. attempted to have property which M.C. bought in her native county placed in their joint names.
21. The High Court concluded that there was no credible evidence that M.C. had received any legal or financial advice from the date that the sum of €1,938,453.41 was lodged to her bank, up to and after the final withdrawal of €500,000 on 14th April 2009. He concluded that F.C. gave false testimony in relation to the purchase of two properties in Poland. At one point in the hearing when seeking to explain this attempted concealment of part of the money in Poland, F.C. accepted that part, at least, of his evidence on the issue was “rubbish”.
22. The High Court held that the capacity of F.C. to influence M.C. to his benefit without regard to her genuine wellbeing, was best illustrated by the circumstances surrounding the final withdrawal of €500,000 in April 2009. This took place at a time when F.C. was aware an imminent psychiatric examination was due to be carried out on his aunt to assess her mental capacity. The judge held F.C. was involved in the cancellation of an initial appointment for the assessment, which had been due to take place just a matter of days after the withdrawal. He concluded that, to proceed with the withdrawal of €500,000, representing almost a third of M.C.’s remaining funds, when such funds were used by F.C. for a number of transactions for his own benefit, led inexorably to the conclusion that this withdrawal was as a result of influence used by F.C. for the purposes of obtaining such funds.
23. The trial judge found that €322,560 of the money was invested in the machinery hire business. All this money came from M.C.’s bank account. He also found that €215,000 was transferred from the same source to accounts in Poland under the control of F.C. and a Polish national, I.S. The trial judge found that F.C. transferred this money in order to ensure it would be invested in property there and not be available for repayment in the event of M.C. being taken into wardship.
The appellant’s submissions on appeal
24. In this appeal, F.C. made submissions on behalf of all three appellants. The other appellants adopted his submissions. The appellant essentially sought to revisit the findings of fact of the trial judge and the inferences drawn from them. He continued to assert that, at the time of the transactions, M.C. had full capacity to engage in financial transactions of this type, and that all times he had merely acted in accordance with his aunt’s wishes. He sought to lay emphasis on short excerpts from the evidence when the broader picture conveyed a different impression.
25. At the appeal, F.C. mistakenly claimed that M.C. had actually received independent financial advice on the purchase of investments and shares. The person to whom reference was made during the appeal did not testify, ostensibly on the grounds of illness, despite the trial taking place in two blocs in October and December 2012. F.C. attempted again to offer explanations for his role in the forged letter and trying to hide the money in Polish properties. He sought to lay some blame on Mrs. Eleanor Wardlaw, M.C.’s solicitor, who, the trial judge, held was a careful, honest and credible witness. Finally, he claimed that M.C.’s constitutional rights to autonomy had been seriously violated and desecrated. The appellant had no locus standi to make such a claim. The appellant’s misconceptions on the role of this Court have been explained. There was ample evidence before the High Court judge for him to reach his conclusions.
Conclusions
26. The High Court’s findings here were highly dependent on factual context and his view of the nature and quality of the evidence. This Court is entirely satisfied that the High Court judgment was correct in fact and law. The findings of fact were founded on credible, weighty, testimony; the inferences drawn were based on clear, supporting evidence. The judge was well-entitled to hold that the appellant had not discharged the evidential onus of showing the gift was the independent and well understood act of a person in a position to exercise free judgment.
27. The appellants herein have failed to raise any substantial grounds of appeal. In the circumstances, this appeal will be dismissed. This Court affirms all the orders of the High Court, inter alia, setting aside the alleged gifts, and declaring that the monies and property bought therewith remain the property of the Ward of Court.
Lynn v O’Hara
[2015] IEHC 689
UDGMENT of Ms. Justice Iseult O’Malley delivered the 5th November, 2015
Introduction
1. These proceedings concern the circumstances in which the late Sean Lynn, with the consent in writing of his wife, Mrs. Bridget Lynn, transferred their farm and family home to their son, the late Padraig Lynn. The transfer took place on the 24th November, 2008. It is common case that Padraig’s 35th birthday was on the 26th November and that there were tax advantages to finalising the transaction before that date.
2. The defendant in both actions, Olive O’Hara Lynn, was Padraig’s wife and is his legal personal representative. Padraig died intestate in tragic circumstances on the 7th December, 2011, and the defendant is therefore entitled to the entirety of his estate.
3. In the first of the above entitled proceedings, commenced on the 31st July, 2013, Bridget Lynn (known to her family and friends as Queenie Lynn) claims that the transfer is void on the basis that it was an improvident and/or unconscionable transaction brought about by duress or undue influence. She says that she signed the relevant documents because of pressure, duress and/or undue influence on the part of her husband Sean and her son Padraig, that she did not act of her own free will and that she was not given appropriate independent advice.
4. The plaintiff would be entitled, under the terms of the transfer, to maintenance and support, but says that she has received none. She does not seek any order in this regard (in circumstances where she contends that the transfer is void). However, the claim that the transfer was improvident is based in part on her assertion that, although she still has a right of residence in her home, she has been given no maintenance and now derives no income from the farm.
5. She suffers from a number of medical difficulties and says that she is unable to pay for the care that she needs now and into the future.
6. The defence delivered on behalf of Sean Lynn in those proceedings admits that he presented the scheme for the transfer to Bridget Lynn and that he pressurised her, placed her under duress and unduly influenced her. However, it is denied that he in any way participated in or drew up that scheme. It is claimed that he was induced to present it and to execute it by duress, improper and illegal pressure, threats and undue influence on the part of Padraig Lynn.
7. The second set of proceedings was commenced by the late Sean Lynn by way of plenary summons dated the 19th September, 2013. Sean Lynn died shortly afterwards, on the 15th October, 2013. By order of the court those proceedings are now carried on by his son Michael Lynn as Sean’s executor. The plaintiff seeks rescission of the deed of transfer, on the basis of duress and/or actual undue influence and/or illegal pressure and threats by Padraig. Specifically, it is pleaded in the statement of claim (delivered some months after the death of Sean Lynn) that the transfer was Padraig’s idea; that Sean had been unwilling to transfer the property; that Padraig had shown little interest in farming; that Padraig became threatening and abusive as the deadline for the tax exemption approached; and that Padraig threatened to kill himself if the property was not transferred to him before the 26th November, 2008.
8. Olive O’Hara Lynn has denied the claims made in both proceedings. She says that soon after Padraig’s death in December, 2011 she was put under significant pressure to disclaim her inheritance in favour of Sean and Bridget Lynn. However, no suggestion was ever made that the transfer was in any way tainted by duress or undue influence until 2013, when she was registered as the owner of the property. It is pleaded that the transfer was entered into voluntarily on the part of Sean and Bridget Lynn, with the full benefit of legal and accountancy advice and in full knowledge of the relevant tax reliefs. It is contended on her behalf that the only reason for these proceedings is that she refused to disclaim her inheritance, with the result that the property will not remain with blood relatives of the Lynn family.
Background facts
9. The house in question, which is on a farm of about 52 acres in Ballyoate, County Westmeath, was the family home of Bridget Lynn when she was a child. After her marriage to Sean in 1963, Bridget’s parents transferred the property into Sean’s name and it was thereafter the Lynn’s family home. The main use of the farmland has been for sheep.
10. There were six children of the marriage: Mary, Michael, Deirdre, Tom, Siobhan and the late Padraig. The eldest, Mary, has Down’s syndrome. She lives in a residential centre and attends a workshop during the week. At weekends she comes home to her mother. All of the other surviving children have their own livelihoods and their own homes.
11. Padraig Lynn, born in 1973, was the youngest of the children. After gaining a degree in business he worked for a bank for some years. He had always been involved in sport and set up his own business with a fitness and health centre. He also did fitness training with the county football team, as well as obtaining qualifications relevant to farming. At some point he inherited a piece of land beside the Lynn family home place, which was bequeathed to him by Sean Lynn’s brother Michael (known as Fr. Michael).
12. Padraig was in a relationship with Olive O’Hara for some 15 or 16 years before their marriage in August, 2008. They had built a house together on Padraig’s land and moved into it in 2006. It is common case that Padraig spent a lot of time looking after his mother in subsequent years.
13. It appears that Padraig developed some mental health difficulties. This affected his marriage to the extent that Olive left the house in August, 2011, in circumstances considered in greater detail below. Despite receiving professional help over a period of time, Padraig tragically killed himself in December, 2011.
Conveyances and transfers during the lifetime of Sean Lynn
14. Sean Lynn was, by all accounts, a successful farmer. Apart from the Ballyoate farm, he had owned land of his own before his marriage and he continued to acquire property. As well as farmland he bought some commercial properties in the town of Mullingar.
15. To put events in context, it is helpful to set out the provision made over the years in respect of each of the children.
16. In 1993, Sean gave his daughters Deirdre and Siobhan a commercial property in Mullingar. Deirdre is now living with her family in New Zealand. Siobhan owns a business in Mullingar.
17. In 1997, Sean and Bridget gave Michael just under a hundred acres in Enfield. They had previously given him a few acres for his 21st birthday. Michael has also bought farmland himself, and owns land adjoining the family farm, upon which he has built a house. He also has business interests in Mullingar.
18. In June, 2000 Sean gave Tom land in Churchtown. Tom had inherited about a hundred acres from Sean’s uncle Pat and had bought other land himself.
Testamentary provision
19. Sean Lynn made a number of wills. The first of those presented in court to make specific provision for his children by name dates from May, 1994.
The 1994 will
20. The family home and farm were left to his wife for her lifetime, and thereafter to Michael. Other specified lands were left to Tom and Padraig, subject to a right of support, clothing and maintenance in favour of Bridget. The residue of the estate and a further specified property were left to Bridget. Mary was to be provided for, at Bridget’s discretion, out of the residue and that property.
The 1997 will
21. Under a will made in January 1997, the home and farm were left to Bridget for her lifetime, and thereafter to Padraig. Another property was left to Bridget for her lifetime and thereafter to Michael. Tom was also to receive land, subject to a right to support, clothing and maintenance in favour of Brigid. Again, Mary was to be provided for at Bridget’s discretion. It was confirmed that provision had already been made for Siobhan, Deirdre and Michael, and that no further provision was being made for them in the will. Tom and Padraig were appointed as executors.
The 1999 will
22. In July 1999, a new will left the family home and farm, and another small property, to Bridget for her lifetime and thereafter to Padraig. About 11 acres in Ballyoate were left to Bridget for her lifetime and thereafter to Michael.
23. A separate property in Rathtrim, comprising 60 acres, was left to Bridget for her own use and benefit absolutely (unless she predeceased Sean or died with him, in which case Michael would inherit it).
24. Under this will Tom was left 72 acres for his own use absolutely. Another 10.78 acres in Balroe were left to Bridget for her lifetime and thereafter to Tom.
25. A property in Mullingar town was left to Bridget absolutely. In the event that she did not survive Sean this property was to go to Deirdre and Siobhan.
26. Shares in FBD were left to Michael.
The 2004 will
27. Under this will the family home and farm were left to Bridget for her lifetime and thereafter to Padraig. The Ballyoate lands were left to Bridget for her lifetime and thereafter to Deirdre and Siobhan. The 60 acres in Rathtrim were left to Bridget absolutely, and to Padraig in the event that Bridget did not survive Sean.
28. The Balroe land was left to Bridget for her lifetime and thereafter to Tom. The Mullingar property was left to Bridget absolutely, and to Deirdre in the event that Bridget did not survive Sean. The FBD shares were left to Michael.
The 2009 will
29. This was made in February, 2009 (after the transfer of the family home and farm to Padraig).
30. Under this will Bridget inherited the whole of Sean’s estate for her own use and benefit absolutely. In the event that she did not survive him for more than 30 days the estate was to be divided between their children in a specified manner. Padraig and his wife Olive would have received another piece of land.
31. The court has also been given information in relation to testamentary provision made by Bridget Lynn in so far as it relates to Padraig. The following aspects are of relevance.
32. In 1994, Bridget made a will in which she left all of her investments in a particular bank to Padraig.
33. A will made in 1999 left her bank shares to Sean, and in the event that he did not survive her to Padraig.
34. A 2004 will left bank shares to Sean, and to Padraig in the event that Sean did not survive her. FBD shares were left to her sons in equal shares. In the event that she survived Sean, Padraig was to receive the 60 acres in Rathtrim. The rest of her estate was to be divided between her children (including Padraig) in equal shares.
35. A will made in February, 2011 (after the transfer but before Padraig’s death) left all shares, money and the residue of her estate to Padraig.
36. Subsequent wills were made after Padraig’s death and are not of relevance.
The transfer documentation
37. The various documents associated with the transfer were drafted by the Lynn’s solicitor Mr. Crowley, of J.J. Macken solicitors in Mullingar. They were signed in the presence of, and witnessed by, Mr. Louis Kiernan of Nooney & Dowdall, also of Mullingar. There are eight documents, all dated the 24th November, 2008.
38. The first is a deed of transfer between Sean Lynn and Padraig Lynn. It recites that the transfer of the lands is in consideration of natural love and affection, and that it is subject to rights of residence and of support, clothing and maintenance in favour of Sean and Bridget Lynn as specified in documents of the same date. It is certified that, inter alia, the Young Trained Farmers Relief provided for in s.81AA of the Stamp Duties Consolidation Act 1999 is applicable to the transaction. The deed includes Bridget Lynn’s signature confirming her consent to the transfer for the purposes of s.3 of the Family Home Protection Act 1976.
39. The second is a deed of indenture between Padraig Lynn of the one part and Sean and Bridget Lynn of the other part. By its terms Padraig covenanted to support, clothe and maintain Sean and Bridget “in the like manner as they have been heretofore accustomed”. There is a proviso to the effect that, in the event of either of them going to reside in a hospital, home or other institution, Padraig would give them money in lieu (to an amount at his discretion), and a further provision by virtue of which they both agreed to postpone all of their rights if it was necessary to enable Padraig to raise any borrowing against the property.
40. The third document is a deed of grant, by virtue of which Padraig Lynn granted a right of residence to his parents for their respective lifetimes.
41. The fourth is a declaration executed by Sean and Bridget Lynn in fulfilment of the requirements of the Family Home Protection Act, 1976; the Family Law Act, 1981; the Judicial Separation and Family Law Reform Act, 1989; the Family Law Act, 1985 and the Family Law (Divorce) Act, 1996.
42. The fifth document is headed “Acknowledgement and Admission” and is signed by Bridget Lynn. This records her awareness of the transfer and her acceptance that she had been advised fully as to her rights as a spouse under the Succession Act 1965. That clause continues:
“It is has also been explained to me and I understand that following the transfer my husband Sean and myself will have the following rights over the property:-
(a) Exclusive Right of Residence in the dwelling house for our respective lifetimes
(b) Right of Support, Clothing and Maintenance out of the lands.
I am fully satisfied with this arrangement and fully satisfied that my husband Sean shall proceed with the Voluntary Transfer of the property accordingly and I hereby irrevocably consent to the said Voluntary Transfer to my son Padraig.”
43. The document goes on to record that the full meaning and effect of her rights under the Family Home Protection Act and her obligations as a parent under s.117 of the Succession Act had been explained to her. It was stated that the full meaning and effect of the grant of the rights of residence and of support, clothing and maintenance had been explained and that she understood that, apart from those rights, she would have no claim or right whatsoever in respect of the property. She also understood that Padraig would be able to deal with the property as he saw fit, including selling or mortgaging it, without reference to her or to Sean.
44. Finally, the document recites as follows:
“I have obtained independent legal advice from Louis Kiernan, Solicitor Mullingar County Westmeath on all matters set out in this Acknowledgement and Admission and he has explained the same fully to me. I am satisfied that my husband Sean proceed with this Voluntary transfer of my property to my son Padraig.”
45. The next document is a similar “Acknowledgement and Admission” signed by Sean Lynn. It confirms that the full meaning and effect of a “revocation clause” has been explained to him and that he requires the deed to be irrevocable. The rest of the document is much the same as that signed by Bridget, with the difference that the reference to the right of support, clothing and maintenance omits the words “out of the lands”.
46. The seventh document is a declaration of solvency by Sean Lynn. It also records his understanding of the difference between revocable and irrevocable, and his instructions that the deed should be irrevocable. It is noted that he had availed of independent legal advice.
47. The final document is a declaration by Sean Lynn with respect to any burdens or other matters that might affect the folio.
Evidence relating to the transfer
48. I propose to deal firstly with the evidence from the accountant and solicitor who advised Sean and Bridget Lynn, despite the fact that they were called as witnesses for the defence. This is because it is easier to summarise Mrs. Lynn’s evidence in a comprehensible fashion if their version is set out first.
The accountant
49. Mr. Malachy Stephens is a chartered accountant. He said that he has acted as accountant to the Lynn family for 12 to 15 years, and for Padraig Lynn from around 2005. During that period he did the annual returns in relation to Sean Lynn’s farm income. He was aware of the details of the land holdings, stock, herd numbers and other assets. He was also familiar with the previous transfers effected by Sean, although they had been carried out before he began to act for him.
50. Mr. Stephens said that he met with Bridget and Sean Lynn on the 29th October, 2008. An entry in his office diary records the appointment as being with Bridget, from which he draws the inference that she was the person who arranged it. He has produced notes made by him at that meeting.
51. The subject of the meeting was noted as being the proposed transfer of the house and farm to Padraig. There was reference to retention of a right of residence. Indicative valuations were noted for the purpose of considering potential tax liability. The figures were €1m for the farm and €120,000 for the house. There was also a note referring to a house and six acres at a value of €200,000 which was said to relate to Padraig’s property. It was estimated that he had borrowed that figure by way of mortgage.
52. It was noted that Sean had a contributory pension of approximately €120,000. Bridget did not have a pension and there was a query as to whether she would be eligible for a non-contributory pension. Mr. Stephens said that it was his view that the transfer of the land would not affect either of their pension entitlements. The benefit of the transfer lay in the 50% stamp duty relief because Padraig was a qualified young farmer. The duty at the time was of the order of 9%, which in the case of a property worth €1.6 m would have been around €150,000. The saving therefore would have been about €75,000.
53. Mr. Stephens said that both Sean and Bridget Lynn were astute business persons and they would “absolutely” have had consideration for this saving. However, the main purpose of the meeting was to establish whether or not any tax liability would be incurred by reason of the transfer.
54. The first issue was capital gains tax. Disposal of the property would constitute a capital gains tax “event”. However, because of Sean’s age and his history of farming the land he would qualify for retirement relief, exempting him from capital gains tax liability.
55. The second issue was gift tax. Based on the indicative values Mr. Stephens calculated that, after the transfer, 84% of Padraig’s assets would be agricultural. Because this was over the figure of 80% prescribed in respect of agricultural relief, the value of the gift would be reduced for tax purposes by 90%. This would leave the gift under the taxable threshold for a gift from parent to child.
56. The notes of the meeting also list the other properties owned by Sean Lynn. Mr. Stephens said that this was part of the initial discussions, centred on the fact that the transfer would lead to a loss of income.
57. There was also a discussion about how the land would be farmed after the transfer. Mr. Stephens said that there was “a general agreement” that Sean and Padraig would create a partnership for the farm. The possibility was raised that Bridget might be entitled to carer’s benefit or allowance. His office subsequently followed this up.
58. On the 7th November, 2008, Mr. Stephens wrote a letter addressed to Sean headed “Transfer of lands to your son Padraig Lynn”, referring to and summarising the discussion at the meeting.
59. There was a further meeting on the 24th November, 2008, at the request of the Lynns’ solicitor Mr. Crowley. This was to consider the figures again, based on the professional valuations that had by then been received. Mr. Stephens was able to confirm that the tax liability would be nil.
60. Mr. Stephens said that Bridget Lynn attended both meetings and was fully apprised of all relevant information. She did not express any unhappiness or concern about the transfer.
61. On the 16th June, 2009, Mr. Stephens’s office wrote to Mrs. Lynn advising her as to the qualifications for carer’s benefit and allowance.
62. Mr. Stephens also identified accounts he had prepared for the farm partnership established between Sean and Padraig after the transfer. This partnership covered the entire holding of the lands owned by Sean and Padraig.
63. When the partnership was set up Sean had contributed just under €40,000 by way of farm equipment and stock. He had also put in €25,340 in cash.
64. The accounts covered the period from the 1st January, 2009, up to the 7th December, 2011 (the date of Padraig’s death). Livestock sales for that period were approximately €60,000 per year. Farm subsidies were about €31,500 per year. Sean had withdrawn €47,623 over the period, while Padraig had withdrawn €5,668. The closing balance attributed to Sean was €10,178 and to Padraig was €6,347.
65. In cross-examination Mr. Stephens confirmed that he had not met with Bridget Lynn on her own in relation to the matter.
66. He further confirmed that he was aware that the transfer would have to be effected before Padraig’s birthday on the 26th November in order to avail of the relief against stamp duty.
67. Mr. Stephens was asked why the letter of the 7th November, 2008, was addressed only to Sean Lynn. He said it was because the file was in his name.
68. Asked by counsel for Michael Lynn whether he had detected any signs of stress or pressure on Sean’s part, Mr. Stephens said that he had not.
The solicitors
69. Mr. Patrick Crowley is the principal in the firm of J.J. Macken, having been a partner there since 1990 and having taken over the practice in 2007 on the retirement of his partner. The Lynns were clients of the firm.
70. Mr. Crowley recalled being contacted by Sean and Bridget in relation to the proposed transfer of the land to Padraig. The reason for the transfer was so that he could avail of “the farmers’ scheme” and for this purpose it had to be done while he was under 35 years of age. Mr. Crowley said that Sean and Bridget called in to him a number of times.
71. Mr. Crowley identified handwritten notes dated the 4th November, 2008, as being his notes from the first consultation in relation to the matter. Sean and Bridget were present. Mr. Crowley noted inter alia the following items of relevance:- the description of the property; Padraig’s date of birth; the fact that Padraig had the requisite certificates; the circumstances pertaining to Mary; whether the farmyard was to be included in the transfer; and the extent of the area surrounding the house to be included with the right of residence.
72. The notes included the following:
“No support and maintenance. Income solely and entirely his.”
73. This note was made, according to Mr. Crowley, because he asked Sean and Bridget how they would support themselves in the future. He said that it was “not good” to transfer substantial lands without provision for support and maintenance. Sean and Bridget specifically instructed him that they did not wish to include such a right. He noted in the attendance that they owned other properties, which were listed, and that Mary was to be provided for out of them. His understanding was that they were sufficiently provided for and that “they knew what they were doing”.
74. The note also referred to the possibility of reserving a right of residence for Mary, but not an exclusive right. Advice was given in relation to Succession Act implications, for Mary in particular.
75. In the event, Mr. Crowley decided on his own initiative to include a covenant for maintenance and support. He said that he was not satisfied to do a transfer of this sort without such a covenant. He put it in, not because he was not satisfied that the Lynns could provide for themselves, but because one could not know the future. He wanted to ensure that the transferors were protected and that the transferee knew what he was taking on.
76. The attendance also notes that Sean and Bridget were advised in relation to obtaining independent legal advice. Mr. Crowley said that this was his usual practice, and was for the protection of everyone concerned.
77. Mr. Crowley estimated that this meeting would have lasted at least an hour and probably an hour and a half. He said that there was nothing to suggest that Sean and Bridget were under pressure. It was his understanding that they had a good idea of what was involved.
78. On the 18th November, 2008, Mr. Crowley sent a fax to Mr. Stephens in which he stated inter alia that he had been consulted by Mr. Sean Lynn and Mrs. Bridget Lynn about the transfer.
79. Mr. Crowley next saw the Lynns on the 20th November, 2008, although the office diary records telephone contact on other dates. A further appointment was made for them for the following afternoon, the 21st, at 2.30. The intention appears to have been to have the documents executed on the 21st but in the event the Lynns met with Mr. Stephens for a final discussion on Monday 24th, before attending at Mr. Kiernan’s office in the firm of Nooney & Dowdall later that day. Mr. Crowley said that the matters dealt with by Mr. Stephens included the farming partnership and joint bank account to be set up between Sean and Padraig.
80. Mr. Crowley said that it was his firm belief that Bridget Lynn understood what she was signing. She had not indicated to him that she had any concerns or that she was being put under pressure. If she had, or if he had thought for one moment that she was not happy to go through with the transfer, he would not have gone ahead with it.
81. Mr. Crowley said that Sean did not alter the will he made in 2009. He also recalled seeing Bridget about her own will subsequently. She had some other queries but never raised any issue in relation to the transfer. No complaint had ever been made to the Law Society about his advices in the matter.
82. In cross-examination Mr. Crowley accepted that he had not seen any of the three persons involved – Sean, Bridget or Padraig – on their own. He agreed that he had considered that he was acting for Padraig as well as his parents. It was put to him that Bridget had wanted to see him on her own but never got the opportunity. He responded that all she had to do was ring and ask to see him.
83. He said that he did not know whether Bridget had a legal interest in any of Sean’s property. He was aware that Padraig had inherited land from his uncle and had his own house. He did not consider whether or not it was advisable, in those circumstances, to transfer the family home. However, it was his view that it is not appropriate to transfer a family home, and his usual practice is to discuss this with the client.
84. Mr. Crowley thought that Bridget Lynn might have contacted him with questions about family property maybe five or six times before the matter of the transfer. Asked about her health in November, 2008 he said that he had been aware that she had Parkinson’s disease and sometimes used a walking stick. He did not know of any other complaints. He knew she was getting medical treatment.
85. Asked further about the advice he had given, Mr. Crowley said that he told Bridget Lynn that she had certain rights under the Succession Act and that if she went ahead with the transfer she would forego all of those rights in relation to the property. He also explained to both Bridget and Sean that they had a moral duty under the Succession Act to provide for all their children in accordance with their means, and that if they did not do so the transfer could be challenged. He said that he would have checked their wills before proceeding, as he would never do a transfer such as this without checking the wills. It was put to him that this was an inter vivos transfer to a child of the deceased, which could not be the subject of a challenge under the Succession Act, and he said that he was erring on the side of caution.
86. Mr. Crowley was asked
“What did Bridget Lynn gain, if anything, by effecting this documentation?”
His reply was that she gained the fulfilment of her wishes.
87. It was accepted by Mr. Crowley that under Law Society rules now in force he could not act for more than one of the three parties concerned in such a transaction. He was permitted to do so in 2008 but had taken the precaution of ensuring that Sean and Bridget got independent advice. He did not accept that they should have been advised separately, in circumstances where he had been instructed not to make provision for maintenance.
“In view of what’s happened it may well be correct. That’s all very fine saying that today.”
88. It was put to him that Bridget had more to lose than Sean, and he responded that she was “firmly behind” getting the transfer done as quickly as possible.
89. Certain passages from the 2002 Law Society guidelines were put to Mr. Crowley including the following: –
“A solicitor should not accept instructions which he suspects have been given by a client under duress or undue influence. Particular care should be taken where a client is elderly or otherwise vulnerable to pressure from others. A solicitor will usually but not always see a client alone. In the case of suspected duress or undue influence the solicitor should ensure that the client is seen alone.”
90. He responded:
“Well, it must be borne in mind that I was consulted by Bridget, the late Sean Lynn and Bridget Lynn, who came to me with a firm, clear and fixed intention of transferring their property to their son Padraig. Padraig Lynn, I don’t think he contacted me, I think it was about the 20th before I saw him, I may have spoken to him before that. But in all honesty he wasn’t, he did not involve himself in the transaction, as far as I could see, at all, until he was asked by me to come in, I think it was on the 20th, to go through documentation so that I could explain to him his obligations as well as what was happening in the transfer.”
91. He said that if he had sensed any question whatsoever he would have acted differently. It was his professional judgment, having known the Lynns over the years, that there was no question of undue influence. It was put to him that the Law Society guidelines stated that a solicitor’s obligations were not fulfilled simply by carrying out instructions. He said that he had carried out instructions but not “in a vacuum”. He had known the people he was dealing with for a number of years and had formed the view that they were there because they wanted to be.
92. He did not accept that Sean Lynn had rung his office and said that his wife did not wish to proceed. If that had happened he would have taken a completely different course.
93. Mr. Crowley accepted that no one had adverted to the possibility that Padraig might predecease his parents. However it was his view that the rights of support and maintenance conferred in the transfer were still in place and were enforceable against Padraig’s estate.
94. Ms. Ethel Battle has worked in the office of J.J. Macken for over 40 years. She answers the telephone, logs calls, makes appointments and is responsible for maintaining the office diary. She also witnessed all of Sean Lynn’s wills referred to above.
95. Ms. Battle said that she knew both of the Lynns very well from coming in and out of the office for a long number of years. They were clients of Mr. Crowley’s predecessors before he took over the practice. She was on first name terms with them. Sometimes they came separately and sometimes together, generally after making an appointment.
96. Ms. Battle was asked about an entry in the diary for Wednesday the 29th October, 2008, which read “Mrs. Lynn transfer”. She explained that if a client who rang the office had a few different matters in train she would ask which they were calling about, so that she could tell Mr. Crowley when putting the call through to him. On this occasion Mrs. Lynn had said that she needed an appointment about a transfer.
97. An entry in the diary for Friday the 30th recorded a call made by Mr. Crowley to Mrs. Lynn.
98. On the 4th November Mrs. Lynn had an appointment at 2.30 pm. Ms. Battle recalled that Mr. Lynn came with her, and that she showed them into the consultation room. She estimates that the meeting took an hour to an hour and a half.
99. On Wednesday the 5th November Mrs. Lynn called to give Padraig’s date of birth.
100. On the 12th November Mr. Crowley rang Mrs. Lynn about a valuation. On the 18th November Mr. Crowley rang Mr. Lynn about stamp duty. Ms. Battle explained that Mr. Crowley would ask her to ring “Sean or Bridget Lynn” and she would put through whichever of them answered the phone.
101. On the 20th November there was an appointment at 2.30 pm for Sean, Bridget and Padraig Lynn. On the following day there was an appointment at the same time for Sean and Bridget.
102. On the 24th November there was an appointment noted in the diary for a meeting with Mr. Malachy Stephens at 3.45pm in his office.
103. Ms. Battle confirmed in cross-examination that Mrs. Lynn had never attended the office on her own in relation to this particular matter. She had, however, come on her own in relation to her own will.
104. Mr. Louis Kiernan has been a solicitor in the firm of Nooney & Dowdall for over 12 years. He said that he did not know the Lynns personally but was aware of them from living nearby. His uncle and aunt had been friendly with Sean and Bridget. He himself knew Thomas and Michael from football, and had played on the same team as Padraig but they were not friends “as such”.
105. Mr. Kiernan recalled getting a phone call from Mr. Crowley asking him if he was available on the 24th November, 2008, to give independent legal advice. The documentation and the covering letter were delivered to his office before the Lynns came to him. He familiarised himself with the documents before they arrived.
106. Mr. Kiernan said that the meeting went on for 20 to 30 minutes. He went through each document in turn. He remembered it as being “a pleasant consultation”. They were “a nice couple” and he was satisfied that they understood everything that was being discussed. Sometimes one might have a concern, and he would always look out for indications that the person was uncomfortable, didn’t seem to understand or was expressing doubts. There were no worries in this case. He asked them, in relation to each document, whether they understood it and were happy with it. The Lynns were happy to proceed, did not ask any questions and did not express any concerns.
107. Asked about his role, Mr. Kiernan said that he made it clear to them that he was independent of Mr. Crowley’s office and that he was taking a fresh look to explain things to them. He was not there to persuade them one way or the other. However, if he had had any doubts he would have stopped, having regard to the fact that this was a big transfer involving a family home. He wanted to make sure that they understood that it was irrevocable and that they would no longer have control.
108. Mr. Kiernan referred to notes made at the meeting. They record that he had satisfied himself as to the capacity of the Lynns, because they were older people. He recalled that Bridget was walking with a distinct hunch but he had no worries in relation to her mental capacity. He had also written the words “consent” and “no pressure or coercion” in the notes. He said that he had asked them whether they were under any pressure or coercion, whether there was anybody “in the background” forcing them to do this and they had said that there was not and that they were happy to go ahead. He said that he was getting responses from both of them.
109. The notes record that Mr. Kiernan explained that Padraig would be “free to sell, gift, sell, part, pass it on etc”.
110. Mr. Kiernan said that he was not aware that Sean had intended to leave the property to Padraig in any event, or of any other financial considerations. They did discuss the fact that there were other children and that Sean and Bridget were happy that the others had been looked after.
111. The transfer documentation was then signed by Sean and Bridget in Mr. Kiernan’s presence and was witnessed by him.
112. In cross-examination Mr. Kiernan was asked if he would, in the same circumstances, see the two of them together now. He said that he would not, because of his experience in this case and because of the fact that the Law Society no longer permitted solicitors to act for both sides of a transaction even in the case of a voluntary disposal.
113. He said that he was aware that Padraig had his own house. He did not raise any question with Sean and Bridget as to why, that being so, the family home was being transferred to Padraig. He did not make enquiries as to Padraig’s assets. He did not ask Bridget or Sean whether they had any other assets. He did not advert to the possibility that Padraig would predecease his parents. He said that he did deal with the possibility that Padraig might divorce, remarry or move abroad. He asked whether there were other persons with an interest in the property, but not whether there was anyone else living there. He did not advise Bridget that her right to maintenance was related only to the income from the land.
114. Mr. Kiernan said that it was his clear impression that Bridget Lynn understood the implications of the transfer and was happy to proceed. He did not see it as part of his role to ask whether she would make any financial gain from it.
115. Mr. Kiernan said that no complaint had been made to the Law Society about his handling of the matter.
Bridget Lynn’s evidence
116. As of the date of the hearing, Mrs. Lynn was living in the house with her brother-in-law Pat. He has lived there since Sean and Bridget got married, in an extension they built for him. He has always required assistance with daily life and is now 84 years old.
117. Mrs. Lynn said that in 2008 Padraig was living with his wife in the house he built on the land given to him by Fr. Michael. She said that he had six acres and that she and Sean had given him another six.
118. Mrs. Lynn said that no one spoke to her in 2008 about giving more land to Padraig. She was very disabled at that time and in great pain because of problems with her back. She said that on the 18th or 19th November, 2008, she had been to a medical appointment in Dublin. When she came home her husband said to her that “they were thinking of leaving the home place to Padraig”. She said she couldn’t believe this. She was in great pain at the time.
119. On the following morning Sean said to her that “they” had decided to give it to Padraig while he (Sean) was still alive, and that Malachy Stephens, the accountant, had advised this. Mrs. Lynn says that she responded that this was ridiculous, that she was not giving away her home. Sean said that it had to be given to Padraig before he turned 26 (sic) so that he could get his grants.
120. Mrs. Lynn said that she was brought to J.J. Macken’s to see Mr. Crowley. At that stage she saw a letter addressed to Sean from Mr. Stephens. It referred to a discussion on a date at the beginning of November but she did not know about it.
121. Mrs. Lynn said that Sean put pressure on her, and told her that Padraig was putting pressure on him. This was on a Friday evening. She continued:
“I didn’t want to cause trouble if you like and break up a marriage and not give it to them and I said there will be murder or war or there will be a lot of disturbance. I decided at that stage that I’d give it to them. I didn’t want to give it to them. I cried for the two nights. Monday night I had to go in and sign for it…”
122. The meeting with Mr. Crowley was described. Mrs. Lynn said that she asked him what would happen to her, and he told her that she would be looked after and that nothing would change for her. She would still be in control of her home. He said that he would get someone to advise her, and then sent her up to Dowdalls to see Mr. Kiernan. She did not get a chance to talk to Mr. Crowley on her own. She did not see the documents in his office.
123. Mrs. Lynn said she was brought to meet with Mr. Kiernan in his office on a different day. She said he asked her did she know “what was in the letter” and she made some remark to the effect that “you have to trust in your professional people and hope they do the best for you”. They were there for 10 to 15 minutes. She was not on her own with Mr. Kiernan at any time. She said she signed with great regret and did not do it voluntarily. She would never give her home away and did not know what had happened.
124. Asked about the “Acknowledgment and Admission” document, Mrs. Lynn identified her signature but said that she did not remember signing it. She said that she understood that she had entitlements as a spouse, but that she did not remember it being explained to her. She understood that the references to the exclusive right of residence meant that she was entitled to live there as long as she wanted. She understood that the right of support, clothing and maintenance meant that she would get what she needed as before “from the profits of the land”. However, she said that it was not explained to her. She did not remember being asked was she “fully satisfied” with these arrangements, and she had not been so satisfied. She did not accept that the “full meaning and effect” of her rights under the Family Home Protection Act had been explained to her, or the relevant provisions of the Succession Act, or the implications of the transfer.
125. Mrs. Lynn said that she did not accept that Mr. Kiernan had fully explained the matter to her. He should have sat her down and talked to her for an hour to explain it. She should have been given time to consider the documents. She does not think (despite acknowledging her signature) that she saw the documents in Mr. Kiernan’s office.
126. Mrs. Lynn said that she signed because she was forced to by Sean. He, in turn, was under pressure from Padraig. She and Sean feared that Padraig’s marriage would break up if they did not.
127. Mrs. Lynn accepted that the other children had been given land. However, she said, Padraig got education and money instead. He was not really a farmer.
128. Shown the document containing the Family Home consent, Mrs. Lynn said she understood that by signing it she was signing away the farm and the house. She understood, but did not remember, the clause providing that her rights under the transfer would be postponed in the event of the property being mortgaged or charged, or in the event that she went to reside in an institution.
129. According to Mrs. Lynn, she has received no maintenance or support since the date of the transfer. She got nothing from Padraig or from his estate. She said that she knew nothing about the partnership between Sean and Padraig.
130. Mrs. Lynn said that after the transfer Padraig and Olive took over the farm and put sheep and eight horses on it. She and Sean had previously been getting between €20,000 and €25,000 from farm subsidies. That was their income and it was now lost forever. Her only income now, she said, is the widow’s pension of €230 a week.
131. Mrs. Lynn’s health continues to be poor. She said that she has the assistance of HSE home help for brief periods in the morning and evening, and her family assist when they can. Her home is unsuitable for a wheelchair user. (However, it must be noted that she did not refer to the fact, established in evidence by a witness called on her behalf, that she has been receiving assistance from the Home Instead agency since a date some weeks before the hearing. That witness said she did not know who was paying the bills).
132. In cross-examination, Mrs. Lynn was asked about her relationship with Sean. She agreed that he was “terrific” with her and very loyal to her. He was a very hard working man, devoted to his family. She agreed that all the land transfers to the children were discussed with her and she had signed some of them.
133. Each of the wills Sean had made was put to Mrs. Lynn. In relation to the 1997, 1999 and 2004 wills, under which the home place was left to Padraig, she said that she did not recall this feature but was not saying that she did not know about it.
134. Mrs Lynn agreed that Padraig had done a Teagasc course in 2003 and was a “qualified farmer” after it. She denied that there was an intention at that time that he should take up his inheritance and farm the homestead, and said that he was too busy training sport teams.
135. Mrs. Lynn described Padraig as being very helpful as her health failed. He would take her to the doctors. He put her to bed and helped her up. He brought her to the bathroom and took her out on drives to cheer her up. He was also very good to his uncle Pat and would get up at night to look after him.
136. For the year before Padraig died he was in receipt of the Carer’s Allowance. However, Mrs. Lynn took issue with the suggestion that he had put the money into her household account, and said that he spent it on his flower garden and a jeep.
137. Padraig and Olive got married in 2008, having been going out together for some 16 years. Olive was working for the HSE and had a project that involved bringing children to ride horses on Padraig’s land. Mrs. Lynn did not accept that she had known Olive “for years and years”, saying that they met occasionally. “She was young and I was old”.
138. Mrs. Lynn agreed that Padraig continued to help Sean on the farm and to look after her after his marriage. However, she said, his time was very scarce and they did not see much of him.
139. It was put to Mrs. Lynn that not long after the wedding she had told Olive that Padraig would be getting the home place, as Sean had willed it to him. She said that she did not recall. She further said that she did not recall Sean ever saying that he wanted Padraig to have it.
140. Asked about an application to the Department of Agriculture under the REPS scheme, in which Padraig was the nominated farmer, Mrs. Lynn said that she did not know about it but agreed that she was not surprised by it. She nonetheless maintained that Padraig was not a farmer, saying that he never engaged in manual labour on the farm like the other boys in the family. She accepted that the Department would have carried out checks.
141. It was put to Mrs. Lynn that it had been decided that Sean could retire, with Padraig taking over the land as the registered farmer. Sean and she would be the beneficiaries of the Department’s retirement scheme provided the transfer occurred while Padraig was under 35. She agreed that his birthday was the critical date.
142. It was further put that the professional advice was that the lands should be transferred to Padraig rather than leaving them to him. Mrs. Lynn expressed a view to the effect that the professional advisers had let her down.
143. Mrs. Lynn was asked about her claim to have no income, in view of the fact that she had inherited all of Sean’s estate. She said that she did not know whether she had. It was put to her that under the 2009 will he had left her all his lands and stock, and the benefit of the farm partnership. She said that she was not involved in the partnership and did not know if she benefited from it. She got no money from Padraig. She denied any knowledge of the fact that income continued to come from the farm after Padraig’s death, none of which went to Olive. She did not know that Sean had applied to the Department for a new herd number for the farm in January, 2012.
144. In answer to a question from the court Mrs. Lynn said initially that Sean had had 40 or 60 acres when he died. She then said it was 60 to 70, but that she did not know if she owned it. Finally she said that it was 80 to 100 acres.
145. Mrs. Lynn confirmed that it was her evidence that she had nothing to do with any preparations for the transfer and that it was foisted upon her. The letter of the 7th November, 2008, from Mr. Stephens, referring to the recent meeting about tax liability arising from the proposed transfer, was put to her. She denied that she had been at such a meeting. She was not interested in tax issues and knew nothing about it.
146. It was then put to her that Mr. Stephens had a note of the meeting of the 29th October, 2008, with herself and Sean and she said that she could not remember it. She would not accept that the transaction was discussed with her and continued to maintain that she knew nothing until asked to sign.
147. She also denied having consulted JJ Macken about the transaction, as suggested in the faxed letter of the 18th November from Mr. Crowley to Mr. Stephens. The record of her phone call to the solicitor’s office on the 29th October was put to her and she denied it. She said that it was not true that she was in that office on the 4th November. She did not accept that there had been a call on the 12th November about the valuation and she knew nothing about it.
148. Mrs. Lynn further denied telling Mr. Kiernan that she consented to the transfer, or that she had been asked by him whether she was under any pressure or coercion. She asserted that she had told him that she did not want to sign, that she did not know whether it was right or wrong to sign.
149. In cross-examination on behalf of the estate, Mrs Lynn was asked about the pressure she claimed had been put on her by Sean. She responded:
“He just said to do it and that was the right thing. He was very quiet about all this. I don’t know why. He was just, I don’t know was he a bit depressed or I don’t know what was wrong but he was anxious to get it done and he said we should do it. I said I didn’t want to, your home is your home. I said my parents wouldn’t like this and I didn’t want it done and that is it. I didn’t want it breaking up marriages or breaking up my own marriage or causing disagreements or arguments and I didn’t have much of an option, but I did it against my will…”
150. She clarified that she did not think that her own marriage would break up, but feared that there would be rows.
151. Padraig had, she said, been in ill health. He had been getting psychiatric help for two years before his death and had gone to counsellors and to hospital. When he wasn’t well he felt very low and slept a lot. He was very upset when his wife moved out. She did not think there had been any physical violence on his part, but she thought that Sean would have been worried about Padraig’s reaction if the transfer had not gone through.
Medical evidence relating to Bridget Lynn
152. There is no doubt but that Mrs. Lynn has for several years suffered from poor health.
153. Her current GP, Dr. D’Alton, stated that he had first met her in August, 2008. At that time she had a history of severe Parkinson’s disease since about 1998; spinal disease for which surgery was required in 2002; osteoarthritis and coronary disease. She was attending a neurologist, a cardiologist and an orthopaedic surgeon with a particular interest in spinal surgery.
154. Dr. D’Alton went through the medications Mrs. Lynn was taking in 2008. These included sleeping tablets, an inhaler, stomach tablets and combinations of medicines in respect of her heart condition and Parkinson’s.
155. Dr. D’Alton confirmed that Mrs. Lynn had seen her neurologist, Professor Timothy Lynch, on the 19th November, 2008, and that this was a review which had been scheduled nine months earlier. He also confirmed that on the 19th November Professor Lynch had reported that Mrs. Lynn’s Parkinson’s disease was reasonably stable, and that he would see her again in one year’s time.
156. Dr. D’Alton said that he had not been asked to assess any question of Mrs. Lynn’s fitness in relation to testamentary capacity when she made wills in 2011 and 2012.
157. Professor Lynch said that he had been seeing Mrs. Lynn since 2002. She had highly complex medical problems, which he listed as “coronary heart disease; hypertension; underactive thyroid gland; osteoarthritis; osteoporosis; high cholesterol; bladder problems; bowel problems etc including significant back problems and neck problems”. He gave a description of the main symptoms she was experiencing in 2008.
158. As far as Mrs. Lynn’s current condition is concerned, Professor Lynch said that things have gotten harder for her over the years by reason mainly of the combination of Parkinson’s disease and arthritis and she required more care. He noted that she had said to him that her “motivation and drive and initiative were a bit less than before” and commented:
“Which is perhaps remarkable because over the years Bridget has soldiered on from 1997 to 2014 and has always struck me and others as a very motivated driven woman who coped with many illnesses and just got through them.”
159. Asked in cross-examination about his use of the words “motivated” and “driven” Professor Lynch said that he meant this “in the best terms”. He agreed that Mrs. Lynn had a sharp brain, and that he would not describe her as a “wilting violet”.
Evidence of Olive O’Hara Lynn
160. Ms. O’Hara Lynn said that she had been seeing Padraig since about 1992. They got engaged in 2004, and started building their house on the land left to Padraig by Fr. Michael. They moved into the house in 2006. In the same year she took up a job with the HSE. Padraig was partly engaged with his fitness business and partly with farming. He was also involved in training the county team. Ms. O’Hara Lynn said that they did not have a lot of money and were furnishing the house piece by piece.
161. She said that she had a good relationship with Sean Lynn, who she described as an impressive man. She always got along with Queenie also, and did not remember ever having an argument with her. Ms. O’Hara Lynn said that Queenie told her at some point that Padraig was to get Ballyoate. However, she says that in fact Padraig never told her about the transfer until 2010.
162. Padraig and Olive got married in August, 2008. Ms. O’Hara Lynn said that Queenie was in good health at the time and had a great day at the wedding. The couple went away for a few days after the wedding but left the honeymoon until December, when they went to the Caribbean.
163. By this time the fitness business had closed although Padraig was still doing some evening classes and a bit of team training. According to Olive, he was working full time on the farm in the partnership with Sean.
164. Ms. O’Hara Lynn is a Resource Worker with the HSE, working mainly with young adults with intellectual and physical disabilities. She had spent several years working with horses previously and in 2010 she did a course in “equine assisted learning”. This is a specialised therapy using horses for people with special needs. She subsequently, with HSE approval, set up facilities for the treatment of young autistic persons using the Ballyoate property.
165. Ms. O’Hara Lynn said that Padraig began to become very unwell around October or November, 2010. He was low, tearful and under pressure. People had high expectations of him and he felt that he could not meet them. She brought him in to see Dr. D’Alton. Padraig was relieved to have discussed the issue with the doctor and subsequently went several times to see Professor Murphy, a psychotherapist. Professor Murphy was trying to get him to see that he was spending too little time on himself and his own activities. Padraig began to improve for a while but then started to go down again.
166. In August, 2011 Ms. O’Hara Lynn left the house and went to stay with a friend. She said that she did so because she was not equipped to deal with what was happening and wanted to force him to get help. He did go to Edmundsbury Hospital. He was seeing Professor Murphy and a counsellor, and Olive kept in touch with them. She also remained in phone contact with Padraig and met him on occasion.
167. However, Ms. O’Hara Lynn became increasingly concerned about Padraig’s behaviour. He came to her workplace and was driving around to her friends’ houses and to her brother looking for her. She felt that he was not himself and, after speaking to his counsellor and a female Garda, she applied for a safety order. The sworn information grounding the application stated that she was in fear of her life due to her husband’s continuous mental and physical abuse and harassment since she left the family home. The order was made on the 10th November, 2011. Padraig was present in court and consented to the order.
168. Ms. O’Hara Lynn said that this was heartbreaking for her because she really loved him. She did not suggest to him that the marriage was over, or discuss selling the house or land.
169. In answer to the suggestion that she might not have married Padraig unless the lands were transferred, Ms. O’Hara Lynn pointed out that they were already married when that happened. She said that that year, 2008, was one of the happiest years of their lives. Padraig was very well that year and in great form. It had never been suggested to her by Sean that Padraig put pressure on him, or had said that he would harm himself if he was not given the land. Nor did she hear it said, before 2013, that the transfer had been improvident.
170. Ms. O’Hara said that she received no money in respect of either the stock or the land until 2013, when she got a single farm payment. She has not been farming the land. She had moved back into her house for a while in 2012, during which time Sean Lynn frequently called in to her. Michael also came a few times, looking for letters from the Department of Agriculture. He asked her if she had found out how much tax she would have to pay back on the six acres to get it back into her name.
171. She said that it became clear that she was not welcome in the area and she rented out the house from August, 2012.
172. In cross-examination Ms. O’Hara Lynn was asked why she thought the Lynn’s family home had been included in the transfer, given that she and Padraig had a house of their own. She said that Padraig had envisaged that at some stage they would sell their own house and move into the farmhouse to look after his parents. She understood that Mrs. Lynn has a deep attachment to her home, and agreed that she had told her that it would always be her home. She had fully intended to sign it back to her until she was asked to sign the disclaimer. Communications broke down and everything was being done by solicitors’ letters. She could not say what her present intentions are, given everything that had happened and what had been said about Padraig.
173. Ms. O’Hara Lynn agreed that she had seen Padraig lose his temper. However she had never seen him act aggressively towards Sean and had never seen Sean afraid of Padraig. She did not accept the proposition that there were “two Padraigs”.
Medical evidence relating to Padraig
174. Dr. D’Alton was also Padraig’s GP. According to his records, he saw Padraig in April, 2005. On that date he noted the following:
“Depressed, traumatic family split, reduced interest, tearful, not suicidal, refer for counselling.”
Dr. D’Alton did not recollect any detail as to the circumstances giving rise to this.
175. There was no further mention of depression or psychiatric illness in the records from that point up to October, 2010. At that time Dr. D’Alton noted that Padraig was in a depressed mood and had thoughts of suicide. He referred him to a consultant, Dr. Matt Murphy in Edmundsbury Hospital. The letter of referral reports Padraig and Olive as saying that psychological problems had been ongoing for several years, and that Padraig had seen psychologist Michael Byrne for one session, which he found helpful.
176. Mr. Byrne’s report noted that Padraig was struggling with a lack of appreciation from his family for the care that he was giving his parents and his uncle. Dr. D’Alton’s observation on this was that he was aware that Padraig was a very hard working, conscientious person who gave very generously of himself.
177. Dr. Murphy saw Padraig in November, 2010. Padraig told him that he had been “in a dark place” for about six months but was now much better. He described sleep disturbance, thoughts of self harm and exhaustion.
178. In cross-examination on behalf of the estate Dr. D’Alton was asked about the note he made in October, 2010 that Padraig had a “difficult” relationship with his father. He responded that he had no particular information on that issue, other than that Padraig worked very hard on the family farm and that fathers and sons do not always agree. He was asked if he had seen any indication of “anger issues” and replied that he had not.
Events after the death of Padraig
179. It is apparent that after Padraig’s death matters developed in a direction which unfortunately led to the current proceedings. However, to a large extent the court is not concerned with what exactly occurred. The following evidence is referred to only on the basis that it can shed some light on the parties’ perception of previous events.
180. Padraig’s funeral was on a Saturday. On the morning of the following Monday Olive O’Hara Lynn went with her brother Cyril to her house in Ballyoate. She found a number of people there before her including Bridget Lynn, Bridget’s sister Margot, Michael Lynn, Siobhan Lynn and Siobhan’s partner. It appears that they must have let themselves in with Padraig’s key. It also appears, as conceded in evidence by Bridget, that they were looking at some papers of Padraig’s.
181. According to Ms. O’Hara Lynn, Michael Lynn said to her that she had got everything she wanted when she left. Siobhan asked her if what she wanted was a few acres for her horses. Queenie said that she wanted her house back, and Olive said that it was hers (Queenie’s) and always would be. She had her own home. Michael said that he had been good to her the previous week but that the show was over and it was down to business. She said that Queenie told her that she should get a solicitor, and not to go to J.J. Macken’s.
182. Ms. O’Hara Lynn said that she never agreed to waive her rights in relation to Padraig’s estate.
183. The detail of her evidence in relation to the events of that day was supported by her brother Cyril O’Hara. Mr. O’Hara also said that around Easter 2012 he received a phone call from Michael Lynn. Michael said that no matter what, the place was coming back to them. He asked Mr. O’Hara to put pressure on Olive.
184. Mr. O’Hara was not cross-examined.
185. Mrs. Lynn accepted that she had been there, claiming that she had been looking for papers that belonged to her. She also accepted that there had been a discussion about the land. It was possible that she told Olive to get a solicitor. She said that she could not remember instructing a solicitor herself but it was very possible. Olive had said that her house was her own and had also agreed to give the land back. She agreed that she subsequently asked Mr. Crowley for copies of the transfer documents.
186. After this incident Ms. O’Hara Lynn did engage a solicitor, Mr. Tynan, and the Lynns instructed a new solicitors’ firm to deal with the matter.
187. Also shortly afterwards Michael Lynn phoned Mr. Stephens. He told him that he understood that Olive was going to disclaim her inheritance, which would mean that his parents would inherit Padraig’s estate. He asked for advice on the tax implications for his parents.
188. On the 15th December, 2011, a solicitor from the firm of O’Donovan Cowen emailed Olive’s solicitor Mr. Tynan. He stated that he had been instructed by Sean and Bridget to “regularise” affairs following Padraig’s death. He understood that agreement had been reached with Olive in relation to “the transfer back” of both the family home and the farm. A further letter on the 5th January, 2012, referred to Sean and Bridget’s instructions that Olive had indicated that she would sign the necessary documents after the Month’s Memory.
189. The correspondence between the solicitors continued for a lengthy period of time. I do not propose to deal with it in detail except to note two aspects. One is that each solicitor maintained a consistent position – Messrs. O’Donovan Cowan asserted that a binding agreement had been entered into on the Monday after the funeral, while Messrs. Tynan Larkin said that that there had been no agreement on the part of their client to waive her rights and that she would finalise her attitude in due course.
190. The second noteworthy aspect is that in May, 2012 O’Donovan Cowan were concerned about finalising matters because of a risk that the farm entitlements might be lost in the absence of proof to the Department’s satisfaction as to ownership. Tynan Larkin responded by proposing that the entitlements should be transferred into Ms. O’Hara Lynn’s name, since she was the person entitled to extract administration, “pending a final decision being made in relation to all of these matters”. This letter concluded as follows:
“For the purpose of clarity let there be no doubt whatsoever that Mr. and Mrs. Lynn, Snr. will not be disturbed in the family home and they will continue to reside there with the same rights and privileges as before and their maintenance and support will be provided for from the income derived from the farm as heretofore.”
191. On the 6th April, 2013, letters of administration were granted to Ms. O’Hara Lynn.
192. Proceedings were initiated by Mrs. Lynn on the 31st July, 2013.
Valuations and current use of the farm
193. It will be recalled that at the time of the transfer Mr. Davitt valued the house and lands at a total of €1.6m.
194. For the purposes of these proceedings Mr. Michael Farrelly was engaged on behalf of Mrs. Lynn. Mr. Farrelly is a brother-in-law of Michael Lynn but assured the court that he had carefully considered the situation and was satisfied that there was no conflict of interest and nothing to prevent him from giving a proper professional opinion. He considered that the value had been overestimated by Mr. Davitt and also for the Inland Revenue affidavit. The true value of the house, in his estimation, is €60,000 to €70,000 – in effect, the value of the site. The farmland, at average Westmeath prices, is worth €300,000.
195. In relation to the house, Mr. Farrelly makes the point inter alia that the closeness of the farmyard to the house makes it undesirable or difficult to separate the house from the farm. There also appears to be a right of way from the lands belonging to Michael Lynn to the farmyard beside the house, for the purpose of using the sheep-dip.
196. Mr. Farrelly agreed that there were some sheep on the land when he inspected it in 2014, and that a gateway leading to Michael Lynn’s land was open.
197. On behalf of Ms. O’Hara Lynn, Ms. Eileen McLoughlin has valued the house at €220,000, the lands at €520,000 and the sheds and outbuildings at €15,000. These are the same figures as set out in the Inland Revenue affidavit relating to Padraig’s estate. She also referred to the fact that there were open gates, with sheep going from one paddock to another.
198. In the autumn of 2012 Ms. O’Hara Lynn engaged an agricultural advisor, Mr. Jimmy Forbes. Mr. Forbes gave evidence that when he entered Padraig’s herd number into the Department of Agriculture single farm payment system the name and address of Sean Lynn, rather than Padraig Lynn, came up. Mr. Forbes explained that the single farm payment is attached to a herd number, rather than to any specific piece of land. However, a farmer must have land available to qualify for the payment.
199. It appeared from the records that after the 2008 transfer Padraig had a herd number covering the home farm and also other lands owned by Sean but leased to Padraig. The payment was made into a nominated bank account which he understood to have been the partnership account set up by Padraig and Sean. It further appeared that after Padraig’s death Sean had applied to the Department to have the herd number transferred back into his name as herd owner. Mr. Forbes successfully applied for a herd number covering Padraig’s lands, including the home farm, and transferred the entitlements to Ms. O’Hara Lynn with effect from 2013. However, in both 2013 and 2014 some other person had put in a claim in respect of the land.
200. Mr. Forbes said that he had inspected the farm in October, 2014. It was being farmed. There were sheep on the land, most of which had no identification.
201. Mrs. Lynn denies knowing anything about who has been farming the land since Padraig’s death. Michael Lynn has not given evidence.
Hearsay evidence
202. Both sides have adduced a certain amount of evidence that is, on the face of it, hearsay.
203. A number of witnesses were called on behalf of the estate of the late Sean Lynn with a view to establishing his attitude to the transfer at the time he was entering into it. The admissibility of this evidence was debated at the hearing. Determination of the admissibility issue was held over to this judgment.
204. Ms. Olive O’Hara Lynn, the defendant, also gave evidence about Sean’s state of mind in the period after Padraig’s death and before the proceedings were issued. Although no objection was taken to her evidence it seems proper to apply the same criteria throughout.
Evidence adduced on behalf of the estate of Sean Lynn
205. Mr. Denis Killeen said that he was a sheep farmer and had known the Lynn family for many years. He described the late Sean Lynn as a sound man to deal with, level headed, clever and generous.
206. Mr. Killeen said that he recalled Sean coming to visit him in November, 2008. He remembered that it was shortly after his daughter’s first birthday, which was on the 14th. He said that Sean told him that he felt that he was being pressurised into signing over the land and that his wife did not want to. Sean thought that going through with the transfer might help with Padraig’s marriage problems. Mr. Killeen expressed the view that Sean seemed under pressure.
207. Mr. Killeen described Padraig as a happy, jolly fellow who was very helpful. He could not say that Sean was afraid of him at that time.
208. In cross-examination Mr. Killeen said that he had not spoken to Mrs. Lynn or to Michael Lynn, or to any other person, about this conversation. He did not know why the solicitor contacted him asking if he had information relevant to this case.
209. He is friendly with Michael Lynn and knows his phone number off the top of his head. He did not socialise with Sean. He did not give him any advice on the occasion of the conversation.
210. Mr. Clive Walsh said that he had known the Lynns for 12 years. In 2008 he was 17 years old and helped out on the farm. He described the relationship between Sean and Padraig as “touchy”, saying that Padraig might “jump down Sean’s throat” but that Sean would walk away rather than retaliate.
211. On one occasion Padraig told Sean to “fuck off”. Mr. Walsh said that he believed Sean was afraid of Padraig. Another time, he saw Padraig put his own head through a plastic tray out of annoyance with his mother.
212. Mr. Walsh said that he had come to give evidence because Michael rang and asked him how his relationship with Sean and Padraig was. He has been doing occasional work for Michael, for which he is paid in cash and in firewood. He also helps out at the home place if Mrs. Lynn needs help to fix anything.
213. Mr. Eamon Drew lives close to the Lynns and has worked on the farm on and off over the years. He would often join Sean for breakfast on Sundays. Asked to describe the relationship between Sean and Padraig, Mr. Drew said that after the transfer “it wasn’t good, it was bitter”. He recalled an occasion when Padraig had lost his temper because his uncle Pat spilled some water in the yard. Sean had been used to running the farm and now Padraig was taking over. Padraig made Sean remove his tools from a workshop and he had to bring it to Michael’s place. Sean was a peaceful man. Asked if Sean was afraid of Padraig, Mr. Drew said “I’d say he was the latter end”, adding that it was his view that Padraig was “never right”. It transpired that what he meant by this was that Padraig had killed himself.
214. Mr. Denis Linehan is the solicitor acting on behalf of Sean Lynn’s estate. His evidence was that he was originally instructed in relation to Bridget Lynn’s proceedings, in which Sean was a defendant. He said that he had two consultations with Sean in August 2013, one being on the 12th and the other on the 24th. There are typed attendances in respect of both but the original notes are missing in respect of the 24th August.
215. The attendance for the 12th August records the instructions relevant to the transfer. Padraig was said to have approached his parents in mid to late summer of 2008. He said to them that he was a qualified farmer and that the stamp duty exemption would no longer apply after he reached 35. Sean Lynn said that he was “fearful” as to what would happen to Padraig if the land was not transferred, meaning that he felt Padraig would harm himself. The attendance records him as saying that he had known that Padraig was going through marital difficulties at the time, and that Padraig had said that the transfer would save his marriage. Sean also described Padraig as “difficult” and said that he had been aggressive on many occasions. He expressed, according to Mr. Linehan, “a certain fear” of Padraig but said that he had never assaulted him
216. Mr. Linehan discussed the statement of claim in Bridget’s proceedings with Sean and was instructed by him that he had “convinced” his wife that transferring the property was the best thing to do. He was also instructed that the assertion in the statement of claim that Sean had telephoned J.J. Macken’s and told somebody there that Bridget did not want to proceed was correct. However she subsequently changed her mind. Sean said that the matter was dealt with “in a rush”.
217. On the 24th August, 2013, Mr. Linehan met again with Sean and Michael. This time the attendance records that Sean told him that the primary reason for the transfer was so that Olive could engage in her “horse activities”. He said that Bridget had told him she was not happy, and he had communicated this to Mr. Crowley. However, Sean continued to put pressure on her and told her that Padraig would either commit suicide or harm them unless the farm was transferred. Padraig had indicated this to him. Sean accepted that this was not communicated to Mr. Kiernan. He felt that he had no option but to “comply or die”.
218. Mr. Linehan was asked in cross-examination how he had come to be involved in the case. Initially he said that he had previously acted for a cousin of Michael Lynn. Subsequently he said that he had acted for Michael himself in some business dealings. Michael had instructed him to enter an appearance for Sean, before Mr. Linehan had met with Sean. Michael had set up the consultations, retrieved the pleadings from Sean’s former solicitor and given Mr. Linehan the transfer documents.
219. Mr. Linehan said that Sean had not told him about any conversation with Denis Killeen. That information had come from Michael. This was also the case in respect of Clive Walsh and Eamon Drew. However he had contacted Aidan Davitt, the valuer, on his own initiative.
220. Mr. Linehan noted that Mr. Crowley’s file in relation to the transfer had been opened only three weeks before the transfer took place, and gave it as his opinion that there had indeed been “something of a rush”. He accepted that he had not been aware, until discovery was made in these proceedings, that Padraig had been the intended beneficiary in relation to the home place under Sean’s wills.
221. Mr. Aidan Davitt said that he was an auctioneer. He is a nephew of Mrs. Lynn, being the son of her sister Margot. He said that in November, 2008 Sean Lynn came to see him by appointment and asked him to carry out a valuation of his house and farm, and also Padraig’s house and farm. Mr. Davitt said that Sean “didn’t seem himself, he seemed to be a bit worried”. He told him twice, while Mr. Davitt was working on the valuation, not to tell Mrs. Lynn about it.
Hearsay evidence of Olive O’Hara Lynn
222. Ms. Olive O’Hara Lynn said that after Padraig’s death Sean was very supportive of her and frequently called in to her house. She felt that he was unhappy with the direction matters were taking. He said that he was under severe pressure at home, particularly from Michael.
223. Ms. O’Hara Lynn said that she received a text message from Tom (who, she went to some pains to say, was not involved in putting any pressure on her) on the 9th May, 2012. The message asked her to ring Sean because he was in fear of his life.
Conclusions on the hearsay issue
224. Not all of the above material is hearsay but the more significant parts are. In so far as hearsay evidence has been given, I do not consider it appropriate to take it into account. It suffers not only from the normal infirmities of hearsay, in that it is simply impossible to cross-examine upon it, but is in my view downright unreliable.
225. Neither Mr. Killeen, Mr. Walsh or Mr. Drew were mentioned to Mr. Linehan by Sean Lynn as being people to whom he had expressed concern about the transfer. They were all brought into the picture by Michael, after Sean’s death. It is particularly odd in the case of Mr. Killeen, since he said that he had never discussed the conversation he had with Sean with anyone else. All of them are connected by friendship, relationship or employment to the Lynn family and in particular to Michael.
226. The evidence given by Mr. Davitt, that he was asked by Sean not to tell Queenie that he had done a valuation, makes very little sense in circumstances where he was in receipt of a letter from Mr. Crowley referring to the fact that he was instructed by both Sean and Bridget.
227. The evidence given by Mr. Linehan as to his instructions are problematic in a different way. I have no reason to doubt that his notes accurately record the instructions given by Sean Lynn. However, it is a striking fact that the first of these consultations, which concerned the statement of claim in Bridget’s case, took place on the 12th August, 2013. The statement of claim was not delivered until the 20th August. The only inferences that could be drawn from this are either that the attendances have been falsified (which I consider unlikely) or (which is overwhelmingly more likely) that Sean was given a copy in advance. In circumstances where both of them had previously been instructing a solicitor with a view to having the transfer reversed, the possibility of a discussion between Bridget and Sean as to the possibility of getting the transfer invalidated is one that cannot reasonably be excluded. It further seems likely that they had discussed the best approach to this. It would not, therefore, be safe to rely upon the attendances as evidence of the truth of their contents.
228. In so far as the non-hearsay evidence is concerned, it seem to me that it does not take things further than to say that Sean and Padraig did not always get along.
229. Olive O’Hara Lynn’s evidence as to Sean’s unease after Padraig’s death is in my view too equivocal to bear any weight. Nor, in my view, would it be safe to draw any inferences from the content of the text message from Tom. Tom was not called as a witness by either party, and it may well be that he does not wish to take sides in the matter. However, he is the only person who could explain the context of his message. I therefore propose to disregard it.
Submissions on behalf of Mrs. Lynn
Unconscionable or improvident transaction
230. On behalf of Mrs. Lynn, reliance is placed on the following definition:
“First, that one party was at a serious disadvantage to another by reason of poverty, ignorance or otherwise, so that circumstances existed of which unfair advantage could be taken; secondly, that the transaction was at an undervalue; and thirdly, that there was a lack of independent advice.”
231. This formulation, taken from Hanbury & Martin on Modern Equity (4th ed., 1991) was quoted with apparent approval by Shanley J. in Carroll v. Carroll [1998] IEHC 42; [1998] 2 ILRM 218, and further adopted by Gilligan J. in Prendergast v. Joyce [2009] IEHC 199 (both discussed further below).
232. Counsel submits that the transfer under consideration comes within these criteria. It is argued that Mrs. Lynn was under a serious disadvantage in that she was the person with most to lose in relinquishing her family home rights and her Succession Act rights, while also losing the ability to provide for her own future care from the farm income. She was further under a disadvantage by reason of her age and medical condition, and because Padraig was her carer. It is said that “the circumstances were such as to enable unfair advantage to be taken, whether or not such advantage was taken.”
233. It is further submitted that the transaction was at an undervalue. Mrs. Lynn was, it is contended, a beneficial co-owner of house and lands which were valued at €1.6 m. She derived no benefit from the transfer. It is further contended that the provisos in relation to the right of clothing, maintenance and support significantly increased the vulnerability of Mrs. Lynn, as did the right of the new owner to charge the property without any provision for her protection.
234. It is submitted that there is no explanation as to why the family home should have been transferred to Padraig, given that he had his own house on his own lands. There would have been no tax implications if it had not been transferred. Mr. Crowley did not give any advice as to the prudence of this aspect, despite it being his view that it is not usual to transfer the family home and that retention of a right of residence is not really sufficient.
235. The differences between the two documents headed “Acknowledgement and Admission” are pointed out and it is argued that these differences were never explained to Mrs. Lynn. It is further pointed out that Mr. Crowley did not advise her that, if the house was not transferred, she could have a right under the Succession Act 1965 to appropriate it in the event that Sean predeceased her. There appears to have been no advice in respect of the position of her daughter Mary.
236. It is submitted that Mrs. Lynn was in a vulnerable position, not being the owner of the land, and that the advice she received could not be considered appropriate independent advice as required by the Law Society guidelines. She was never advised while on her own, but always in the presence of her husband. Mr. Crowley was in a position of advising all three parties, while Mr. Kiernan was advising both Sean and Bridget Lynn.
Undue influence
237. In reliance on the House of Lords decision in Allcard v. Skinner (1887) 36 Ch D 145, cited with approval by the Supreme Court in Carroll v. Carroll [1999] 4 I.R. 241, counsel submits that undue influence cases fall into two categories. The categories are set out in the judgment of Cotton L.J. as follows:
“First, where the Court has been satisfied that the gift was the result of influence expressly used by the donee for the purpose; second, where the relations between the donor and the donee have at or shortly before the execution of the gift been such as to raise a presumption that the donee had influence over the donor. In such a case the Court sets aside the voluntary gift, unless it is proved that in fact the gift was the spontaneous act of the donor acting under circumstances which enabled him to exercise an independent will and which justifies the Court in holding that the gift was the result of a free exercise of the donor’s will…In the second class of cases the Court interferes, not on the ground that any wrongful act has in fact been committed by the donee, but on the ground of public policy, and to prevent the relations which existed between the parties and the influence arising therefrom being abused.”
238. It is submitted that the instant case properly falls within the second category but that the plaintiff has in any event discharged the burden of proof in respect of the first.
Submissions on behalf of Michael Lynn
239. Counsel for the estate of Sean Lynn relies on the authorities referred to above as establishing a presumption of undue influence in the case of an inter vivos transaction between persons who are in a special relationship. It is submitted that in this case the presumption is not rebutted by the rationale proffered for the gift – namely, the tax relief – since the evidence showed that it was not necessary to transfer the family home in order to avail of the relief. This, it is contended, is clear evidence that Sean Lynn was not acting of his own free will.
240. It is further submitted that undue influence can be inferred from Mrs. Lynn’s evidence as to what Sean said to her about Padraig; the note in Dr. D’Alton’s records that Sean and Padraig had a difficult relationship; the evidence of Messrs. Killeen, Walsh and Drew; the attendances of Mr. Linehan and the sworn information lodged by Olive in her application for a safety order.
241. Padraig is described in counsel’s submissions as “a powerful and threatening personality” in contrast to the “vulnerable” Sean.
Submissions on behalf of the defendant
242. On behalf of Ms. O’Hara Lynn it is submitted, in reliance on Provincial Bank of Ireland v McKeever [1941] I.R. 471, that the presumption of undue influence can be rebutted by evidence that the donor took independent advice or that the transaction was the free exercise of the donor’s will. Both of these matters are said to be established, as is the absence of any mental infirmity on the part of Sean and Bridget Lynn. It is argued that the plaintiff’s case here must fall with the rebuttal of the presumption since there is no evidence of actual undue influence or duress.
243. The defendant lays emphasis on the evidence of the proposed bequests of farmland to Padraig by both Sean and Bridget Lynn, both before and after the transfer, in the context of other transfers and bequests to his siblings.
244. In so far as the law on unconscionable or improvident transactions is concerned, the defendant refers to the following passage from Professor Delany’s Equity and the Law of Trusts in Ireland (4th ed., 2007), as approved by Laffoy J. in Keating v. Keating [2009] IEHC 405:
“A transaction may be set aside in equity where one party is at a serious disadvantage by reason of poverty, ignorance or some other factor such as old age, so that unfair advantage may be taken of that party. Equity will intervene particularly where a transfer of property is made for no consideration at all or at an undervalue and where the transferor acts without the benefit of independent legal advice.”
245. It is submitted that these considerations have no application in the instant case. It is argued that events after the death of Padraig do not support the plaintiff’s contention that the transfer was improvident. If she has received no income from Ms. O’Hara Lynn, it is because the lands are being farmed by the plaintiffs.
The authorities
246. The Supreme Court decision in Carroll v. Carroll [1999] 4 I.R. 241 concerned the transfer of a public house, together with residential accommodation, by an elderly widower to his son. The property was in practical terms the father’s only asset. On his expressed instructions a right of residence was reserved for himself but no right of maintenance and support. The solicitor who drafted the transfer was engaged and paid by the son, and the file was in the son’s name. He met with the father twice, for a total of about thirty minutes, and kept no record of the discussion. He did not enquire as to whether the father had any other assets, or whether there were other children – there were two daughters, who had been assured by their father at all times that they would have a home in the premises. All of the solicitor’s correspondence was directed to the son.
247. In upholding the finding of the High Court that the presumption of undue influence had not been rebutted, Denham J. referred to the two categories of “undue influence” cases described in the passage from Allcard v. Skinner quoted above at paragraph 237. On the facts of the case, the Court was dealing with the second category, and the onus therefore lay on the donee to establish that the gift resulted from the free exercise of the donor’s will. Citing Delany on Equity and the Law of Trusts in Ireland, Denham J. said that rebuttal of the presumption involved two main issues:- whether independent legal advice had been received and whether it could be shown that the decision to make the gift was “a spontaneous and independent act” or that the donor “acted of his own free will”.
248. Having regard to the evidence, the Court considered that the solicitor was not in a position to advise the father appropriately in the absence of any information as to the lack of other assets and the father’s other children. The Court also considered that the absence of evidence that the document was read over to the father before he signed it was an important matter. The fact that the undisputed evidence was that the father was a mentally alert man did not determine the issue.
249. The Court emphasised that it was not deciding that the son had taken advantage of his position, or had carried out specific acts of undue influence, but rather that he had not taken “assiduous care” to avoid taking advantage. In the circumstances the presumption was not rebutted.
250. The Court also upheld the trial judge’s finding that the transaction was improvident. The father, in a frail state of health, had disposed of practically his only asset without retaining a right of maintenance or support. In all the circumstances, it was clear that he was an unequal party and the equitable jurisdiction of the Court to set aside the transaction was properly invoked.
251. In Prendergast v. Joyce [2009] IEHC 199, a 70-year old woman who was found by the court to have been “very frail, depressed and severely anxious”, as well as suffering from poor concentration and memory, opened a joint account with her nephew a few days after the death of her husband. She subsequently transferred significant amounts of money, which had previously been held in an account with her husband, into the account.
252. In applying the principles discussed in Carroll v. Carroll and finding that a presumption of undue influence arose, Gilligan J. rejected a submission that there would first have to be evidence that the transactions were in themselves wrongful and explicable only on the basis of undue influence. There was no requirement of improper behaviour on the part of the beneficiary. He also found that the advice given to the donor by the bank manager did not suffice to rebut the presumption, saying (at p.541):
“It should be noted that the focus in this regard is on ensuring that the particular donor fully appreciates the quality of the transaction. This means that greater care must be taken to ensure that persons who are particularly susceptible to exploitation, such as those who are aged, or suffer from ill health, or are vulnerable , genuinely understand the nature and effect of the transactions into which they enter, particularly when those transactions are of substantial value. The advice must also be such as a competent advisor would give if acting solely in the interests of the donor. In my view a person in such a position vis-à-vis [the aunt] would of necessity have cautioned her about the gravity of what she was doing. The evidence does not establish that this was done in the present case …I am not satisfied on the evidence that [she] received adequate independent expert advice to give her a full appreciation of what she was doing at the time she gave effect to the transfer.”
253. In considering whether the transaction was, additionally, improvident, Gilligan J. quoted the criteria set out in Hanbury & Martin on Modern Equity, referred to by Shanley J. in the High Court in Carroll v. Carroll.
254. Gilligan J. further held, referring to Noonan v. O’Connell (Unrep., High Court, Lynch J., 10th April 1987), that the jurisdiction to set aside an improvident transaction covered gifts as well as transactions for value. There was no requirement of proof of any element of moral turpitude on the part of the donee.
Discussion and conclusions
255. In the first instance it must be noted that the plaintiff has not, in reality, offered any evidence to support the plea of duress or made submissions in relation thereto. The case therefore turns on the issues of undue influence and, perhaps to a greater extent, improvidence.
256. The first question in relation to an allegation of undue influence is whether the evidence can give rise to a finding that undue influence was in fact used to bring about the transfer, or whether the case can be categorised as one giving rise to a presumption of undue influence by reason of the relationship between Padraig Lynn and his parents.
257. I am satisfied that there is no adequate evidence to support the contention that the transfer was actually brought about by the exercise of undue influence by Padraig. The allegation that he told his father that his marriage would break down, or that he would harm himself or them unless the land was transferred to him appears, in my view, to be based on a conflation of the time of the transfer – November 2008 – with the difficulties that Padraig began to experience with increasing intensity from late 2010 onwards. Although Padraig had sought treatment for depressive symptoms in 2005, there is nothing to contradict the evidence of his wife Olive that 2008, with their marriage in August of that year, was one of the happiest years of their lives. I accept that it is possible or even likely that Padraig told his parents about the significance, in terms of tax liabilities, of his 35th birthday but that in itself could not amount to undue influence.
258. I do accept, on the evidence, that the case is one giving rise to a presumption of undue influence and that the onus is therefore on the defendant to establish that the gift to Padraig (and the consent to that gift on the part of Bridget Lynn) involved the free exercise of the will of his parents. This is because of the close relationship between parent and child which, in this case, involved Padraig taking a primary role amongst his siblings in caring for his mother. (I note here that he was not, officially, her carer until a considerable time after the transfer.)
259. The first question then is as to the advice received by Sean and Bridget before the transfer was carried out.
260. The plaintiff’s case is that she knew nothing of the proposal until a few days before she signed the documents, that she was never advised by Mr. Stephens and was given only skimpy advice by Mr. Crowley and Mr. Kiernan without being given a chance to talk to them alone or to consider the documents.
261. It was not put to either Mr. Stephens or Mr. Crowley, or indeed Ms. Battle, that they had fabricated their evidence (including notes of meetings and the office records) with regard to Bridget Lynn’s contact with their offices or her presence at and participation in the meetings they describe. The only possible explanations for the conflict of evidence between her and them seem to be that there was fabrication, that Mrs. Lynn has forgotten the meetings or that she has fabricated a significant part of her evidence.
262. I do not accept her evidence in this regard. Mrs. Lynn, despite her age and undoubted health problems, is a clear-minded lady who has the respect of the professionals with whom she dealt and whose mental acuity is not doubted by her medical advisors. Her testimony did not leave the court in any doubt as to her understanding of the issues involved in the transfer – she was able, without difficulty to say what each of the documents meant. In my view she said that she could not remember things when faced with evidence that contradicted her position. It seems to me to be clear that she was fully involved in consulting both the accountant and the solicitor, and in agreeing with her husband on the course of action to be taken.
263. The advice given by both of these professionals seems to me to have been appropriate to the circumstances. It seems to me that in relation to this aspect the facts of the case could hardly be further from those of Carroll v. Carroll.
264. Mr. Stephens had been acting for Sean Lynn for years. His evidence, supported by his notes, makes it clear that he concerned himself with the consequences of the transfer in terms of loss of income, and that he was informed as to the other assets owned by the Lynns. The establishment of the partnership between Sean and Padraig, discussed with Mr. Stephens before the transfer and in fact implemented afterwards, was a further reason to suppose that the Lynns would continue to have an income from the farm. It is fair to point out that the discussion about other assets was to an extent extraneous to the taxation matters upon which the Lynns had sought his advice, and is an indication that Mr. Stephens performed his role as professional advisor in a responsible manner. It is also fair to point out that no issue has been taken with his advice on the tax issues.
265. Mr. Crowley’s evidence, similarly, leads the court to accept that he applied his mind to and gave advice on the relevant aspects of the transaction. He went through the assets owned by the Lynns and inquired about the provision being made or to be made for the other children. His evidence that he took matters into his own hands in including the right to maintenance and support is unchallenged, and I accept that he did so in order to protect Sean and Bridget against the unexpected. Although he regarded Padraig as being one of his clients in the matter (which I note would not be acceptable under current guidelines), I accept his evidence that Padraig did not in any way play a leading role, only came to the office when requested and was not present when Mr. Crowley was advising his parents. It has to be remembered that Mr. Crowley had known both Sean and Bridget for many years and I accept that he would have been aware of any hesitancy or reluctance on their part. It is quite obvious that Mrs. Lynn felt free to ring his office when she wished and could have spoken to him about any concerns. I do not accept the suggestion that Sean Lynn rang the office and said that his wife did not wish to proceed -I can see no reason why Mr. Crowley would not have followed up on such information.
266. It is true that Mr. Kiernan’s meeting with the Lynns did not cover as much ground, and significantly he did not inquire as to the other assets available to the Lynns. Had the evidence been that this was the only occasion upon which they received advice, and if in fact they had not had other assets, this alone might lead to the conclusion that the presumption had not been rebutted. However, in the light of the fact that this had already been discussed in detail by Mr. Stephens and Mr. Crowley, I do not think that such weight can be attached to the omission by Mr. Kiernan to deal with the issue.
267. In the circumstances it is clear that the Lynns received advice that was independent of Padraig. The fact that Mr. Crowley considered that he was also obliged to act in Padraig’s interests does not, on the evidence, obviate the fact that he gave appropriate advice on all relevant matters. There is nothing to indicate that at any stage he neglected his duty to the Lynns in order to further Padraig’s interests. It is true that no one appears to have considered the possibility that Padraig would predecease his parents. However, I am not convinced that a solicitor is obliged to look beyond the material wellbeing of his clients, and to ensure that they have no objection to a spouse of a son or daughter inheriting what they give to that son or daughter.
268. I am equally satisfied that the transfer was the result of the exercise of the free will of Sean and Bridget Lynn. It must be borne in mind that Sean had been planning for many years to leave the property to Padraig, subject to a right of residence for Bridget. There can be little doubt but that she was aware of this. Her evidence, at this stage, that Padraig was never really a farmer is contradicted, not only by his qualifications, but by her own intentions in years gone by to leave him farmland if she survived Sean. The evidence of Mr. Stephens, that he was consulted with a view to the tax implications of the transfer, demonstrates that in executing the transfer they were conscious of the stamp duty relief and the fact that there would be no other tax liability.
269. The fact that the partnership between Sean and Padraig was established immediately after the transfer also points to careful planning on the part of the former. Sean put in more money and money’s worth into the farm business – he also drew out more, and was entitled to more from the closing balance at Padraig’s death. There is nothing here to indicate that his will had been in any way overborne by Padraig.
270. The ultimate result was that Padraig received, during his parents’ lifetime, what had for a long time been intended to give him after Sean’s death. As things have turned out, Mrs. Lynn is now in the same position, in material terms, that she would have been had Padraig survived Sean.
271. The contention that the transfer amounted to an improvident transaction is also not borne out by the evidence. I cannot see that any of the potential criteria have been met. This was not a situation involving ignorance, poverty or other vulnerability such as might create a situation of inequality. The fact that a valuable asset was involved cannot be decisive since, again, it is clear that the Lynns owned a significant amount of other assets and that their advisors satisfied themselves that they would be left with an income.
272. The point has been made that tax considerations had no bearing on the decision to transfer the family home, and that this was not only unnecessary but a feature that increased Mrs. Lynn’s family home. It may well be that a transfer of the farmland without the house could have been effected, but it appears from the evidence of Mrs. Lynn’s valuer Mr. Farrelly that there would always have been a difficulty in respect of the farmyard and the right of way to the sheep dip if the property were to be divided. Bearing in mind that that the transfer was supposed to leave Padraig free to charge the property, this would be a material consideration.
273. Mrs. Lynn has said that after the transfer she and Sean had no income from the farm. Having regard to the partnership accounts that does not appear to be accurate. She has also said that she has been left with no income other than the widow’s pension. I am not clear as to why that should be. In the first place, she inherited the entirety of Sean’s estate and I am quite sure that she knows the value of that even if she is reluctant to state its extent. There has been no evidence as to what assets Sean might have owned apart from land. It will be recalled that Mr. Stephens’s notes made reference to Sean’s pension but there has been no evidence as to what became of that. It also appears from Mrs. Lynn’s testamentary documents that she has or had assets of her own.
274. Finally, there is the fact that Ms. O’Hara Lynn is on record as stating, well before the litigation commenced, that if the farm entitlements were put in her name she would pay them over to Mrs. Lynn by way of maintenance and support. If that had been done, it is difficult to see how the transaction could be described as improvident. However, what happened was that after Padraig’s death, the herd number was taken over by Sean. Subsequently, some person has been farming the land. It is clearly not Ms. O’Hara Lynn. I find it unlikely that Mrs. Lynn does not know who it is. The observations made by the valuers and by the agricultural advisor as to the presence of sheep, coupled with evidence of open gates leading onto Michael Lynn’s land, point in one obvious direction.
275. Michael Lynn was manifestly involved in the instructions to Sean Lynn’s solicitor and in the finding of witnesses. He has also been the subject of evidence, particularly in relation to what was said to Olive after Padraig’s death, and of comment on the part of the defence. He was in court, if the comments from the defendant’s counsel were correct, throughout the hearing. However, he has not given evidence. The court does not draw any direct inference from this but simply records the fact that these matters went unchallenged.
276. I therefore cannot see that the defendant is to blame if Mrs. Lynn has not been given any of the income from the farm.
277. In the circumstances I find that the allegations of duress, undue influence and improvidence have not been made out. I will dismiss both claims.
AIB Plc v Rostaff Property Development Ltd
[2017] IEHC 533,
JUDGMENT of Mr Justice Max Barrett delivered on 7th September, 2017.
I. Background
1. By guarantee in writing of 15th July, 2009, Ms Geraghty entered into a guarantee and guaranteed all sums of money at any time owing to AIB from or by Rostaff, provided that the total amount recoverable should not exceed a particular sum. In September, 2011 and February, 2012 certain credit facilities were granted by AIB to Rostaff. By guarantee in writing of 13th February, 2012, and for like consideration to that described in the context of the guarantee of 15th July, 2009, Ms Geraghty guaranteed all sums of money at any time owing to AIB from or by Rostaff, provided the total amount did not exceed a defined amount. Each of the guarantees aforesaid was in addition to, and not in substitution for, any other guarantee or security for the obligations of Rostaff given by Ms Geraghty. At some point after the giving of the second guarantee, a loan default scenario arose; thereafter, by various demands from May, 2014 into May, 2015, AIB demanded repayment of such amounts as it now claims are owing to it. Judgment has previously been obtained against the first and third-named defendants. Summary judgment is now sought against Ms Geraghty pursuant to her guarantees.
II. Ms Geraghty’s Situation
(i) Ms Geraghty’s First Affidavit.
2. Ms Geraghty has sworn a couple of affidavits in the within proceedings. The background facts are well-captured by the below-quoted averments from her initial affidavit.
“I say that in or about 1996 I meet the 3rd Named Defendant and we developed a romantic relationship….[I]n 1997 the 3rd Named Defendant did move into my home…where I have resided all my life. I say that when I meet the 3rd Named Defendant, he was involved in the construction business and I was working as a hairdresser. I say that the 3rd Named Defendant in 1999 started up his own construction company (hereinafter the ‘1st Named Defendant’), and suggested that I would act as the Company Secretary and that he would give me 49% of the allocated share capital. The 3rd Named Defendant persuaded me at that time to invest the sum of €17,500…into the 1st Named Defendant, and asked that I would do some of the administration work associated with the development of the business. I say that I had never previously been involved in this type of business, nor had I ever handled the administration of such business, however the 3rd Named Defendant wanted me to have some role in the activities of the 1st Named Defendant, considering that I had invested my money in its start-up. I was not offered any remuneration or paid anything for my work….
I say that within six months of this new company operating its business I was told by the 3rd Named Defendant that I was no longer required to contribute to the administration of, nor to be involved in the day to day business of the 1st Named Defendant. The 3rd Named Defendant took full control of the 1st Named Defendant and thereafter did not all me access to any of the paper work associated with its operations….
I say that I became aware the business of the 1st Named Defendant was not doing so well in 2001 as I began to receive calls from the Revenue Sheriff Bailiffs, angry tradesmen, and wholesale builders’ providers and agents who were calling to my house looking for money. At all times during this period those persons who called to my home were looking for the 3rd Named Defendant but he was never available and avoided dealing with them. During this time my own home bills fell behind because I did give the 3rd Named Defendant money from my savings to help him out and pay off some of the 1st Named Defendant’s bills. The 3rd Named Defendant during this time never spoke to me about or told me the extent of the 1st Named Defendant’s problems, and during this time I had to seek support from my own family….
I say I did what the 3rd Named Defendant asked of me, to help him with the business of the 1st Named Defendant in the hope that we could make our relationship work but realised in 2011 that the relationship was in difficulty and that the 3rd Named Defendant was becoming more and more distant. I say that in November 2013 the 3rd Named Defendant left my home and told me…that our relationship was over. I say that shortly after this the 3rd Named Defendant came back to me and required that I sign over my shares in the 1st Named Defendant, to his nephew…which I did….
I say that in respect of the Documents, which the Plaintiff states I signed, and while I accept that that it is my signature on those documents therein referred to, I did not knowingly sign a personal guarantee. I was never made aware by the Plaintiff, or indeed by any other party that I would be held liable for the debts of the 1st Named Defendant. I was not given any advice as to this by the Plaintiff or any other party to the proceedings, nor was I advised to seek independent legal advice before signing these bank documents. I was never told at any stage that my family home was at risk by virtue of the business transactions of the 1st Named Defendant. I trusted the 3rd Named Defendant at that time even though our relationship was going through a rough period. I was an authorised signatory for the 1st Named Defendant at the material time and I was told by the 3rd Named Defendant that I had to sign the paperwork to keep the 1st Named Defendant afloat….
I say that I…am being required to deal with this matter in circumstances where the 3rd Named Defendant is in complete control of the 1st Named Defendant and until very recently, has refused to deal with this matter, in a timely matter or at all, save that he has only now come around to accept that asset[s] of the 1st Named Defendant be sold and the full sale proceeds to be remitted to the Plaintiff so as to reduce the liability of the 1st and 3rd Named Defendants to the Plaintiff.”
3. The above averments are made in the context of guarantee documents which, in each case,
(a) state as follows on the last page:
“…21. I certify that I have read the Guarantee and have received a copy thereof for my use.
Dated [Date inserted]…
_____________________________________________________________________
SCHEDULE
Name(s) of the Borrowrt(s) Rostaff Property Developments Limited
Address(es) of the Borrower(s) [Address stated]…
_____________________________________________________________________
Name of the Guarantor Mary Geraghty
Address of Guarantor [Address stated]…
_____________________________________________________________________
Amount of Guarantee (in figures) [Amount Stated]…
Amount of Guarantee (in words) [Amount Stated]…
Signed and sealed by: Mary Geraghty Mary Geraghty
(Print name of (Guarantor sign here)
Guarantor here)[1]
[Witness details then follow and are duly completed].
[1] Ms Geraghty has inadvertently signed her name twice.
(b) state as follows, in bold text and a considerably enlarged font size, at the start of the first page of the guarantee document:
(i) in the first guarantee document (of 15th July, 2009)
“
WARNING: – As Guarantor of the credit facilities you will have to pay off the credit facilities, the interest and all associated charges if the Borrower does not. Before you sign this guarantee you should get independent legal advice.
Guarantee
To: Allied Irish Banks p.l.c…”
and
(ii) in the second guarantee document (of 13th February, 2012)
“
WARNING: – As Guarantor of the credit facilities you will have to pay off the credit facilities, the interest and all associated charges if the Borrower does not. Before you sign this guarantee you should get independent legal advice.
If you give security (collateral) to the Bank to support this guarantee:
While the guarantee remains in force you may not dispose of the property held by the Bank as security without the Bank’s consent.
If the Bank demands payment under the guarantee and you do not pay in dull immediately, the Bank may dispose of the property held as security towards payment of your liability.
Guarantee
To: Allied Irish Banks p.l.c…”
(ii) Ms Geraghty’s Second Affidavit.
4. In a later affidavit, sworn after judgment had been obtained against the other defendants, Ms Geraghty avers, inter alia, as follows:
“I want to set out at the outset the legal Defences I will rely upon. These are the legal Defences of undue influence, unconscionable bargain, non est factum, misrepresentation and mistake….It is clear that I was under the undue influence of my former romantic partner, Mr James Kearney; that I was under emotional pressure at the time; that the signing of the guarantees was an unconscionable bargain as the signing of the guarantees was a contract which no sensible person would enter into, and which no honest person would accept…that the document was not presented to me as a guarantee and I believed it was a meaningless document; that there was a misrepresentation in that I was led to believe the guarantees did not potentially open me up to a financial liability and that I was mistaken as to what I was signing….
[Certain complaints are then made about the application by AIB of other receipts and the fact that the proceedings have been continued in the High Court]
I reassert my earlier averments that I did not knowingly sign either of the guarantees as alleged although I do confirm that it is my signature on both guarantees. I did not know its legal and financial implications for me, was not advised that it had any such implications, did not receive nor was I offered independent legal advice and did not know what I was signing, which I have no recollection of signing, were guarantees…..
[W]hile I do not contest that my signature appears on both guarantees, I say and believe that it is obvious that I did not understand nor was it explained to me what these documents related to nor that they legally obligated me to do certain acts if the First Named Defendant defaulted….
While I have no recollection of ever seeing this guarantee or a copy of it before the proceedings herein, I must have been under the impression that it was a meaningless or standard document and one that was to be signed per course as part of my involvement with the company and not a document potentially exposing me to a large liability….
[T]he bank should have gone to greater efforts to ascertain whether I knew what I was signing and…this failure to do so nullifies their case.
This failure of the Plaintiff and of the First and Third Named Defendants to act in a conscionable manner and one required by law, has now resulted in the Plaintiff seeking to claim [the amounts now sought]…”
III. The Bank’s Position
5. The affidavits sworn for AIB set out the ‘black and white’ detail of what was contractually agreed, the loan amounts advanced and the amounts claimed. Notably, despite the fact that AIB is the plaintiff in the within proceedings, that the burden of proof therefore rests on it, and that the threshold for sending summary applications to plenary hearing has been pitched at a notably low level in Aer Rianta, no effort is made by AIB, beyond a couple of bald averments that the appearances entered are for the purpose of delay and that the defendants have no bona fide defences, to engage with any of the features touched upon by by Ms Geraghty in the above-quoted segments of her affidavit evidence.
IV. Emotionally Transmitted Debt
6. This is a case that raises, amongst other matters, the issue of what might be styled ‘emotionally transmitted debt’, being the process whereby legal liability is spread from a principal debtor to a romantic partner. Often, the principal debtor is a man and the person taking on actual or potential economic liability for his business borrowings, or the debts of a company primarily operated by him, is his wife or romantic partner. However, in our more enlightened times, when a variety of lawful adult relationships between partners who are respectively, for example, heterosexual, homosexual, bisexual, etc. are properly recognised to exist, the issue of ‘emotionally transmitted debt’ is clearly one that can affect a more vulnerable and/or less business savvy partner in any such relationship. And there is, of course, no reason why in a male-female relationship it would not today be the woman who is the primary earner and the man who is the more dependent partner. (A variant of ‘emotionally transmitted debt’ can also present for parents who may be asked by their young adult children to assist them in acquiring a first home). Such cases are regularly contended to present issues of undue influence and unconscionability, these being aspects of the law that are the subject of learned and helpful commentary in, inter alia, Breslin J., Banking Law (3rd ed.) and Biehler, H., Equity and the Law of Trusts in Ireland (6th ed.). (The court would respectfully add to that commentary that it may be that notwithstanding, for example, the decision of the Supreme Court in Bank of Nova Scotia v. Hogan [1996] 3 IR 239, and any inclination on the part of the Irish courts hitherto to prefer the (British) O’Brien-Etridge line of case-law, that there are still some lessons of value to be taken from the (Australian) Yerkey-Garcia line of case-law which latterly seems more expressly to take account of concerned feminist legal commentary regarding the legal liability of vulnerable sureties). Without compromising freedom of contract, a fundamental and inherent human freedom, the courts need to be careful, in (rightly) acknowledging that freedom, not to privilege financial institutions and economic freedoms to such an extent that the issue of emotionally transmitted debt goes un-addressed or ill-addressed. Too often in cases such as that now presenting, the affidavit evidence (as here) follows the sequence of: ‘Bank: I have a contractual entitlement’, ‘Defendant: There are other factors presenting’, ‘Bank: I have a contractual entitlement’ – with little or no real engagement by the plaintiff bank, on which the burden of proof rests, as to why its claim does not raise contended-for equitable concerns that would justify the matter being sent to plenary hearing. Moreover, although the commencement in operation of the Companies Act 2014 has ended the need for an LTD company (though not other forms of company) to have two directors (and the related practical need which the two-director requirement for private limited companies often presented in the past for a parent, spouse or romantic partner to become a director of a private limited company operated by a loved one, despite such ‘second’ director in reality having little or no real involvement in the operation of such company), there remain instances in which emotionally transmitted debt can and will present as an issue in the context of family companies, e.g., (1) where, as here, a spouse/romantic partner provides a personal guarantee, and (2) where a spouse/romantic partner becomes a member or director of a family company but, because of some romantic relationship-related reason, cannot access company information and/or make duly informed decisions. Be all that as it may, however, in the within case, the court is tasked solely with deciding, by reference to the notably low threshold recognised by the Supreme Court in Aer Rianta c.p.t. v. Ryanair Ltd [2001] 4 IR 607 (and bringing to its deliberations in this regard, inter alia, that “discernible caution” to which McKechnie J. refers in Harrisrange Ltd v. Duncan [2003] 4 IR 1, 7) whether, in the case of Ms Geraghty (judgment having previously been obtained against the other defendants) this case ought to go to plenary hearing, or whether, alternatively, summary judgment ought now to issue against her.
V. The Legal Test Applicable and Applied
(i) Aer Rianta.
7. As Hardiman J. stated in Aer Rianta, at 623:“[T]he 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?” [Emphasis added]. The court notes just how low this test is set. It must be very clear that there is no case, no issue to be tried (or only issues that are simple and easily determinable). There must be no arguable defence. How does Ms Geraghty fare by reference to the Aer Rianta standard? It will be recalled that the four defences which she intends to rely on at any plenary hearing are undue influence, unconscionable bargain, non est factum, misrepresentation and mistake.
(ii) Undue influence.
8. The courts have traditionally shied away from any precise attempt to define what constitutes undue influence. However, as good a definition as any is offered by Henchy J. in Harris v. Swordy (Unreported, 21st December, 1967) when he described the concept as embracing “unfair, undue and unreasonable mental control” over another party. On a not unrelated note, Lindley L.J. made clear in Allcard v. Skinner (1887) 36 Ch.D. 145, 182, that the doctrine of undue influence’s guiding principle is not “to save persons from the consequences of their own folly” but “to save them from being victimised by other people”.
9. There is a dispute on the evidence before the court as to whether, (a) Ms Geraghty was the victim of undue influence (as opposed to foolish in love), or (b) (as contended for by AIB) that she has merely entered an appearance for the purposes of delay and has no bona fide defence. The court cannot properly conclude at this time, in the context of such a dispute, and on the evidence before it (including but not limited to Ms Geraghty’s averment, in the context of an overall financial arrangement that seems, at first glance – though matters may eventually be proved otherwise – to be greatly more to her commercial detriment than to her commercial advantage) that she “did not benefit in any way from the activities of the 1st Named Defendant”, that it is very clear that Ms Geraghty has no case, that there is no issue to be tried, that the issues raised in this regard are simple and easily determined, or that she has no arguable defence to the amounts now sought of her by AIB.
(iii) Unconscionable bargain.
10. Whether unconscionability logically sits separately from undue influence is something of a moot point among the academic community. (See generally Biehler, op. cit., 823-4). There is perhaps a distinction to be made between the two concepts, the focus of undue influence being on the alleged victim’s consent, while the focus of unconscionability is on the impugned actions of the person who perpetrated the unconscionable. Suffice it, for present purposes, for this Court to note that it does not see how it could reasonably conclude that there was sufficient in the evidence now before it to send the within proceedings to plenary hearing by reference to the issue of undue influence, yet to conclude at the same time that the same result does not flow by reference to the issue of unconscionability. Any (if any) weakness in Ms Geraghty’s consent as opposed to any (if any) exploitation by Mr Kearney of any (if any) vulnerability on the part of Ms Geraghty seem to the court either to be two sides of the same coin (with both sides capable of being seen when the mirror of equity is deployed) or, if not two sides of the same coin, then so logically linked as to be inseparable in this case, and perhaps generally.
11. There is a dispute on the evidence before the court as to whether (a) the conclusion of the guarantee represents an unconscionable bargain given an alleged exploitation by Mr Kearney of Ms Geraghty’s alleged vulnerability at the time when the contracts of guarantee were concluded (with her allegedly acting as she did in a bid to safeguard her romantic relationship at a time when it was allegedly deteriorating), or (b) (as contended for by AIB) that she has merely entered an appearance for the purposes of delay and has no bona fide defence. The court cannot properly conclude in the context of such a dispute, and on the evidence before it, that it is very clear that Ms Geraghty has no case, that there is no issue to be tried, that the issues raised in this regard are simple and easily determined, or that she has no arguable defence to the amounts now sought of her by AIB.
VI. Conclusion
12. Having regard to the court’s conclusions as to the defences of undue influence and unconscionable bargain, the court does not consider, by reference to the decisions in Aer Rianta and bringing to bear that discernible caution referred to by McKechnie J. in Harrisrange, that this is a case in which the summary judgment sought falls properly to be issued. The court will therefore refer this matter to plenary hearing. The court does not consider it necessary in light of the conclusion just reached to consider further the defences of non est factum, misrepresentation and mistake.
ADDENDUM
A DIFFICULTY REPEATEDLY PRESENTING
(1). Overview
A. The court is repeatedly presented with summary debt proceedings in which persons have, to borrow a colloquialism, acted ‘out of the goodness of their heart’ when deciding: (i) to provide a guarantee to a private limited company operated by a loved one, and/or (ii) to accept membership of, or a directorship or other executive office in, such a company. The following paragraphs are intended to give a sense of the caution that persons ought to bring to such situations.
(2). Engaging a Solicitor
B. In many instances where an individual elects to participate in a private limited company operated by a loved one and engaged in lawful business, much of the financial misery that has followed for such individuals when that company fails could likely have been avoided or ameliorated by availing, before entering into the proposed arrangements, of the services of a solicitor competent in company law. The cost of engaging a competent solicitor to provide such independent advice typically pales in comparison with the financial risk and personal stress that can arise when a company fails.
(3). ODCE Guides
C. Persons minded to become a company director, secretary or shareholder in a private limited company operated by a loved one and engaged in lawful business will find much of use in the following helpful ‘Quick Guides’ published by the Office of the Director of Corporate Enforcement and available for free on its website:
(1) Directors, Their Duties and Powers, A Quick Guide,
(2) Company Secretaries, Their Duties and Powers, A Quick Guide,
(3) Members and Shareholders, Their Duties and Rights, A Quick Guide.
D. However good the ODCE Quick Guides are (and they are good), they are not intended to be used, and should not be used, as a substitute for the seeking and obtaining, before entering into the proposed arrangements, of independent, client-focused advice from a solicitor competent in company law.
(4). Becoming a Guarantor
E. Giving a guarantee for the debts of a loved one engaged in lawful business (or a private limited company operated by a loved one and engaged in lawful business), is effectively taking a gamble that (a) all will go well and/or (b) that if things go badly, the loved one will act as one expects. Unfortunately, it is a feature of life that companies fail and people do not always act as one might expect. So it is important to be cautious before ever giving a personal guarantee.
F. Again, much of the financial misery that can arise when a guarantee is invoked could likely be avoided or ameliorated by a proposed guarantor availing, before entering into the proposed guarantee, of the services of a solicitor competent to advise on the proposed arrangement. The cost of engaging a competent solicitor to provide such independent advice typically pales in comparison with the monetary risk and personal stress that can arise when demand is made under a guarantee.
G. Useful questions that a person asked to become (a) a personal guarantor to a loved one engaged in lawful business and/or (b) to a private limited company operated by a loved one engaged in lawful business, include, but are not limited, to the following:
(1) How much am I being asked to guarantee?
(2) Could I pay back the amount guaranteed without difficulty?
(3) Do I have to put up assets as security?
(4) Could I afford to lose those assets?
(5) Why does the person seeking the guarantee need it?
(6) Has s/he explored other means of obtaining her or his desired business end?
(7) Can s/he (or a company they operate) be trusted to pay all of her or his (or its) bills?
(8) Am I satisfied to lose money and/or other assets for this person?
(9) Will the financial institution benefiting from the guarantee give me relevant ongoing information?
H. The above questions are by way of general indication only. There is no substitute for obtaining independent, client-focused advice, before entering into such arrangements, from a solicitor competent to advise on guarantee arrangements.
Northern Banking Co. v Mordaunt
High Court.
3 May 1926
[1926] 60 I.L.T.R 129
Hanna J.
Hanna, J.
This is a claim by the Northern Banking Company against the defendant on a written guarantee dated the 21st October, 1921, in which the defendant went security to the plaintiff for the general balance that might be due in the account of one Ginn up to £200. The defendant says that he was induced to sign the document by the representation of the manager of the Banking Company that it was not a continuing guarantee, but that it was to expire in January, 1922. Mr. Muntz, the manager of the plaintiff bank, says that he went with Ginn, who is now dead, to the shop of the defendant, who brought him into a room behind the counter, and that he asked defendant to sign this guarantee. He says that he mentioned a certain sum of money was coming to Ginn owing to the death of the father of the latter, but he says that he does not recollect anything about the guarantee lasting for only three months. Mr. Mordaunt’s evidence was that he was working in his shop when the bank manager and Ginn came in. and that it was on this occasion that he heard for the first time that he (Ginn) had mentioned his name to the plaintiff for the purpose of an accommodation. It appears that he had on a previous occasion gone on a bill for Ginn for the sum of £50. The bank manager asked Mordaunt to sign the guarantee. Defendant looked at the guarantee to see what it was for and saw that it was for £200. He asked the manager would it be safe to sign it. He also asked would it affect his own position with his own bank if he were looking for an overdraft. The manager (Muntz) said it was all right as it was only for three months, and that if it were not paid off, then he would get other additional security. This statement of Mr. Mordaunt is corroborated by the documents in which Mr. Muntz stated that the loan was only for three months, and that if the overdraft was not paid off at the end of that time, other security would be got in addition to defendant. Mr. Mordaunt states that shortly after the 21st October, 1921, Ginn called on him and stated that the overdraft was practically paid off. The first application to the defendant for payment was not made until the year 1924. I am satisfied that Mr. Muntz, in making the statement as to the three months, believed absolutely that the guarantee would last only three months, but I find as a fact that the statement was made that the guarantee would only last for three months, and that this was material to the signing of the contract and a material issue in it, and I find that Mordaunt acted upon it. I am, accordingly, of opinion that I must rescind the contract, but, as I have known done in a similar case, at the option of the bank, I can rectify it by making it in conformity with what the intention of the parties was, that is to say, a guarantee continuing up to the 21st January, 1922. If it had been such a guarantee, on that date there was £274 4s. 5d. due on it, but payments were made between that date and the death of Ginn, amounting to £234, leaving a balance over of £43 4s. 5d. If the bank is willing to take the option of having the matter rectified, I will give judgment for £43 4s. 5d., each party to abide its own costs.
Royal Bank of Ireland, Ltd. v William Smith and John Smith
Supreme Court.
3 May 1927
[1927] 61 I.L.T.R 101
Kennedy C.J., FitzGibbon, Murnaghan JJ.
Oct. 18, 19, 1926; May 3, 1927
Advance from Bank—Guarantee of overdraft—Verbal agreement—Title deeds to be deposited—“Not to exceed £4,000”—Letter of guarantee “as arranged”—No mention of title deeds—Liability of guarantors—Representation—Rectification.
In 1918 the defendants agreed, verbally, with a Branch Bank Manager to guarantee J. R. S., to the extent of £4,000, for sums to be advanced by the Bank to J. R. S. for the purchase and stocking of a farm, the title deeds of which to be deposited as security for such sums. Defendants later signed a letter of guarantee, in the usual form and without reading it, on being assured by the Branch Manager that it was “as arranged” at the previous interview. Defendants would not have signed otherwise. The farm was purchased and the title deeds deposited. In March, 1925, the Bank called on the defendants to pay off the account of J. R. S., which stood at £7,400 odd. Attempted sales of the farm proved abortive, and the Bank took a conveyance of the farm in consideration of £3,000, “part of the sum due from J. R. S.” One of the defendants paid the Bank £1,000 on foot of the guarantee. The letter of guarantee contained no mention of the title deeds of the farm, and gave the Bank power to deal with collateral securities as the Bank thought fit. Plaintiffs claimed payment of £3,000 and interest, on foot of the guarantee.
Held (Hanna, J.), that the letter of guarantee should be rectified and that there was nothing due from defendants, as there was £3,000 credited to J. R. S. for the farm, and £1,000 was paid into the Bank. Action dismissed and £100 in Court paid out to plaintiffs to cover interest.
The plaintiffs appealed to the Supreme Court.
Held, affirming the decision of Hanna, J. (per Kennedy, C.J., and FitzGibbon, J.), that there was a direct representation which misled the defendants, that the letter of guarantee should be rectified and, and that the proceeds of the sale of the farm were applicable pro tanto in discharge of the defendants’ liability on foot of their guarantee of £4,000; (per Murnaghan, J.) that the defendants had satisfied their liability, the proceeds of the sale of the farm being available for them under the terms under which the deposit of the title deeds was made.
The facts were briefly as follows:—
Joseph Randall Smith wished to purchase the lands of Rolleston West, which were for sale about December, 1917. For the purchase and subsequent stocking of the farm the sum of £4,000 was necessary. He approached his brothers, John Smith and William Smith, the defendants, to see if they were willing to guarantee him in this amount, the title deeds of the farm to be deposited with the Bank from which the loan was to be obtained. They and he had an interview with Mr. Stokes, Manager of the Smithfield Branch of the Royal Bank of Ireland, during which defendants stated they were willing to guarantee J. R. Smith to the extent of £4,000, this amount being further secured by the deposit of the title deeds of the farm, when purchased, with the Bank, Mr. Stokes referred them to the Manager of the Head Office, who agreed to the proposal, the proposed loan to be made by way of overdraft.
On January 2, 1918, Stokes wrote to J. R. Smith: “Our Head Office are quite willing to grant you the advance of £4,000, as requested, this amount to be guaranteed by your brothers as arranged, and the deeds of the farm deposited.”
The brothers signed a letter of guarantee, in the usual form, about February 25, 1918. They stated in evidence that Stokes produced the letter of guarantee ready for signature; that they remarked they presumed it was as arranged; that Stokes said “yes;” that thereupon they signed it without reading it; and that they would not otherwise have signed it.
The farm was purchased and the title deeds deposited with the Bank. J. R. Smith went into possession and carried on the business of the farm for several years, keeping an account with the Royal Bank. In March 1925, the defendants were written to by Mr. Orr (the new Branch Manager) that the account of J. R. Smith stood at £7,400 odd overdrawn. This was their first intimation that the account had gone beyond £4,000, although they were regular customers of the Bank. The Bank *101 Manager demanded payment of £4,000 on foot of their guarantee, in addition to what the farm might realise. On November 9, 1925, defendants received formal notification from the Bank for payment of £4,000 with interest from the date of demand. Thereupon John Smith, one of the defendants, paid the Bank £1,000 on foot of the guarantee (November 12, 1925).
The farm was put up for sale but did not realise the reserve price placed on it by the Bank, and was withdrawn, whereupon, on November 23, the Bank’s solicitors (Messrs. Orpen and Sweeney) wrote that they had been instructed by the Bank to take a conveyance of the lands in consideration of £3,000, part of the debt due by J. R. Smith. The conveyance was executed.
The letter of guarantee guaranteed all sums due or to become due to the plaintiffs (not exceeding £4,000) by J. R. Smith “on any account or in any manner whatsoever,” and gave the Bank power to deal with all collateral securities for such sums as the Bank thought fit.
The plaintiffs claimed payment of £3,000 on foot of the guarantee with interest.
The defendants relied on the express representations made by Stokes in the letter of January 2, 1918, and at the interview in February, 1918, when the letter of guarantee was signed, and counterclaimed for rectification in accordance with the terms of the letter of January 2, 1918, and repayment of such sum as was not necessary to pay off the balance of the £4,000 under the rule in Clayton’s Case (1 Mer. 572).
Hanna, J., in delivering the judgment of the High Court, said:—The law is very scrupulous as regards sureties to see that there shall only be imposed on them the strict liability intended by the parties to the transaction. The guarantee in this case was intended to carry out the terms of the letter of January 2, 1918. If it does not carry out these terms it should certainly be rectified. It seems to me this guarantee is in substance only for £4,000. On that basis there is nothing due as there was £3,000 credited to J. R. Smith for the farm, and £4,000 was paid into the Bank by one of the defendants. The action must be dismissed with costs, the £100 lodged in Court being paid out to the plaintiffs to cover interest. The counterclaim must be dismissed without costs.
The plaintiffs appealed.
Kennedy, C.J.
The determination of this appeal depends entirely on the interpretation of the facts proved at the trial. I concur in the judgment which is about to be delivered by Mr. Justice FitzGibbon, as I entirely agree with his presentation of the facts and the conclusions at which he has arrived upon the facts.
FitzGibbon, J.
In my opinion the judgment in favour of the defendants should be affirmed. I consider that the guarantee upon which this action has been brought does not conform to the agreement between the parties, as established by the evidence of the two defendants and Mr. Stokes, and that it should be rectified in accordance with the terms of the agreement proved.
That Joseph Smith required a specific sum for a particular purpose is made clear by the letter of Mr. Stokes to the Head Office, dated December 31, 1917, which shows that he offered to deposit the lease of the farm and to obtain the guarantees of the defendants in order to secure that advance for that purpose and for no other.
In my opinion the agreement between the Bank, Joseph Smith, and the two defendants was that the Bank were to advance such sum up to £4,000 as Joseph Smith might require to enable him to purchase and stock a farm, that he was to deposit the lease of the farm as security for that advance, and that it was to be further secured by the guarantee of the two defendants.
The letter of guarantee, which the defendants signed, may be very clear to a lawyer or a banker, but might not be easily intelligible to an ordinary layman, at least without careful consideration and more explanation, especially as regards the rights of the Bank over collateral securities held by them. The evidence of the defendants, which the learned Judge accepted as substantially correct, is that they did not understand it and asked Stokes did it carry out the arrangement according to the letter that he wrote (January 2, 1918), and that Stokes said it did, whereupon they signed it. Mr. Stokes, who was called for the plaintiff company, does not contradict them. He says: “I may have said that it was in accordance with the letter from the Bank. *102 I believed at the time that it was in accordance with the letter.”
An examination of the guarantee shows that it differs from the agreement between the parties in some material respects. It leaves the Bank free to grant as much or as little as they choose, while it is certain that the guarantee would not have been given except upon a promise by the Bank to lend such a sum, up to £4,000, as would enable Joseph Smith to buy and stock the farm. It secures the payment of “all moneys now or to become due on any account or in any manner whatsoever,” while it is certain that the arrangement was a guarantee of a specific advance for a defined purpose. It is in a form which might enable the creditor to apply the proceeds of the collateral security to indebtedness outside this £4,000, leaving the defendants liable for the full amount of £4,000.
I am as indisposed, I hope, as anyone to permit people to repudiate their signed engagements upon a representation that they did not understand the documents to which they were affixing their names. But in my opinion the position of the defendants, in this respect, was altered by the intervention of Mr. Stokes. He was not under any duty to advise the defendants, though they did happen to be customers of the Bank, with accounts at his branch, but, if he did give them advice, he was under a duty not to mislead them. If the defendants, relying as they did upon his assurance, were induced to execute the guarantee under a misapprehension as to its effect, his principal cannot take advantage of their mistake. I have not the slightest doubt that Mr. Stokes’ representation was honestly made, and that he believed, as he says he did, that the guarantee was in full accordance with the previous arrangement which had been communicated to the Head Office when the guarantee was prepared.
I have formed the opinion that under the agreement between the parties the farm was to be security for the advance which the defendants undertook to guarantee, and that advance was to be for a sum not exceeding £4,000, and the guarantee must be rectified so as to give effect to this agreement.
The result will be that the defendants are liable for the overdraft of Joseph Smith up to £4,000, less by the value of the farm, and as the defendants have already paid £1,000 on account of their liability, it is admitted by the Bank that they are under no further liability if they are entitled, as I hold they are, to treat the farm as security for that portion of Joseph Smith’s overdraft which was guaranteed by them. I am of opinion that the defences based upon Clayton’s Case are unsustainable.
It is sufficient to indicate the amendments which, in my opinion, ought to be made in the guarantee. The consideration should be a loan not exceeding £4,000, and the power to release and deal with collateral securities, or their proceeds, should be deleted; and our order will declare that the farm and its proceeds are applicable pro tanto in discharge of the defendants’ liability on foot of their guarantee of £4,000.
Murnaghan, J.
In my opinion the judgment of Mr. Justice Hanna was right. The legal effect of the letter of guarantee is that, although the guarantors cannot be asked to pay more than the limited amount of £4,000 and interest, they are not entitled to have the benefit of securities lodged by the debtor to secure the whole debt. The letter of January 2, 1918, requires a guarantee by the defendants, and in my opinion both the Bank and the defendants understood this to be a guarantee which should be arranged as to its various terms between the Bank and the defendants. No acceptance of the letter of January 2, 1918, can be relied upon save the guarantee itself, and this acceptance contains the very provisions which it is sought to exclude from the contract guarantee.
If the actual arrangement between the parties at the various interviews between them was that the defendants would guarantee an advance to their brother by bank overdraft up to £4,000 on condition that the Bank would hold the deeds of the farm so as to relieve the guarantors of their liability, I do not see that there is any necessity for rectification, unless it can be shown that this arrangement was departed from when the guarantee was signed, I do not see why it cannot be carried out. If this arrangement as to the terms of the deposit of the title deeds was made, as I hold it was, the legal consequences which might apply in case of a deposit to secure an unlimited advance do not come into play. In my opinion the defendants in their defence pleaded satisfaction of the guarantee in a way to raise the issue of the terms upon which the deposit was made, and the defendants are entitled to succeed on the issue thereby raised, as with the application of the proceeds of the sale of the farm they have fully discharged their liability. *103
Pim Bros., Ltd. v Herbert Saunders and Thomas Saunders
High Court of Justice.
12 May 1926
[1927] 61 I.L.T.R 113
Johnston J.
Johnston, J.
The question that I am asked to decide on this summons is whether the defendant, Thomas Saunders, who is sued as a surety for the debt of his brother, Herbert Saunders, has been released from his suretyship as a result of a certain composition arrangement entered into by Herbert Saunders with his creditors, including the plaintiffs. On February 5, 1921, Herbert Saunders owed the plaintiffs a very large sum for principal and interest on current bills of exchange and for an open account, and on that date he executed as further security a mortgage of certain premises in Dundrum, Co. Dublin, which he held under a lease dated October 19, 1894. Thomas Saunders was a surety on the bill for his brother; and on March 1, 1921, he conveyed to the plaintiffs, by way also of further security, a life annuity of £70 payable to him out of the said premises. The deed recited that Thomas was liable on the said bills with his brother and that the plaintiffs “had called upon the mortgagor and the said Herbert Saunders for further security in respect of the said debt.” Neither of the plaintiffs appeared on the making of the primary decree on November 30, 1925, and the full amount of the debt was set out as owing by the two defendants. The present summons requests that the amount of the debt should be referred to the Chief Clerk; but by an arrangement between the parties the question that I have already indicated is to be decided on the present occasion. The following are the circumstances connected with the offer of a composition by Herbert Saunders and its acceptance by the plaintiffs: A meeting of the creditors of Herbert Saunders was held at the office of one John Brown, chartered accountant, on June 6, 1923. Brown states that he was acting in these and subsequent proceedings as agent for Herbert Saunders, who does not deny that statement. A majority of the creditors attended the meeting, and a resolution was passed agreeing to accept a composition of 4s. in the £. On June 25, 1923, Thomas Saunders, at the request of Mr. Brown, signed the following document: “I, Thomas Saunders, hereby agree to Messrs. Pim Bros., Ltd., accepting from my brother, Herbert Saunders, a composition on the bills signed by me as his surety or to their agreeing to an assignment of his estate for the benefit of his creditors.” The composition was not paid by the debtor, and on June 18, 1924, Mr. Brown sent out the following circular letter to all the creditors:—
“Saunders, Dundrum.
“I regret to say that this debtor has not, after all the indulgence, been able to find the money to pay the composition of 4s. in the £ arranged. He has, however, been able to obtain from his friends sufficient to pay 3s. in the £ in cash, and the money has now been lodged with me. I have seen the two principal creditors, who agree that it is the wisest course to accept this composition in discharge of the account and get the matter closed.
“It is quite clear that under any form of realisation there would be practically nothing for the creditors, and I shall be glad to hear from you in course that you are prepared to accept this payment in discharge of your account, and as soon as the assents have been received I shall have the cheques issued.”
In an affidavit sworn by Thomas Saunders, he stated:—“I am also informed by the said John Brown that the creditors to whom the circular was sent all agreed by letter to accept the said composition of 3s. in the £ except the plaintiffs, who gave a verbal assent.” *114
In a letter from Mr. Brown to Messrs. J. H. Walsh & Co., solicitors, dated March 13, 1926, he says:—“I give you below copy of the resolution of the meeting of creditors held on June 6, 1923, at which Messrs. Pim Bros.” representative was in the chair. The two principal creditors whom I saw before issuing my circular of June 18, 1924, were Messrs. Pim Bros., Ltd., and Messrs. Crowe, Wilson & Co., Ltd.—Yours faithfully, John Brown.”“Meeting of creditors of H. Saunders, Dundrum, resolved that a cash composition of 4s. in the £ be accepted.—Signed, Wm. J. O’Conor, Chairman, 6/6/’23.”
The law on this subject has been very clearly and firmly established, and the controversy before me turned entirely, or almost entirely, upon the application of the rule of law to the special facts of this case.
The law as to the effect of a composition accepted by a creditor from the principal debtor in relation to the position of the surety was set at rest by Lord Eldon as early as 1819 in Ex parte Glendinning, Buck. 520, and the judgment there has been the basis of all the subsequent decisions. Lord Eldon said:—“Ever since the Richard Burke’s case the law has been clearly settled, and it is now perfectly understood that unless the creditor reserves his remedies he discharges the surety by compounding with the principal, and the reservation must be upon the face of the instrument by which the parties made the compromise.” There is now no doubt that in the case of an arrangement by which the creditors agree to accept from the debtor a composition on the debts owing to them, a secured creditor who desires to retain his security must expressly reserve his rights. The reason for that rule is not so much consideration for the surety as the necessity that the immediate parties to the arrangement—that is, each of the creditors and the debtor—should know and appreciate all the possibilities and implications that are involved. The debtor should know that an arrangement that he is entering into to relieve himself from all his debts may not have that effect, seeing that he may be called upon subsequently to indemnify a surety to whom one of the creditors has had recourse. Similarly, the creditors who are agreeing to forego payment should know that one or more of their number is reserving rights that may give him or them an additional advantage. If the arrangement is carried out by means of a written document, whether under seal or not, the creditor’s reservation of his rights must appear on the face of the document, and it is not possible to establish a parol reservation of rights by evidence which would either add a term to the written agreement or alter its ordinary legal construction (per Lord Watson in Mercantile Bank of Sydney v. Taylor, [1893] A. C. 317).
This general rule of law is, in my opinion, firmly based on both law and justice, and if it is applicable to the facts in the present case the special cases to which counsel for the plaintiffs referred, including In re Blakely, De. G. M. & G. 881 (cases that might appear to mark a departure from the rule), have no application and are of no assistance to the plaintiffs.
But the case of the plaintiffs is that this arrangement was carried out by a parol agreement between the parties; that it was never reduced to writing, and therefore never required registration as a deed of arrangement under the Act of 1887, and that throughout all the negotiations they always reserved their rights against the surety. There is no doubt that a composition arrangement can be carried out by a parol agreement. That matter is made very clear in the quizzical judgment of Jessel, M.R., in Cooldery v. Bartrum, 19 Ch. D. 401. There is equally no doubt that a parol reservation of his rights against a surety by a creditor may be part of such an arrangement: Wyke v. Rogers, 21 L. J. Ch. 611. Mr. Brown, who acted throughout as the agent of the principal debtor, in his affidavit says:—“In all the negotiations with me with regard to accepting a composition of Herbert Saunders, the said Pim Bros. stipulated with me that they reserved their rights against the surety, and it was in pursuance of said stipulation that I obtained from Thomas Saunders his signature to the memorandum of June 25, 1923, and with the object of reserving all their rights against the said Thomas Saunders as surety.” This statement is corroborated by the evidence of Mr. W. J. O’Conor, the manager of the plaintiff company, who in his affidavit says:—“In all the negotiations connected with the proposed arrangement between Herbert Saunders and his creditors, the said John Brown acted as agent on behalf of the said Herbert Saunders. And in agreeing to accept such composition on their debt against Herbert Saunders, as was offered by the said John Brown on behalf of the said Herbert Saunders, it was stipulated on behalf of the plaintiff that they reserved all their rights against the surety, Thomas Saunders.” And he adds in the same paragraph that when the plaintiffs agreed later to accept a smaller composition of 3s. in the £ (to which lesser composition, it appears, they gave a verbal assent) the plaintiffs reserved all their rights against the surety.
This evidence, which is absolutely uncontradicted, conflicts with no rule of law and cannot be rejected by me. The arrangement was discussed and agreed upon at the meeting of creditors on June 6, 1923. On that occasion a composition of 4s. in the £ was “arranged,” as it is stated by Mr. Brown in his letter of June 18, 1924. That arrangement was never reduced into writing, and therefore never required registration. Later it was suggested by Mr. Brown that a smaller composition should be accepted, and the plaintiffs verbally agreed to that course. Throughout all the proceedings they reserved their rights against the surety in the only way in which such reservation could take place under the circumstances—namely, by verbal statements that they did so. I am of opinion and so decide that that parol reservation was an essential part of the parol arrangement that was entered into, and was effectual to keep the liability of the surety in existence. The argument advanced on behalf of the surety places him in a dilemma from which there is no escaping. First of all, it is strongly pressed by Mr. Moloney that the resolution set out in Mr. Brown’s letter is a full embodiment of the arrangement; that if any reservation of rights against the surety was intended to be made it ought to have appeared on the face of that document; and that parol evidence cannot be admitted to contradict or modify its terms. Let me recall the wording of the instrument on which so much turns:—“Meeting of creditors of H. Saunders. Resolved that a cash composition of 4s. per £ be accepted.—Signed, Wm. J. O’Conor, Chairman, 6/6/’23.” Such a document would in no sense be regarded as an agreement. It does not show on its face whether the resolution was passed at all or not, nor whether the debtor was a party to it, nor whether he agreed to pay such a composition. It is merely the copy of a resolution which may have been, and probably was, in existence before the meeting took place at all. By no stretch of imagination could it be regarded as “a deed of or agreement for a composition” within the meaning of the Deeds of Arrangement Act, 1887. But even if it were to be regarded as a document expressing the whole of the arrangement agreed upon by the parties, there is nothing in its terms which limits its scope to particular conditions; it must be construed as being for the benefit of Herbert Saunders’ creditors generally. As so construed, it ought to have been registered under the Act within seven days, and as that was not done it became void and of no effect. The same considerations apply exactly to the circular letter of June 18, 1924. It did not initiate a new arrangement; it merely sought to induce the creditors to adopt a slight modification of the parol arrangement of June 6, 1923. The plaintiffs verbally assented to that modification and were paid the reduced composition. If it had been argued before me, as it was not, that that letter was an agreement for a composition, I would be obliged to hold that it became void after the lapse of seven days by reason of non-registration, and it would disappear as a relevant document in the case. The plaintiffs rely on two other matters to which I need do no more than refer. They claim, first of all, that Thomas Saunders’ letter of June 25, 1923, was a contractual authorisation which saved their rights as against him. If the view put forward by this defendant as regards the transaction of June 6, 1923—namely, that the plaintiffs had firmly bound themselves to accept a composition but that they had not reserved their rights against the surety—were to be adopted, there might be some force in his further contention that the agreement of June, 1925, was a nudum pactum and had no legal effect; but, on the other hand, I am not at all sure that the plaintiffs could not rely upon the document by way of estoppel, seeing that some time after it had been executed by Thomas they had agreed to accept the smaller dividend offered by Herbert. It was further argued that, although Thomas was a surety only when the bills were accepted by him and his brother in the first instance, he became a co-debtor when he acquiesced in the plaintiffs’ request that “further security should be given,” and when he executed the mortgage of the annuity, and that the question of a release by the acceptance of a composition from Herbert did not arise: Hall v. Hutchons, 3 M. & K. 426; Defries v. Smith, 10 W. R. 189. As to those very interesting points it is not necessary for me to express any opinion. I am satisfied that the defendant Thomas’s annuity is still a good and valid security for the plaintiffs’ debt. I will make a declaration to that effect, and I will direct an enquiry to ascertain how much is owing by the defendants in respect of the security given by them.
Danske Bank A/S -v- Coyne
[2011] IEHC 234 (25 May 2011)
Judgment of Mr. Justice Charleton delivered on the 25th day of May 2011
1. At issue here is whether a guarantee dated 9th April 2008 is enforceable. That guarantee was entered into as security in respect of a primary liability for substantial borrowings by T.C. Coyne Limited. The defence is that the guarantee is unreliable because it was signed at a disputed time and in disputed circumstances; that it is expressed to be operative in respect of National Irish Bank Limited, an entity which did not then exist; and that its terms are not operative over the liabilities of the principal debtor.
2. As with many similar cases, the guarantee was entered into against primary liability stretching back some years. The details of this are not relevant. It suffices to record that an earlier loan to the primary debtor with limited security was superseded by a loan of €4 million dated 19th December 2006. The security for that loan was adjusted for later loans to include a guarantee from the defendant. That first form of guarantee, relevant for historical purposes only, was signed on 8th January 2007 by Séamus Coyne and was witnessed. It was made out in favour of National Irish Bank Limited. The cover sheet contains a later note date 9th April 2008 indicating that it was replaced.
3. I take nothing from the matrix of documents within which the contract of guarantee in dispute was formed apart from the obvious fact that the bank was determined to have a guarantee to support its loan. I do not need to proceed further into the background.
4. On 2nd April 2008, the principal debtor, T.C. Coyne Limited, was loaned €8.15 million based upon security expressed as a floating charge over the assets and undertakings of T.C. Coyne Limited and a letter of guarantee for €8 million from Séamus Coyne, the defendant herein, supported by legal mortgages over development sites in Mullingar and Killucan, County Westmeath and the sale proceeds of seven residential units in Dromod, County Leitrim. The letter to the directors of T.C. Coyne Limited on 2nd April 2008 states that the security is to be:-
“Any security now held or at any future time shall be security for all the borrower’s liabilities to the bank (actual or contingent) and whether as principal or surety. If this guarantee secures this credit facility, the Consumer Protection Code or future statutory requirements may require us to inform the guarantor about the facility and about any future change in the terms of this agreement. As a result, it is a condition of this agreement that the borrower can consent to this.”
5. On 9th April 2008 a form of guarantee was entered into by the defendant in order to fulfil a condition of the proposed loan to the principal debtor. This is where the issues in this case have their origin. This guarantee was drafted by Mr. Declan Cox, the relevant bank manager, from an old template. The document was drawn up by him from a word-processing package containing precedents of documents on his personal computer. By that stage, the name of the bank for which Mr. Cox works had undergone a change. The limited liability indication had been dropped. By later changes, the plaintiff herein, Danske Bank A/S, became the successor in title to the rights and liabilities of National Irish Bank. At all times, however, it was either the same entity or was an entity that had lawfully succeeded to the rights and liabilities of that entity. The drafting of the guarantee by Mr. Cox from an old template is, in essence, the defence to these proceedings. By way of complication, a further issue arose as to when, where, and in the presence of whom, the guarantee was signed. Mr. Cox said that it was signed in his office on 9th April 2008. A conflict on the evidence has arisen: the defence case is that it was signed on 21st July 2008.
6. A great portion of the hearing was devoted to this issue as to when the guarantee was entered into, and in what circumstances, with whom present and at what location. The terms of the guarantee, if enforceable, make it clear that it effects the security for personal repayment by the defendant in respect of any sums of money which were as of the date of the guarantee, or which would at any time in the future become, owing to the bank from T.C. Coyne Limited. Another issue was whether or not the defendant intended to contract with the predecessor in title to the plaintiff (i.e. National Irish Bank). The commendably honest evidence of the defendant did not establish any contrary case in law that he did not intend to contract with the predecessor in title to the plaintiff. His evidence was to the effect that he did not know why he signed the guarantee. His evidence did not establish and, in the circumstances outlined in his evidence, could not establish that in entering into the guarantee he was intending to contract with an entity different to National Irish Bank. Even were it to the contrary, the absence of any other entity with whom he might genuinely have thought he was contracting limits the prospect of this defence succeeding.
7. I now turn to the relevant contract. The operative clause of the guarantee reads as follows:-
“In consideration of National Irish Bank Limited (hereinafter called the “Bank”) from time to time making or continuing advances or otherwise giving credit or affording banking facilities or granting time for as long as the bank may think fit to T.C. Coyne Limited of Milltownpass, County Westmeath (hereinafter called “the principal”) I the undersigned Séamus Coyle hereby agree to pay and satisfy to the bank on demand all and every sum and sums of money which are now or shall at any time be owing to the bank anywhere on any account whatsoever whether from the principal solely or from the principal jointly with any other person or persons or from any firm in which the principal may be a creditor, including the amount of notes or bills discounted or paid and other loan credits or advances made to or for the accommodation whereat the request either of the principals solely or jointly or if any such firm as aforesaid or for any monies for which the principal may be liable as surety or in any other way whatsoever together with in all the cases aforesaid. All interest discount and other banker’s charges including legal charges occasioned by or incidental to this or any other security held by or offered to the bank for the same indebtedness or to the enforcement of any such security. Provided always the total liability ultimately enforceable against me under this guarantee shall not exceed the sum of EUR€8,000,000 (€8M) together with interest thereon (as well as after as before any judgment) from the date of demand by the bank upon me for payment…”
8. The borrowings of the principal debtor were made against a background of loans for property development in the way that I have touched on earlier.
9. National Irish Bank Limited, the party to whom the guarantee was given, had by that date ceased as a trading name for the plaintiff. Going back to the 2006 documents, it was then the appropriate name in respect of the advance of monies accepted by T. C. Coyne Limited, the principal debtor, and the later guarantee entered into by the defendant. By the time of this document, unwisely called up for word-processing by Mr. Cox and never altered, the change of name which I have noted had been effected. I am satisfied that this change of name has been properly proven. I am satisfied that it is beyond doubt that the relevant entity under the new name is the predecessor in title to the plaintiff in these proceedings. At a later stage in the events with which the Court was concerned, another form of document was drawn up by Mr. Cox for the plaintiff, with the correct party to whom the guarantee applied accurately stated therein, in the hope that the defendant might sign it. That never happened as the defendant, understandably in human terms, declined.
10. By letter dated 27th October 2009, on National Irish Bank headed notepaper, the nature of the error was explained to the defendant in the following terms:-
“In accordance with the requirements of the April 2008 facility letter, the guarantee letter, of 9th April 2008… provided by you provides for payment by you, on demand, of all sums owing by T.C. Coyne Limited up to the limit of €8M plus interest from the date of demand. It is the intention of the bank to shortly issue a demand for this sum, the exact amount of which will be set out in that demand letter. However it has come to the attention of the bank that the guarantee letter was addressed, in error, to “National Irish Bank Limited” as opposed to “National Irish Bank”, which is and was at the time the trading name of the bank. We thought it preferable to address this matter in advance of issuing a demand on the guarantee and do so below. By virtue of the addition of the word “limited” to the bank’s name, the obligations undertaken by you by way of guarantee to the bank in respect of the liabilities of T.C. Coyne Limited to the bank were recorded in the guarantee letter as being undertaken by reference to “National Irish Bank Limited”. This is clearly an error in that the guarantee was required under the April 2008 facility letter to put in place for the benefit of the bank to secure the amounts to be advanced by the bank to T.C. Coyne Limited. Satisfactory completion of the guarantee was, among other things, made a precondition to draw down at the loan by Clause 12 of the facility letter, which was accepted by you on behalf of T.C. Coyne Limited. In the circumstances it was the common intention of the parties that you would give the guarantee to the bank to secure the loan for T.C. Coyne Limited. Further, at the date of the guarantee letter, there was no commercial entity known as National Irish Bank Limited, the company formally of that name, having changed its name to Nibdan Limited. In addition, no credit facility had been, at the date of the guarantee, advanced by Nibdan Limited and none such was anticipated. In these circumstances a guarantee in favour of Nibdan Limited was only not indicated in the terms of the guarantee itself, but would have made no commercial sense whatsoever. Having regard to the circumstances in which the guarantee was granted, the identity of the provider of the loan facility which comprised the consideration for the guarantee and indeed to the fact that the only entity in Ireland, having the right to do business under the name “National Irish Bank” at the date of the guarantee was the bank, it is the position of the bank that the only reasonable way to construe the guarantee letter is that it was indeed given, as intended, to “National Irish Bank”, the then Irish registered trading name of Danske Bank A/S and to that the addition of the word “Limited was simple error.”
11. All of the above has been sufficiently proven in evidence. By formal demand made on 24th November 2009 on the defendant, repayment under the guarantee was sought. The up to date figure is not disputed as between the parties and will be mentioned at the end of this judgment.
12. The pleadings for the plaintiff include a statement of claim which asserts that it was the common intention of National Irish Bank and the defendant that the guarantee was to be given by the defendant to and for the benefit of the bank in order to secure the loan offered under the terms of the facility letter by the bank to the principal debtor. It is pleaded that the designation “National Irish Bank Limited” in the guarantee, as the beneficiary of the defendant’s obligations thereunder, was a mistake which did not give effect to the common intention of the parties in respect of the guarantee to be given. The enforcement of the guarantee is therefore sought by the plaintiff on the basis that the parties to the contract should be kept to their bargain, and that it is not necessary to effect any change to the written instrument in order to enforce it. In the alternative, rectification of the document to effect the intention of the parties is sought. In the defence, it is denied that the common intention of National Irish Bank and the defendant was that a guarantee was to be given by the defendant to the bank. It is further denied that an error occurred giving effect to the alleged common intention of the parties to the contract in the manner pleaded in the statement of claim. Further, it is pleaded that the lands held by deed of mortgage to the bank, the subject of the loan, were secured by that mortgage and, in the absence of a proper guarantee, by nothing else.
13. The proper approach to the construction of a written contract is set out in Analog Devices B.V. v. Zurich Insurance Company [2005] 1 IR 274. This contract of guarantee is no different. The meaning of the guarantee is the sense which reasonable persons would give to it by construing it against the relevant background of fact which led to it being agreed. By enforcing the guarantee, the Court would not be entitled to attribute to the parties an intention which they could not have held as evidenced from its written terms. The precise circumstances of negotiation of a written document are, in the ordinary course, irrelevant. The Court is entitled, in construing a written contract, however, to see it in the context which led the parties to draw it up as an agreement. In the context of inheritance, this is sometimes described as the judge placing himself or herself in the testator’s armchair at the time of the drafting of the will (“the armchair principle”): see generally National Tourism Development Authority v. Coughlan [2009] 3 IR 549 referring to O’Connell v. Bank of Ireland [1998] 2 IR 596. The matrix of fact against which a contract is entered into is relevant because such evidence requires the Court to be informed as to the background knowledge which was as a matter of fact, and not which merely could have been, available to the parties as reasonable people in entering into the contract.
14. In Moorview Developments Limited v. First Active Plc. [2010] IEHC 275, (Unreported, High Court, Clarke J., 9th July, 2010) an issue arose as to whether a guarantee made to Moorview Properties Ltd. should be enforced as if is was made to Moorview Developments Ltd. Moorview Properties Ltd. did not, as a matter of fact, exist and never had existed. Commenting on the evidence, Clarke J. found that it was inconceivable that there could have been any other intention of the parties but that the liabilities of the principal debtor were to be guaranteed by Moorview Developments Ltd. This approach to the construction of a contract, with a view to its enforcement, does not require that the contract should first be subjected to rectification. At paras 3.5 to 3.6, Clarke J. stated:-
“3.5 This aspect of the case concerns what has, in some of the case law, (see for example East v. Pantiles (Plant Hire) Ltd (1981) 263 E.G. 61) been described as “correction of mistakes by construction”. As is clear from East and from the speech of Lord Hoffman in Investors Compensation Scheme Ltd v. Bromwich Building Society [1998] 1 WLR 896, two conditions must be satisfied in order for such a correction to occur. First, there must be a clear mistake. Second, it must be clear what the correction ought to be.
3.6 It is also clear from the speech of Lord Hoffman in Investors Compensation that a correction of the type with which I am concerned is not a separate branch of the law, but rather an application of the general principle that contractual documents should be construed according to their text but in their context. That context may make it clear that the words used in the text are a mistake. Thus, a reasonable and informed person may conclude that the words used are an obvious mistake and may also be able to conclude what words ought to have been used. In those circumstances, as a matter of construction, the court will, as it were, construe the contract as if it had been corrected for the obvious mistake. The reason for so construing the contract in that way is that the proper principles for the construction of contracts lead to that construction in any event. I am satisfied that those cases, most recently restated by the House of Lords in Chartbrook v. Persimmon Homes Ltd [2009] 1 AC 1101, represent the law in this jurisdiction.”
15. These cases, where a party is misdescribed by title, are sometimes referred to as misnomer cases. Such instances of mistake in a written contract do not involve the rewriting of the contract by the court enforcing it. Instead, an enquiry may be made in evidence as to what the plaintiff and defendant must have intended as the parties to the contract. This enquiry is more easily embarked upon and resolved where there is no legal entity other than the contended for parties to the contract with whom either of the contracting sides may reasonably have intended to contract. This approach to construing a contract, where one of the parties has been misnamed, has been on occasion described as a doctrine of construction. It does not seem necessary to go that far. It is precisely to give a contract the business efficacy which the parties contracting within a commercial sense must have intended that the correction is made. The law has moved on from such cases as Gastronome (U.K.) Limited v. Anglo Dutch Meats (U.K.) Limited [2006] 2 Lloyd’s L.R. 587 and it is no longer necessary to establish from the four corners of the document that the parties must have intended to refer to one entity rather than the other entity. The admissibility of evidence as to the context within which the contract was made does not depend on the availability of only one possible entity as the misdescribed party and nor does it depend solely upon the evidence available within the written terms of the contract.
16. In Chartbrook v. Persimmon Homes Ltd [2009] 1 AC 1101 at 1112 Lord Hoffmann stated:-
“It is agreed that the question is what a reasonable person having all the background knowledge which would have been available to the parties would have understood them to be using the language in the contract to mean. The House emphasised that “we do not easily accept that people have made linguistic mistakes, particularly in formal documents”… but said that in some cases the context and background drove a court to the conclusion that “something must have gone wrong with the language”. In such a case, the law did not require a court to attribute to the parties an intention which a reasonable person would not have understood them to have had.”
17. The purpose of the court in construing any contract is to get to as close as possible to the meaning which the parties intended. This exercise could never confine the court to reading the document without regard to its background. It is well established that the context within which an agreement is made will inform both the manner of performance of the contract and the parties by whom the obligations set out therein by written agreement are required to be performed.
18. Were I wrong in that conclusion, I would rectify the document. The legal principles applicable to rectification of a contract were set out by Kelly J. in Irish Pensions Trust Limited v. Central Remedial Clinic [2006] 2 IR 126 at 150 to 151. For the sake only of completeness it is necessary to quote these:-
“Rectification permits the court to correct an instrument which has failed to record the actual intentions of the parties to an agreement. It is a discretionary equitable remedy.
The circumstances in which rectification is available was authoritatively considered by the Supreme Court in Irish Life Assurance Co. Ltd. v. Dublin Land Securities Ltd. [1989] I.R. 253. In that case Griffin J. speaking for the Supreme Court adopted the principles outlined by Lord Lowry L.C.J. in Rooney and McParland Ltd. v. Carlin [1981] N.I. 138 at p. 146 where he said:-
“1. There must be a concluded agreement antecedent to the instrument which is sought to be rectified; but
2. The antecedent agreement need not be binding in law (for example, it need not be under seal if made by a public authority or in writing and signed by the party if relating to a sale of land) nor need it be in writing: such incidents merely help to discharge the heavy burden of proof;
3. A complete antecedent concluded contract is not required, so long as there was prior accord on a term of a proposed agreement, outwardly expressed and communicated between the parties, as in Joscelyne v. Nissen [1970] 2 Q.B. 86.”
Commenting on these principles Griffin J. said at p. 263:-
“Applying those principles to the facts of this case, and bearing in mind the heavy burden of proof that lies on those seeking rectification, the question to be addressed is whether there was convincing proof, reflected in some outward expression of accord, that the contract in writing did not represent the common continuing intention of the parties on which the court can act, and whether the plaintiff can positively show what that common intention was in relation to the [relevant] provisions [of the contract].””
19. Rectification allows the court to correct or rectify a written instrument, usually as to one particular point, so that it accurately reflects the true agreement or contract of the parties. The jurisdiction of the court does not extend to rectifying the actual contract of the parties: it is only the written record of the contract that may be rectified. Once an agreement has been expressed between the parties, a misstatement in the contract may be rectified so that neither party may move away from what is established as the accord of the parties. The party seeking rectification bears a heavy burden of proof. As to the principles which will inform the court’s approach, Costello J. put the matter helpfully in O’Neill v. Ryan [1992] 1 I.R. 166 at 185:-
“The court will… grant relief by way of rectification where the parties have reached an agreement but where an error is made in giving effect to the parties’ common intention in a written agreement. The general rule is that where there is a common shared mistake in that the written agreement fails to record the intention of both parties the court will order its rectification. Rectification may also be ordered when a party who has entered into a written agreement by mistake, if he establishes that the other party with knowledge of the mistake concluded that agreement…””
20. The situation in this case involved an agreement which when written down establishes clearly a shared or common mistake made by both parties. The agreement in writing was designed to give effect to a prior oral agreement, which was then evidenced by an exchange of correspondence. The principles of rectification apply to that situation as the same principles apply to a situation, which is not applicable here, where one party sees a mistake in a written agreement and, aware that the other party has not realised that mistake, signs that agreement knowing that it contains a mistake.
21. In the circumstances of this case I would have been obliged, because of the common mistake of the parties, to order a rectification. Because of the misnomer principle, however, the application of the jurisdiction of the Court to rectify a written contract is not necessary.
22. There will therefore be judgment for the plaintiff in the amount of:
1. €7,794,621.55 under the guarantee, being the amount owed by the principal debtor under the loan facility of 2 April 2008;
2. €425,125.35 being the amount of interest accrued on the loan facility debt of the principal debtor since demand by letter of 24 November 2009;
3. €30,289 in respect of a separate overdraft facility made available to the principal debtor, the liability of the defendant for which has not been disputed;
4. interest of €5,146.58;
23. The correct final amount is thus judgment for €8,225,171.84. I will also make an order that interest be payable under section 22 of the Courts Act 1981 from the date of perfection of this judgment, 23 June 2011, to date of payment of the judgment sum. Having heard an application for a stay pending an appeal to the Supreme Court, I decline to make that order. There are no reasonably arguable grounds on which this judgment can be appealed. Having also heard an application for costs from the plaintiff bank, I decline in the exercise of my discretion to award any costs. This litigation arose out of a mistake that was easily avoided. That error betokens, as best construed, a failure of ordinary care. I also take into account that whereas I am bound to implement the law as to the obligations of debtors, and have done so, the discretionary nature of the order as to costs following on judgment can encompass the general lack of diligence in lending by banks at the relevant period and the terrible consequences of that failure in proper management for the people of Ireland. The costs order against the plaintiff bank by Kelly J. of 18 January 2011 on a separate procedural matter stands.
The 19th Ltd
[1989] ILRM 652 Lynch J
This is an application for directions brought by the liquidator of the above-named company (hereinafter called the 19th) regarding the validity of a mortgage and debenture and also whether or not a right of subrogation arises in the circumstances that have occurred in this case. The notice party is the Industrial Credit Corporation plc (hereinafter called ICC).
The liquidator of the 19th was appointed liquidator by order of the High Court made on 15 December 1986. The 19th is one of a group of companies referred to by counsel in argument before me as the Belton Group because these companies share common directors and owners, the principals of whom are named Belton.
On 27 January 1987 the liquidator was appointed receiver and manager of Kadoe Properties Ltd (hereinafter called Kadoe). Kadoe is also one of the Belton group of companies.
By a facility letter or letter of offer dated 4 February 1985, ICC offered loan facilities to Kadoe of £500,000 subject to acceptance of the terms contained in the said letter and the conditions attached in the schedule which formed part of the offer. The said letter, inter alia, provided at para. 3 (iii) that the loan would be secured by a ‘collateral first specific charge over the 19th licensed premises at Collins Avenue’. *654 On 13 February 1985 the directors of Kadoe resolved to accept the offer of ICC, the said directors being also directors of the 19th.
By indenture dated 8 March 1985 the 19th agreed with ICC to mortgage or charge the 19th’s lands and premises contained in Folio 6667 of the Register of Freeholders County of the City of Dublin together with the seven day publican’s licence attached thereto. The said collateral mortgage was duly registered pursuant to s. 99 of the Companies Act 1963 on 15 March 1985.
The premises comprised in the said mortgage dated 8 March 1985 the subject matter of Folio 6667 aforesaid are premises number 63 Collins Avenue, Dublin. These premises have been sold by the liquidator and on sale they realised approximately the net sum of £175,000. The total indebteness of Kadoe to ICC is approximately £700,000 and Kadoe has other assets over which ICC have mortgages and these assets have realised approximately £500,000. The facility letter of 4 February 1985 from ICC to Kadoe provided for an advance by way of term loan of £500,000 for investment in property described in para. 3(i) of the letter and further provided for a specific charge by Kadoe in favour of ICC over that property which realised a total of approximately £500,000 on sale.
Para. 3(iii) of the said facility letter provided:
The loan shall be secured as follows:
A collateral first specific charge over the 19th licensed premises at Collins Avenue owned by Motels Ltd. Provided interest payments are up-to-date this charge will be released when the principal balance outstanding on the loan has been reduced below £400,000.
In fact the licensed premises, known as the 19th, were not owned by Motels Ltd but were owned by the 19th who as already stated mortgaged the said premises on 8 March 1985 to ICC. That mortgage recites:
(a) The mortgagor (the 19th) has agreed with the lender (ICC) to mortgage or charge the lands and premises described in the schedule hereto as security for payment to the lender of all moneys due or to become due by Kadoe Properties Ltd (hereinafter called the borrower) either as principal or surety to the lender.
(b) It has been agreed between the parties hereto that all moneys now due or which shall hereafter become due by the borrower to the lender on any account or in any manner with interest costs and charges thereon shall be secured in the manner hereinafter appearing.
The mortgage of 8 March 1985 further provided at para. 1(b) as follows:
The mortgagor as beneficial owner and as registered owner or the person entitled to become registered as owner hereby charges so much of the property comprised in the schedule hereto the ownership whereof is registered in the Land Registry or is required to be so registered pursuant to the statutes in that behalf with payment to the lender of all sums hereby secured and all interest costs and other moneys payable hereunder and assents to the registration of this charge as a burden on the property described in the schedule hereto.
and at clause 2:
The property hereby demised assigned granted charged and conveyed is hereinafter referred to as the mortgaged property and the sums hereby secured are hereinafter referred to as the mortgage debt provided always that upon payment by the mortgagor to the lender of the mortgage debt and all moneys and interest due hereunder then the lender shall upon the written request and at the cost of the mortgagor re-convey re-assign or release the mortgaged property as the mortgagor shall *655 direct.
The liquidator of the 19th by notice of motion dated 14 June 1988 sought directions under three headings, namely,
(1) A determination as to whether a collateral mortgage dated 8 March 1985 created by the company to secure payment of all sums due or thereafter to become due by Kadoe Properties Ltd to the Industrial Credit Corporation plc is valid and enforceable.
At the hearing counsel for both parties agreed that having considered the matter fully the answer to the foregoing query should be ‘yes’ and I accordingly so answer it.
(2) A determination as to whether a collateral debenture dated 2 July 1985 created by the company to secure payment of all sums due or thereafter to become due by Kadoe Properties Ltd to the Industrial Credit Corporation plc is valid and enforceable.
Again before me counsel for both parties agreed that the answer to this query should be ‘yes’ and I accordingly so answer it.
(3) If necessary further directions as to the nature and extent of the right of subrogation, if any, available to the company in respect of the securities held by the Industrial Credit Corporation plc over Kadoe Properties Ltd.
This is the issue which has been argued before me and which I have to determine, the liquidator contending that the 19th has a right of subrogation and the ICC contending to the contrary.
The Submissions
Counsel for the liquidator pointed out that there is no covenant in the mortgage of 8 March 1985 by the 19th to pay Kadoe’s debts owing to ICC and therefore there was no personal or enforceable liability on the 19th to pay those debts other than by way of realisation of the mortgaged property; National Provincial Bank Ltd v Liddiard [1941] Ch 158. Counsel submitted therefore that although it was conceded that the mortgage created a valid guarantee or suretyship it was a limited guarantee: it could not exceed in amount the net realisable value of number 63, Collins Avenue. She also submitted that the mortgage of 8 March 1985 had to be read in conjunction with the facility letter of 4 February 1985 even though that facility letter was a document between ICC and Kadoe. Counsel further submitted that as the guarantee was a limited guarantee and as the whole of the amount guaranteed, that is, the net realisable value of number 63 Collins Avenue being approximately £175,000 had been paid over to ICC the 19th was entitled to share the benefit pro tanto along with ICC of the securities which ICC held over the property described in para. 3(i) of the facility letter. In round figures this would mean that the 19th would recover approximately five sevenths of the £175,000 paid to ICC or in other words approximately £125,000. That sum would then be available to the liquidator of the 19th for distribution to the 19th’s creditors and in particular its preferential creditors.
Counsel for ICC agreed that there was no covenant by the 19th to pay the debts *656 due by Kadoe to ICC and that accordingly the 19th was only liable to the extent of the net realisable value of number 63, Collins Avenue. Nevertheless she submitted that the guarantee was a guarantee of the whole amount of the debts due by Kadoe to ICC and depending upon the amount realised by number 63, Collins Avenue this might have discharged the whole of such debts. Counsel for ICC further agreed that one should read the mortgage of 8 March 1985 in conjunction with the facility letter of 4 February 1985, but she submitted that the provisions of para. 3(iii) regarding release of the mortgage if the principal sum should be reduced below £400,000 and all interest had been paid was not relevant to the situation in this case as it did not arise on the events which had in fact occurred. Counsel for ICC further submitted that the right of subrogation was not a matter of contract but arises out of equitable doctrines analogous to the doctrine of marshalling.
The Law and Conclusions
The right of subrogation arises from equitable doctrines seeking to do justice between the parties. Where the guarantee is of the whole of the debt and is without limitation the law is quite clear. The surety cannot resort to the creditor’s remedies until such time as the creditor has been paid his debt in full whereupon the surety’s right to resort to the creditor’s remedies arises by subrogation.
If the guarantee is of part only of the debt and the surety has paid that part in full the surety can share in securities held by the creditor as against the principal debtor. This has the effect of encouraging the creditor to manage the debt carefully and if necessary to get in the debt promptly. The creditor should try not to allow the debt to grow with interest to such proportions that there is no hope of the principal debtor being able to pay the debt in full because in that event the surety will have to be called upon to pay the part which he guaranteed. In such circumstances the creditor will have to share the loss with the surety who has paid his share in full by allowing the surety to share pro tanto in the benefit of other securities held by the creditor as against the principal debtor. Where the guarantee is of the whole debt but nevertheless limited as to the amount which the surety can be compelled to pay, the surety cannot resort to the creditor’s remedies until the creditor has been paid in full.
The question which I have to decide in this case seems to me to be whether the guarantee given by the 19th is of the whole debt but limited to the net realisable value of number 63, Collins Avenue or whether the guarantee is limited to that part of the debt equal to the net realisable value of number 63, Collins Avenue only and not to be considered a guarantee for the whole debt.
The authorities are not by any means clear. In the case of Thornton v M’Kewan (1862) 1 H & M 525 the guarantee was in the following terms:
In consideration of your advancing to Mr Edmund Smith the sum of £5,000, from time to time, as he may require, I hereby guarantee and hold you harmless from any loss that may arise to you in consequence of such advances; and this shall be to you a continuing guarantee to the extent of £5,000.
*657
At the time of giving that guarantee both parties were fully aware that the indebtedness of Mr Smith to the bank in question was already a sum in excess of £18,000 and accordingly it was quite clear that this was a guarantee of part only of the debts of Mr Smith and that the guarantor on paying the whole of that part was entitled to share in any securities which the bank might have as against Mr Smith for the debt.
In the case of Hobson v Bass LR 6 Ch App 792 the guarantee was in the following terms:
In consideration of your having supplied and your continuing to supply Mr Edmund Hobson, trading under the firm of Jesse Hobson and Son, goods in the way of his business, I, the undersigned, do hereby guarantee to you the due payment, at three months’ notice, of all such goods, whether supplied previous to the date hereof, or which you may from time to time supply to the said Edmund Hobson, until you receive notice from me of the discontinuance of this guarantee, but so as my liability to you under this or any other guarantee shall not at any time exceed the sum of £250.
One might have thought that this form of guarantee was a guarantee of the whole sum due but with a limitation of the surety’s liability to £250 and that the creditor would have to have recovered the entire of his debt before the surety was entitled to have resort to the creditor’s remedies against the principal debtor. In fact however it was decided otherwise and it was held that the guarantee was a limited one only as to £250 of the debt and not a guarantee of the whole debt. Accordingly the surety was entitled to share in a dividend received by the creditor from the principal debtor in respect of the debt.
In the case of Goodwin v Gray (1874) 22 WR 312 an issue arose as to whether the form of the guarantees was correctly drawn up in the documents signed or not and rectification was granted whereby they became clearly guarantees limited in amount only and not guarantees for the whole of the debt. In giving judgment for the plaintiff Jessel MR quoted from the headnote in Thornton v M’Kewan:
Where a limited guarantee has been given, and the limit has been exceeded by the guarantee, who afterwards receives from the estate of the principal debtor a dividend, the guarantor is entitled to the benefit of a proportional part of that dividend on the amount guaranteed, notwithstanding that the unpaid debt greatly exceeds the amount of such guarantee.
It should be noted that in the present case there would be no real way whereby any of the parties would have certainty as to whether the limit of the guarantee had been exceeded if I were to hold that the guarantee was a limited one because the amount of the guarantee in that event could only be ascertained when number 63, Collins Avenue had been sold.
In the case of In re Sass: ex p National Provincial Bank of England Ltd [1896] 2 QB 12 the guarantee was in the following form:
I hereby guarantee to you the payment of any sum or sums of money which may be now or may hereafter from time to time become due or owing to your bank anywhere from or by E. Sass … either solely or jointly with any other person or persons in partnership or otherwise upon banking account or upon any discount or other account or for any other matter or thing whatsoever including the usual banking charges. This guarantee is to be a security for the whole amount now due or owing to you or which may hereafter from time to time until the expiration of the notice hereinafter mentioned become due or owing to you by the said debtor but nevertheless the total amount *658 recoverable hereon shall not exceed £300 in additon to such further sum for interest and other banking charges and for costs as shall accrue after the date of demand by you upon me for payment.
One might think that the form of guarantee in this case was scarcely distinguishable from the form in Hobson v Bass but the decision was otherwise.
At page 15 of the report Vaughan Williams J says as follows:
It is quite true that where the surety is surety for a part of the debt as between the principal creditor and the debtor, the right of the surety arises merely by payment of the part because that part, as between him and the principal creditor, is the whole. Now for the purpose of this guarantee all I have to determine here is, whether, as between the bank and the surety, the surety became a surety for the whole of the debt or for a part. In my judgment the surety here became a surety for the whole of the debt. It is true that his liability was to be limited; but still, notwithstanding that, his suretyship was in respect of the whole debt, and he, having paid only a part of that debt has in my judgment no right of proof in preference or priority to the bank to whom he became guarantor.
The question largely turns on the construction of the particular document creating the guarantee and suretyship. In this case the mortgage of 8 March 1985 refers again and again to all monies due or to become due by Kadoe to ICC. Insofar as there is a limitation it is a limitation which could not be precisely calculated at any time until the mortgaged property had been resorted to and sold. Depending upon the amount realised upon the sale of the mortgaged property and upon the amount outstanding and due by Kadoe to ICC at the time of the sale the guarantee might have extended to the whole of such outstanding amount or to a large part of it or to a small part of it. I have come to the conclusion that in this case the guarantee was of the whole debt limited to the net realisable value of number 63, Collins Avenue. The present situation is that ICC have not been paid the whole amount of their debt even with the addition of the £175,000 received from the sale of number 63, Collins Avenue and the 19th have therefore no right of subrogation to the securities held by ICC in respect of various properties of Kadoe.
Accordingly my answer to the third query in the motion of the liquidator seeking directons is that no right of subrogation arises in favour of the 19th unless and until ICC have recovered the whole of the debt due by Kadoe to them.
Gore v Gore
Queen’s Bench Division.
13 November 1899
[1901] 35 I.L.T.R 22
Gibson, J.
The question raised in this case is treated as doubtful in some of the textbooks, such as Mayne on Damages and Sedgwick on Damages. An action for money paid can only be supported by proof of a payment in money or something equivalent thereto. Where the payment is in goods, as in Hooper v. Stephens, 4 A. & E. 71, or made by way of the settlement of a cross demand, as in Spagoe’s case, L. R. 8 Ex. 471, and such payment is of equal value, there is not usually any difficulty, but where the thing agreed to be received as payment may be substantially of less value, the question may arise whether the surety, whose right to sue is based on indemnity and not on a transfer of the debt to him by the creditor, can recover from the principal debtor damages beyond the loss which he (the surety) has sustained. There is an obvious convenience in *22 allowing the creditor or surety to make their own bargain as to payment. Where the payment is made by a negotiable instrument accepted in discharge of the original liability, it was decided in Barclay v. Gooch that such an acceptance and discharge was equivalent to payment. That decision was followed in M’Kenna v. Harnett, and was treated as good in Rodgers v. Maw, 15 M. & D. 414. A different principle was applied to bonds and similar securities, but I am unaware of any decision inconsistent with Barclay v. Gooch except Whelan v. Crotty, where unfortunately Deasy, B., was not made aware of the unanimous judgment of his own Court the other way. Fahy v. Frawley is not an adverse decision, as there no question arose of a negotiable instrument being payment. Without expressing approval of that decision, I think we are bound by M’Kenna v. Harnett, which has never been overruled. At the same time I feel great difficulty in treating a note as cash paid. If the new note, given and taken in full satisfaction, was not such a payment as to support an action for money paid, I doubt if the mortgage subsequently created could improve the plaintiff’s position. It was given by way of security long after the note, and was not like the transfer in Fahy v. Frawley, which was an absolute conveyance. It is immaterial whether the thing given in payment is land, goods, or any other article, but a security is not payment, as is shown by the American cases cited in Sedgwick on Damages. If M’Kenna v. Harnett was treated as overruled, I think that on the facts the plaintiff ought to be allowed to amend and claim alternative relief either by way of indemnity or damages for breach of the obligation to indemnify. The mortgage would then be material, as it is charged on the plaintiff’s property, which is of adequate value, and the defendant’s money loss is ascertained.
There was no application for leave to amend before Mr. Justice Barton, but the justice of the case requires that an amendment should be allowed. However, as I think we are bound to follow M’Kenna v. Harnett, no question of amendment arises. At the trial the learned judge attached importance to the fact that the defendant was not shown to have assented to the transaction relied on as payment, but payment may be made by one of several debtors, although novation or alteration of the contract requires the concurrence of all parties, as is shown by Barclay v. Gooch and M’Kenna v. Harnett. Judgment must therefore be entered for the plaintiff.
Kenny J.
This case is very similar in its facts to Fahy v. Frawley, in which no money was paid by the plaintiff to his common creditor in respect of the debt. A mortgage was transferred, and the plaintiff, the surety, was released, there being no evidence of any consent to the transaction by the defendant. In that case the indorsement of the plaintiff’s claim on the writ was more meagre than in this, and the defences were traverses of money having been paid. Judgment was entered for the plaintiff, and the Divisional Court upheld that judgment on the ground that, to the extent at least of the value of the security given by the plaintiff, there had been a payment of money or its equivalent which entitled the plaintiff to maintain the action. Our present Rules of Court provide that “no technical objection shall be raised to any pleading on the ground of any alleged want of form,” and further, “all such amendments shall be made as shall be necessary for the purpose of determining the real questions in controversy between the parties.” Plaintiff’s counsel says he does not require an amendment of his writ, but if we thought such amendment necessary he asks us to make it, though not applied for at the trial. His writ gives all necessary information to the defendant of the nature of the plaintiff’s claim, and it is immaterial whether the claim be regarded as one sounding in damages for breach of defendant’s implied contract of indemnity or for a liquidated demand in the shape of money paid. Therefore I think the writ needs no amendment, but if it were necessary we should have no hesitation in making it even at this stage. That being so, I see nothing to distinguish the case in principle from Fahy v. Frawley. [Having referred to, and expressed approval of, the judgment of Holmes, J., in that case, the learned Judge continued:] Murphy, J., went further and regarded Bartley v. Gooch as good law; fortified by M’Kenna v. Harnett, he was prepared to decide that the acceptance by the creditor of a personal security such as a bill of exchange or a promissory note might be an equivalent for “money paid,” though no actual payment on foot of it had been made. I cannot agree with the learned Judge who tried this case that to entitle the plaintiff to succeed it was necessary that the defendant should have been a party to or have had notice of the acceptance by the creditor of the new note and the mortgage. Fahy v. Frawley is a sound decision and undistinguishable from this case, and we should follow it, even if we did not concur in it, as being the decision of a Court of co-ordinate jurisdiction on similar facts.
In concluding I may say that on the evidence of the Bank manager, which is not controverted, the marketable value of the property mortgaged is more than the £50 to which Barton, J., finds the plaintiff is entitled if judgment should be entered for him. The plaintiff is therefore fully secured, and the plaintiff being damnified to the extent of the security given by him, is entitled to be indemnified in respect of its value.
Murphy, J., concurred.
Healy -v- Ulster Bank Ireland Ltd
[2015] IESC 106 (21 December 2015)
NOTE: The judgment of Judge Hardiman is unapproved not having been approved by Mr Justice Hardiman prior to his untimely death.
Judgments by
Concurring
Hardiman J.
Link
Clarke J., Laffoy J.
Judgment of Mr. Justice Hardiman delivered the 21st day of December, 2015.
1. The Plaintiff/Appellant is a registered medical practitioner and conducts a general practice in Mullingar Co. Westmeath. The defendant/respondent is a Bank. At all material times it maintained an office in Mullingar.
2. In August, 2008 the plaintiff had a sum of US$ 993,983.03 standing to his credit in his deposit account with the defendants as Bankers at their branch in Mullingar. On the 14th August, 2008 the Bank appropriated this sum by way of set off against a debit balance allegedly outstanding in respect of a facility extended to Coole Property Holdings Ltd., in respect of which, the Bank said, Dr. Healy was a guarantor. There was also an alleged personal liability.
3. The plaintiff was outraged at the appropriation of the money standing to his credit in his account in respect of the alleged liabilities mentioned. He instituted proceedings against the defendant Bank in which he claimed that in appropriating the said monies the defendant Bank was guilty of unlawfully converting these sums to its own use, breach of contract, negligence and deceit. His claim was dismissed by the High Court (McGovern J.) on 17 July 2009. This is his appeal.
The Plaintiff’s case.
4. The plaintiff said that the sums on deposit which were appropriated by way of set off were the balance of an initial lodgement of €2,213,607. This deposit was made on the 1st August, 2007. The plaintiff says that, subsequently, on the advice of the defendant Bank, some of the money was used in a series of currency trades by the defendant Bank acting as adviser and broker to the plaintiff.
5. The plaintiff further says that the initial deposit represented a sum derived from the sale by the plaintiff of his interest in Coole Property Holdings Ltd. and the sale, at the same time, of his interest in a partnership in a medical practice, between the plaintiff and another doctor. This other doctor, in addition to being the plaintiff’s partner in general practice was also engaged with him, through the medium of the Company mentioned, in the development of a very elaborate general practice building and ancillary para-medical and housing development on the grounds of a former hospital in Coole, Co. Westmeath.
6. Unfortunate differences arose between the plaintiff and his former partner, and this led to a very serious deterioration in their personal relationship. It became clear that they could no longer practice medicine in partnership or advance their joint commercial interests together. In relation to the latter, the plaintiff was keen to sell the development in which they were engaged and the development lands, whereas his partner wished to retain them. In July 2007 the plaintiff and the other doctor reached an agreement as a result of which, in effect, the plaintiff was “bought out” by his former partner. The former partner paid to the plaintiff’s Solicitor the consideration for this buy out. On the 31st July 2007 the plaintiff obtained a cheque representing these proceeds from his Solicitor.
7. On the following day, 1st August 2007, the plaintiff attended a meeting in the Mullingar branch of the Ulster Bank. He had an appointment to meet Mr. Alan Leech of Ulster Bank there. He was accompanied by his mother, Mrs. Maria Healy who had worked with him in his development venture and was familiar with it.
8. The plaintiff says that he told Mr. Leech at the meeting that the “deal” in relation to the sale to the former partner of the plaintiff’s interest in the property company and in the medical partnership had been agreed the previous day and that he had secured payment of the sale’s proceeds from the purchaser. It appears from documents subsequently obtained on discovery that the Bank had known of the discussions between the two doctors but was unpleasantly surprised that the transaction had closed and that the plaintiff had “got his hands on” the proceeds (the Bank’s phrase) without the Bank being involved.
9. According to the evidence of the plaintiff’s mother, at the meeting of 1 August 2007:
“Mr. Leech said to Neil ‘Now that you have the money, you will be looking after us. We looked after you’. And Neil said ‘Well that’s why I came in here to talk about this but before that happens ‘there are two issues which have to be resolved’. Number one:- (as far as I know some Bank had been ringing Neil up, I think it may have been AIB giving him interest rates and that kind of thing). Neil and Alan spoke about these for awhile and Alan said that he could match these, he could match these rates. So then Neil said ‘Well the second and most important item is that I need assurances from you that I am in the clear with Ulster Bank’, and Alan Leech told him that he was in the clear with Ulster Bank”. (Emphasis added)
10. In giving that evidence, Mrs. Maria Healy was confirming the evidence of her son to the same effect. Moreover, the son said that after this large deposit was made he became a client of Ulster Bank’s Wealth Management Service as a result of which the Bank advised him on various strategies to do with his deposit monies and transacted certain of them for him. The legal effect of the arrangement between the parties was pleaded as follows at para. 5 of the plaintiff statement of claim:
“5. Prior to the commencement of the above described commercial relationship and prior to the plaintiff agreeing to place any funds in the charge of the defendant, its servants or agents, the defendant, its servants or agents specifically represented to the plaintiff that he had no pre-existing liability and/or exposure to it on foot of a guarantee furnished by the plaintiff to facilitate repayment on demand to the defendant of a sum not to exceed €3,485,000 extended as finance to Coole Park Property Holdings Ltd. in respect of a commercial development undertaken by that Company. The said guarantee was dated 9 August 2006”.
Dr. Healy took the view that, having been bought out of the property company its liabilities were no longer his concern. He said that Mr. Leech promised him that this was so and that he would not, naturally, have made the deposit if Mr. Leech had not done so. When Discovery of the Bank’s documents was made, it showed Mr. Leech endeavouring to put an end to Dr. Healy’s liability: as the learned trial judge held, at p.29 of the judgment:
“It is clear that Mr. Leech was proposing that the plaintiff be cleared of the loan and the facilities which were granted, and that these be put in the name of [the other doctor]. He made this request on the 3rd September 2007”.
The learned trial judge continued by quoting a memorandum from Mr. Long, an in-house solicitor in Ulster Bank to the following effect:
“Healy effectively no longer has any liability to us and as I say he has signed contracts signing over any interest he had in all lands and property at Coole to [the other doctor]. I have amended this on the security screen now. This can be changed back if not correct”.
But on the same day there is a memorandum from another banker, Mr. Coyle stating that it was necessary to retain Dr. Healy’s name on the loan.
Accordingly, the learned trial judge held at para. 30 that the internal Bank documents “do no more than show that the Bank was considering a request by Mr. Leech to have the plaintiff cleared of any liability to the Bank, but the Bank was not prepared to do so”. The learned trial judge regarded this as supporting Mr. Leech’s evidence that he had no authority to give any such assurance as was claimed to the plaintiff. It might, also, be regarded as consistent with Mr. Leech having given the plaintiff an assurance such as the latter claimed, presumably in the interest of securing a very large deposit for the Bank. This would require him to secure “that the plaintiff be cleared of the loan”.
11. In cross-examination of Mrs. Maria Healy on behalf of the Bank, after she had given the evidence summarised above, it was put to her that on the day of the meeting:
“You [Mrs. Healy] certainly had lunch with Mr. Leech in Conn’s Restaurant across from the Bank, isn’t that right?”.
Mrs. Healy agreed that this was so and described how the lunch was arranged:
“Mr. Leech shook hands with Neil, congratulated him and he invited us over to Conn’s for a celebratory lunch…”.
This version does not appear to have been challenged. No alternative reason for a “celebratory lunch” was suggested, than that Dr. Healy had been bought out by his partner and had deposited the proceeds with the Bank on the terms mentioned, so that (for a brief period at least) everyone was happy.
______________________________________________________________
Another significance of this passage of transcript is that the Bank in cross-examination of Dr. Healy suggested to him that his mother was not present at the meeting in the Bank at all. In the course of cross-examination of Mrs. Healy she became upset at a certain juncture and the learned trial judge explained the line of cross-examination being adopted saying:
“You don’t have to worry about that, Mrs. Healy. Mr. O’Neill is doing his job. There is a conflict of evidence on this. Apparently Mr. Leech is going to tell me that I should believe him, that you weren’t at the meeting, and I have to resolve this difference”. (Emphasis added)
12. In evidence, however, Mr. Leech did not put this matter further than saying “I don’t recall Mrs. Maria Healy being there”. [Book 4, p.99]. This is, obviously, quite different from a positive assertion that she was not present.
The issue.
13. The substantive issue in the case was whether or not Mr. Leech had given Dr. Healy assurances of the sort outlined in the plaintiff’s pleadings and evidence. Dr. Healy was adamant that he had done so, and stood over this allegation in evidence and in cross-examination. As we have seen Mrs. Maria Healy gave evidence to the same effect. Mr. Alan Leech, the only other person present at the meeting, said he had only a vague recollection of it and did not recollect the words alleged by the plaintiff being used. He said he would have no authority to give assurances to that effect. Dr. Healy and Mrs. Healy were however adamant that Mr. Leech had used precisely those words, presumably with a view to securing the deposit for Ulster Bank. It will be recalled that the Bank conducted various transaction on behalf of Dr. Healy with the deposit money prior to the set off, which occurred just over a year after it was lodged.
14. The case, therefore, hinges on what if anything was said to induce Dr. Healy to make a deposit of the funds at his disposal into an account in Ulster Bank, Mullingar, on the 1st August 2007. There was not, in any literal sense, a conflict of evidence about this issue in the sense of witnesses for the respective parties swearing to two conflicting accounts. There was the clear evidence of the Healys in support of the assurances which they claim to have been given and, more vaguely, there was Mr. Leech’s evidence to the effect that he did not recollect the conversation, that he was vague about it, that he did not recall Mrs. Healy being present and that it would not have been within his authority, and would not have been his custom or practice, to give assurances of the kind alleged.
15. The cross-examination of Mrs. Healy on behalf of the Bank was curious in certain respects. Their first line of attack, summarised by the judge in the passage quoted above, was that she wasn’t there at all. But this was not expressly put to her at any stage. The cross-examination of Mrs. Healy by Mr. Desmond O’Neill S.C. is in large measure consistent with the Bank taking that view that she had not been there. He asked the sort of questions one might ask if there was going to be a denial that the witness had been present at all. Thus, she was asked where in the premises the meeting took place, upstairs or downstairs in the Bank building; what was the exact location of the room in which the meeting took place; whether the room was cluttered or tidy; and whether she or her son were offered any refreshments at the meeting. Remarkably, she was only expressly contradicted on the last matter: she said she had had a coffee and Mr. O’ Neill put her to that Mr. Leech’s practice was never to offer refreshments at such a meeting. It was not expressly put to her, importantly, that, as a matter of fact, she had never been at the meeting at all. This was presumably because cross-examining counsel was by then aware that Mr. Leech’s evidence would not go further than saying that he could not recollect her being at the meeting. But the Bank’s initial stance had been as the judge summarised it: she wasn’t there at all.
16. But, as we have seen, it was expressly put to Mrs. Healy on behalf of the Bank that she had been at lunch in “Conn’s restaurant across from the Bank”. She said that she and her son had gone to lunch there at the invitation of Mr. Leech who had shaken hands with Dr. Healy, congratulated him, and invited him and his mother to lunch. The description of this lunch by Mrs. Healy as “a celebratory lunch” was not challenged by the Bank.
No case was made by the Bank, or put to Mrs. Healy, as to how she could come to be present at the lunch with Mr. Leech if she had not been at the meeting in the Bank immediately prior to the lunch. Since it was agreed that she was at the lunch, she must have either come from the Bank with the two men, or met them later. There was no account of any arrangement to meet her there, any telephone call making such arrangement or of any entirely coincidental meeting in the restaurant or on the street. There are no other possibilities.
17. The entire case turned on the meeting in Ulster Bank which was said to have started at about 12.20pm on the 1st August, 2007. The action was heard just under two years later, in May 2009 and judgment was delivered in July of that year. The judge summarised a state of the evidence in this matter as follows at para. 16 of his judgment:
“Mr. Leech was quite clear in his evidence to the Court that he would not have given a release to the plaintiff and that he had no authority to do so. He continued to assert this, although he accepted he could not remember precisely what he said. Counsel for the plaintiff laid significant emphasis on the fact that the plaintiff, for his part, was quite clear as to the assurances which were given on 1st August, 2007, whereas Mr. Leech had no recollection of what was said. If the plaintiff’s evidence is reliable on this detail then, clearly, he is in a strong position, because while Mr. Leech may not have actual authority to give him a release, he may have had ostensible authority to do so. The credibility of the plaintiff is obviously crucial to the determination of the issue of fact as to whether or not the words contended for by the plaintiff was said by Mr. Leech”. (Emphasis added)
At para. 20 of the judgment the learned trial judge found as follows:
“The plaintiff’s mother accompanied the plaintiff to the Bank for the meeting with Mr. Leech on 1st August, 2007. Although Mr. Leech did not recall her being present in the room when he was receiving the cheque from the plaintiff, I accept her evidence that she was there at the time. She said she heard Mr. Leech telling the plaintiff that he was ‘… in the clear with Ulster Bank’. But when she was asked whether there was any detailed discussion on the issue as to whether her son had a liability under a guarantee, she could not remember any such discussion”. (Emphasis added)
18. The learned trial judge went on to dismiss Dr. Healy’s claim substantially on the grounds of his lack of credibility. The reasons for this are fully set out in the latter portion of the judgment. This leads to the conclusion that “I reject the plaintiff’s account of the meeting”. It is clear from the preceding portions of the judgment and especially from paragraphs 32 and 33 that the learned trial judge found that the plaintiff was wholly lacking in credibility.
19. The puzzling aspect of the judgment is that, having expressly found that Mrs. Healy Senior was indeed at the meeting in the Bank on the 1st August, 2007, the learned trial judge makes no finding at all about her evidence that Mr. Leech assured Dr. Neil Healy that he was “in the clear with Ulster Bank”.
20. On the hearing of this appeal Mr. Denis McDonald S.C. for the Bank was absolutely clear that his reliance was on the learned trial judge’s factual findings. He did not dilute the strength of this submission by making any alternative or subsidiary point. He frankly conceded that there was on the transcript of the evidence certain material which supported Dr. Healy’s point of view but he simply said that the learned trial judge had found against him and that was that. He said that this Court was not entitled to engage in speculation outside the findings of the trial court, on such issues as to why a professional man such as Dr. Healy would have made the lodgement without any assurance that it wouldn’t be appropriated, as it indeed was about a year later, by set off.
Hay v. O’Grady and subsequent cases.
21. As we have seen, the thrust of the defendant’s case was that this Court could not interfere with the determination of the learned trial judge. Mr. McDonald relied very heavily on Hay v. O’Grady [1992] 210. He relies in particular on the passage from the judgment of McCarthy J. (with whom Finlay C.J., Hederman J., O’Flaherty J. and Egan J. agreed) under the heading “Appeal from a judge alone”, at p.215ff. This very well known passage refers to the established jurisprudence in appeals from jury verdicts in civil matters:
“… a verdict of a jury as to issue of facts and the inferences to be drawn from the facts as found will not be disturbed by this Court if there is evidence to support such findings and inferences. This is so even if this Court would itself have drawn inferences from those drawn by the jury”.
Mr. Justice McCarthy went on to refer to the constitutional underpinnings of the right of appeal to the Supreme Court. He then went on to summarise the legal position relating to appeals of this sort, from a judge sitting alone, in five numbered paragraphs as follows:
“1. An appellate court does not enjoy the opportunity of seeing and hearing the witnesses as does the trial judge who hears the substance of the evidence but, also, observes the manner in which it is given and the demeanour of those giving it. The arid pages of a transcript seldom reflect the atmosphere of a trial.
2. If the findings of fact made by the trial judge are supported by credible evidence, this Court is bound by those finding, however voluminous and, apparently, weighty the testimony against them. The truth is not the monopoly of any majority.
3. Inferences of fact are drawn in most trials; it is said that an appellate court is in as good a position as the trial judge to draw inferences of fact. (See the judgment of Holmes L.J. in “The Gairloch,” The S.S. Aberdeen Glenline Steamship Co. v. Macken [1899] 2 I.R. 1, cited by O’Higgins C.J. in The People (Director of Public Prosecutions) v. Madden [1977] I.R. 336 at p.339). I do not accept that this is always necessarily so. It may be that the demeanour of a witness in giving evidence will, itself, lead to an appropriate inference which an appellate court would not draw. In my judgment, an appellate court should be slow to substitute its own inference of fact where such depends upon oral evidence or recollection of fact and a different inference has been drawn by the trial judge. In the drawing of inferences from circumstantial evidence, an appellate tribunal is in as good a position as the trial judge.
4. A further issue arises as to the conclusion of law to be drawn from the combination of primary fact and proper inference – in a case of this kind, was there negligence? I leave aside the question of any special circumstance applying as a test of negligence in the particular case. If, on the facts found and either on the inferences drawn by the trial judge or on the inferences drawn by the appellate court in accordance with the principles set out above, it is established to the satisfaction of the appellate court that the conclusion of the trial judge as to whether or not there was negligence on the part of the individual charged was erroneous, the order will be varied accordingly.
5. These views emphasise the importance of a clear statement, as we made in this case, by the trial judge of his findings of primary fact, the inferences to be drawn, and the conclusion that follows.
22. Hay and O’Grady is perhaps the single case most frequently referred to in appeals to this Court. In this particular case it is apt to emphasise the final point, as to the “importance of a clear statement… by the trial judge as to his findings of primary fact, the inferences to be drawn and the conclusion that follows”.
23. The Courts are required to make findings of fact across an enormous range of human activity. Sometimes the process of finding fact can be very complicated indeed as for example in a case where there is no doubt that the plaintiff has suffered injury, but the injury itself can only be explained in one of a number of ways each of which, considered in itself and the abstract, is extremely improbable. This was the situation confronting the High Court and this Court on appeal in Wright and Anor. v. AIB Finance and Leasing Ltd. and Gearys Garage Ltd. Defendants/Respondents and John Deere Ltd. Third Party/Appellant [2013] IESC 55. There, there was no doubt that an accident had occurred causing serious injury to a man who was an employee of the plaintiffs, Thomas and William Wright. The Wrights had to settle their employees claim for personal injuries for a very large sum. They then brought proceedings against the First Defendant, who were the lessors of a combine harvester machine which had injured the employee. The second-named Defendant was the supplier of the machine. The supplier added John Deere Ltd. (the manufacturer of the harvester) as a third party. The trial of liability between the Wrights and Gearys Garage and between Gearys Garage and John Deere were conducted together in the High Court. The Wrights were successful in these proceedings and the two original defendants, now plaintiffs, were found entitled to be fully indemnified by John Deere. The latter party appealed to this Court. The key issue was a complex one, and there had been strong expert (engineering and medical) evidence on both sides. It was this: did the movement of the “paddles” of the combine harvester, which caused injury to the plaintiff, take place because the engine of the machine was engaged, thereby causing the movement, or did the paddles somehow move without the engine being engaged. The learned trial judge came to a conclusion on this issue which this Court did not disturb. However, in the course of the judgment the application of Hay v. O’Grady was discussed under the heading “The trial judge’s conclusions”. At para. 7.10 the Court, per Clarke J., found as follows:
“That the trial judge was placed in a difficult position because of the unsatisfactory way in which the expert engineering evidence was presented cannot be doubted. However the findings of fact of the trial judge can, in accordance with Hay v. O’Grady only be disturbed if there was no evidential basis for them or if the reasoning of the trial judge in reaching those conclusions of fact does not stand up. It is important to recall that Hay and O’Grady is concerned specifically with the assessment of the facts by a trial judge where the trial judge is required to weigh conflicting evidence or assess the credibility or reliability of testimony. It is also clear that the findings of fact can be disturbed where there is a material and significant error in the assessment of the evidence or a failure to engage with a significant element of the evidence put forward (see for example Doyle v. Banville [2012] IESC 25)”. (Emphasis added)
The underlined phrase precisely expresses what happened in the present case: there was, for whatever reason, a “failure to engage” with the evidence of Mrs. Healy.
In Doyle v. Banville, there was a situation which two witnesses differed on a point “that was of some significant moment in the case” but the learned trial judge accepted the evidence of both in full. Clarke J. held, at para. 2.7:
“It is also important to note that part of the function of an appellate court is to ascertain whether there may have been significant and material error(s) in the way in which the trial judge reached a conclusion as to the facts. It is important to distinguish between a case where there is such an error on the one hand and a case where the trial judge simply was called upon to prefer one piece of evidence to another and does so for a stated and credible reason. In the latter case it is no function of this Court to second guess the trial judge’s view”. (Emphasis added)
Referring to the trial judge’s action in that case, in accepting in full two pieces of evidence which were in fact conflicting this Court held:
“For the reasons which I have already analysed that was not a mere tangental error but one which related to a point of some significance in the case… where there is a clear error in respect of an important fact which has the potential to materially affect the result of the case, this Court can and should intervene”.
24. If the evidence of Dr. Healy stood alone against that of Mr. Leech, then the defendant/respondent Bank would be in a very strong position in its reliance on Hay v. O’Grady. In my view the evidence of Mrs. Healy was clearly a “material and significant” element of the evidence put forward on behalf of the plaintiff. Its relevance became still more obvious when the learned trial judge found as a fact that Mrs. Healy had been present at the vital meeting contrary to the Bank’s initial stance. To find this, then to make no finding whatever as to the veracity or reliability of her evidence, seems an undoubted error, a “failure to engage”, as opposed to “a mere tangental error”. It was “one which related to a point of some significance in the case”. There was an obligation to address her testimony.
Conclusion.
25. In those circumstances, since this Court cannot substitute its view of Mrs. Healy’s evidence in circumstances where the learned trial judge has simply made no finding on the issue of its veracity and reliability, it seems appropriate to remit the matter to the High Court for a retrial.
In light of the view the learned trial judge took on the question of the assurance said to have been given by Mr. Leech to Dr. Healy, certain other issues did not arise for consideration and determination by him.
The sums claimed by the Bank against Dr. Healy, and which were the subject of a counterclaim, were partly claimed on the basis of an alleged personal liability, and partly on foot of a guarantee of the liabilities of the property company mentioned. If any assurance was found to have been given, there would be a question as to whether its terms extended to both sorts of liability, or to one only, or to neither.
Furthermore, if a different view of the alleged assurance had been taken by the learned trial judge, issues might have arisen as to whether any assurance which was offered was within the ostensible authority of Mr. Leech.
On the hearing of this appeal the grounds of appeal were amended to address the fact that, since the High Court hearing Ulster Bank had sold the debt alleged to be owing from Dr. Healy to a third party. In light of the view taken on the principal issue in the appeal, it has not been necessary to address this matter in this judgment. Since the case will now be remitted for rehearing any question of the constitution of the action, or of the pleadings, will fall within the remit of that Court.
26. I would allow the appeal, set aside the order of the High Court and remit the matter for rehearing.
Bank of Ireland -v- Walsh
[2009] IEHC 220 (08 May 2009)
JUDGMENT of Ms. Justice Finlay Geoghegan delivered on the 8th day of May, 2009
1. The application to which this judgment relates is for summary judgment in the sum of €4 million and interest in favour of the plaintiff against the defendant.
2. The principles applicable to the determination of the plaintiff’s application for summary judgment and the defendant’s application for leave to defend are not in dispute. Counsel for both parties agree that they are those set out by McKechnie J. in Harrisrange Ltd. v. Duncan [2003] 4 IR 1. In that decision, having reviewed a number of prior decisions, McKechnie J. at p. 7, summarised those as follows:
“(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, there being several ways in which this may best be done;
(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, being mindful at all times of the unavoidable limitations which are inherent on any conflicting affidavit evidence;
(iv) where truly there are no 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?’, which latter phrase I would take as having as against the former an equivalence of both meaning and result;
(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 in 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.”
3. As appears from sub-paragraph (vii) above, the threshold is one of an arguable defence and is, in relative terms, a low threshold. However, in making that determination, the Court should have regard to whether what the defendant is saying is mere assertion and whether the proposed defence is credible in the sense explained by Hardiman J. in Aer Rianta c.p.t. v. Ryanair Ltd. [2001] 4 IR 607.
4. The defendant is a director of Largreen Ltd. (“Largreen”). On 14th September, 2006, he executed a guarantee in favour of the plaintiff of liabilities of Largreen, subject to a limit of €4 million and interest (“the Guarantee”). Whilst, in his first replying affidavit, the defendant raised an issue in relation to the amount of €4 million, at the hearing of the application for summary judgment it was not in dispute that the defendant had executed the Guarantee of liabilities of Largreen in an amount of €4 million and interest referred to therein. Further, his counsel confirmed that the plaintiff was not required to produce in Court the original Guarantee.
5. Largreen is a property owning company with, inter alia, property at Portlaoise, County Laois. Such property was being built on by connected companies. It is not in dispute that the plaintiff had made a number of facilities available to Largreen for which it held the Guarantee as security. Further, that on 19th December, 2008, Largreen was indebted to the plaintiff in the sum of €22,439,632.42 for which the plaintiff held the Guarantee from the defendant as security. Demands were made on the defendant for payment under the Guarantee by letters dated 19th December, 2008, and 23rd February, 2009.
6. On 12th December, 2008, the plaintiff appointed a receiver over Largreen.
7. These proceedings were commenced on 23rd February, 2009, and on 30th March, 2009, admitted to the Commercial List and the application for summary judgment fixed for hearing on 23rd April, 2009, with directions in relation to the delivery of any replying affidavit by the defendant.
8. On 15th April, 2009, the defendant swore an affidavit in which he asserts that Largreen has a claim for damages, then estimated by him at €26,500,000, against the plaintiff for its alleged wrongful refusal to permit the drawdown of a facility of €1.9 million to complete a portion of the development at Portlaoise in September 2008. On the same day, the defendant caused a plenary summons to be issued with Largreen Ltd. (in receivership) as plaintiff, and the Bank of Ireland as defendant, claiming, inter alia, damages for negligence, breach of duty, breach of fiduciary duty, breach of contract, misrepresentation and unlawful interference with the business and economic interests of the plaintiff.
9. A further affidavit was sworn on 22nd April, 2009, by Ms. Mary McCarthy, a senior business manager in the plaintiff’s regional business unit, south east midlands and the original deponent for the plaintiff, in which she disputed a number of the factual matters in the defendant’s affidavit and also pointed out that the damages estimated at paragraph 23 of the defendant’s affidavit in the sum of €26.5 million, included a double count to the extent of €12.8 million.
10. The defendant swore a supplemental affidavit on the morning of the hearing, and in the absence of objection on behalf of the plaintiff, was permitted to file this in Court. In that affidavit, he implicitly accepts the element of double count but provides a new estimate of alleged losses to which reference will be made below, and asserts that the true loss suffered by Largreen in respect of which it has a claim for damages against the plaintiff is €23,390,969.
11. The submission of counsel for the plaintiff that it is entitled to summary judgment must be considered in the context of the arguable defence contended for by counsel for the defendant. The submissions of counsel for the defendant may be summarised as follows:
(i) The defendant’s affidavits disclose an arguable claim by Largreen against the plaintiff for damages estimated at €23,390,969.
(ii) In any claim by the plaintiff against Largreen to recover the undisputed liability of €22,439,632.42, Largreen is entitled to set off such damages.
(iii) The defendant herein, as guarantor of the debts of Largreen, is entitled in his defence of any claim brought to enforce the Guarantee to rely upon any set off to which Largreen is entitled against the principal debt guaranteed.
(iv) Whilst it is accepted that the defendant’s entitlement in his defence to rely upon any set-off to which Largreen is entitled against the plaintiff may be limited or excluded by the express terms of a guarantee, it is submitted that it is arguable that clause 28(ii) of the Guarantee does not exclude such a defence.
(v) Accordingly, the defendant has established an arguable defence to the plaintiff’s claim for €4 million under the Guarantee and summary judgment should be refused and the defendant given leave to defend and, if necessary, by joining Largreen, pursue Largreen’s claim for damages against the plaintiff and set that off against the plaintiff’s claim against him.
12. The submissions of counsel for the plaintiff may be summarised as follows:
(i) The plaintiff accepts the general principle that a defendant guarantor is entitled to rely in his defence upon any set off to which the principal debtor may be entitled against the creditor in respect of the sum guaranteed. However, on the facts of this application, it is submitted that such right is clearly excluded by clause 28(ii) of the Guarantee and it is not arguable that the clause could be otherwise construed. On this ground alone, it is contended that the plaintiff is entitled to summary judgment.
(ii) If, contrary to the foregoing submission, it is arguable that the defendant is entitled to advance a defence in reliance upon a claim which Largreen may be entitled to set off against the plaintiff’s claim against it for €22,439,632.42 plus interest, then it is submitted that the defendant has not put before the Court any credible arguable claim by Largreen against the plaintiff for damages excess of €18.4 million. It is contended that unless the defendant establishes an arguable claim by Largreen for damages in excess of €18.4 million, then the defendant remains liable on the Guarantee for a sum of €4 million, having regard to the undisputed liability of Largreen to the plaintiff for a sum in excess of €22.4 million.
13. The first issue which must be determined by the Court in the light of the submissions is whether or not the Guarantee in clause 28(ii), clearly excludes the right of the defendant to defend this claim in reliance upon the claim he contends Largreen has for damages against the plaintiff or whether, as contended for by the defendant, it is arguable that it is not so excluded.
Clause 28
14. Clause 28 of the Guarantee provides:
(i) The Guarantors hereby waive all demands on the Customer [Largreen] for performance of any of the covenants, terms, conditions and agreements of any facility or accommodation or for payment of any moneys by the Customer hereby secured and also hereby waive the necessity for any presentment for payment notice of dishonour protest and such other notice (if any) which the Bank might otherwise be required to give in connection with the exercise of its rights or any of them in respect of any of the obligations contained herein or otherwise.
(ii) The Guarantors hereby agree that in any litigation relating to these presents the aforesaid obligations or any security therefore they shall waive the right to interpose any defence based upon any claim of laches or set-off or counterclaim of any nature or description.
15. The principle relied upon by counsel for the defendant is that expressed in the judgment of Roskill L.J. in the Court of Appeal in Hyundai Shipbuilding and Heavy Industries Company Ltd. v. Pournaras [1978] 2 Lloyd’s Rep. 502, where at p. 508 he cited with approval from Halsbury’s Laws of England (4th ed. par. 190) which reads:
“On being sued by the creditor for payment of the debt guaranteed, a surety may avail himself of any right to set off or counter-claim which the principal debtor possesses against the creditor, and any division of the high Court can give effect to it or to any equitable defence raised.”
16. Reliance was also placed upon the formulation of the general rule in Andrews and Millet, Law of Guarantees (4th ed.) (2006 London Sweet & Maxwell) at par. 11-006:
“Cross-claims and rights of set-off
The general rule is that where the principal has a right of set-off or cross-claim against the creditor giving the principal a defence to the debt the subject of the guarantee, the surety is entitled to raise it as a defence to the creditor’s claim.
. . .
The surety is not seeking here to set up the principal’s defence against the creditor as a set-off against his own liability under the contract of guarantee, since there is no assignment of the benefit of the principal’s cross-claim: the surety is not in a position of assignee vis-á-vis the principal. What in fact the surety has is an equitable right to be exonerated from liability under the guarantee to the extent that the principal has a defence to the creditor’s claim arising out of cross-demands between them. This right is paramount to the principal’s right to raise it by separate action against the creditor.”
17. The Court’s attention was also drawn by counsel to a similar formulation of the principle in O’Donovan and Phillips, ‘The Modern Contract of Guarantee’, English Edition, (2003 Sweet and Maxwell), at par. 11-46, where the authors state:
“In order that the guarantors be exonerated from liability, they may seek to rely on any claims and defences which the principal has against the creditor.”
18. Applying these principles to the facts herein, it is submitted by counsel for the defendant that the nature of the defence to be made by the defendant is an equitable right to be exonerated from liability to the plaintiff by reason of Largreen’s claim for damages against the plaintiff for its loss, estimated at €23.3 million, and Largreen’s entitlement to set off such damages against its undisputed liability of €22.4 million to the plaintiff. The defendant is not seeking to set off any personal claim he has against the plaintiff which counsel submits is what is excluded by paragraph 28(ii) of the Guarantee. In this connection, counsel for the defendant also relies on the approach of O’Donovan and Phillips (supra) at paragraphs 11-48 and 11-49, where insofar as relevant, they state:
“Furthermore, the terms of the guarantee itself may preclude the guarantor from pleading cross-claims and defences available to the principal debtor. Clear and unequivocal words (or an obvious implication) are required to achieve this effect. If there is nothing in the guarantee to exclude the guarantor’s right to counterclaim and set-off under the common law and in equity, then these counter claims and set-offs will be available to the guarantor.
Thus, clauses providing that amounts are to be paid ‘without any deduction’ have been held to be insufficient to exclude an equitable set-off
. . .
Even if there is a specific provision in the guarantee purporting to exclude a right of set-off, a failure to distinguish between the different types of set-off (for example, legal as distinct from equitable) might lead to a restrictive interpretation that excludes some set-offs but not others.”
19. Finally, counsel for the defendant relied upon the contra proferentem rule and the obligation on the Court to construe the Guarantee against the plaintiff insofar as there was any ambiguity in its terms.
20. The defence which the defendant seeks to advance is a defence that he has an equitable right to be exonerated from liability to the plaintiff because Largreen has a claim for damages against the plaintiff which it is entitled to set off against its liability to the plaintiff for the principal debt which was guaranteed by the defendant. In the context of this application for summary judgment it is contended that clause 28(ii) only clearly excludes the defendant’s entitlement to raise a defence based upon his entitlement to set off a liability to him personally against his liability to the plaintiff, as distinct from a defence that his liability on the claim is extinguished based upon Largreen’s or “the Customer’s” entitlement to set off a liability of the plaintiff to it against the principal debt.
21. I have concluded that the plaintiff has not established that clause 28(ii) clearly means that the defendant has waived his right to advance a defence that he has no liability to the plaintiff under the Guarantee by reason of the fact that Largreen is entitled to set off against the principal debt its claim for damages which is estimated to exceed the principal debt, thereby extinguishing the principal debt and any consequent liability under the Guarantee.
22. I have concluded that clause 28(ii), when construed in the context of the other provisions in the Guarantee, is not so clear as to exclude an arguable defence that the waiver therein is confined only to a defence based upon a set-off to which the defendant is personally entitled against his liability under the Guarantee, and not a defence that the guarantor’s liability is extinguished by reason of a set-off to which the principal debtor is entitled against its liability for the principal debt. My primary reasons are the nature of the defence, which is not one of set-off against an admitted liability on the claim, but rather a defence that the debt the subject of the claim is extinguished (albeit by reason of the principal debtor’s right of set-off) and two other provisions of the Guarantee. First, clause 25 expressly requires the guarantor to make any payment under the Guarantee without set-off. Such set-off appears to be one to which the guarantor is personally entitled as it relates to a payment by him under the Guarantee and clause 28 appears to be reinforcing this obligation. Secondly, clause 28(i) includes a waiver by the guarantor of certain potential obligations of the plaintiff bank to the Customer. As the relationship between the bank and the Customer is expressly addressed in the preceding sub-paragraph of clause 28, it appears arguable that if the Guarantee was intended to exclude any defence based upon a right of set-off of the Customer against its liability for the principal debt, it would have been so expressly provided.
23. In reaching this conclusion, I have taken into account the words “of any nature or description” in clause 28(ii), but consider it is arguable that they only refer to types of set-off or counterclaims to which the guarantor may be personally liable.
24. Accordingly, I have concluded that the defendant has established that it is arguable that the type of defence which it seeks to raise is not excluded by clause 28(ii).
25. The next issue therefore is whether the defendant has made out an arguable claim by Largreen against the plaintiff for damages in excess of €18.4 million. It must be of this amount as it is not disputed that Largreen is indebted on the guaranteed facilities for a sum in excess of €22.4 milion. In accordance with the principles set out by McKechnie J. in Harrisrange Ltd. v. Duncan [2003] 4 IR 1, it is necessary to consider whether, on the defendant’s affidavits, there is more than mere assertion by the defendant that there is an arguable claim that the plaintiff committed an actionable wrong against Largreen as a result of which Largreen suffered loss in excess of €18.4 million.
26. I have concluded that the defendant has not met this low threshold. Both in respect of the cause of action and the quantum of any damages, the evidence adduced by the defendant, in substance, is assertions made by him, and certain of the assertions are not consistent with the contemporaneous documents exhibited by him and undisputed facts.
27. The basis of the cause of action by Largreen against the plaintiff is not clear. The plenary summons of 15th April, 2009, is in typical short form and does not set out the factual basis of the causes of actions pleaded. No statement of claim has been delivered or draft exhibited. It appears from the affidavit of the defendant of the 15th April, 2009 that the primary complaint is an allegedly wrongful refusal by the plaintiff to permit the drawdown by Largreen of a loan facility of €1.9 million, notwithstanding what is asserted at paragraph 19 to have been assurances given at a meeting of 23rd September, 2008, that the defendant could expect to receive the proceeds of the scheduled drawdown within a number of days. In purported support of that contention, the defendant exhibits at Exhibit MW5, an exchange of emails between Largreen and Ms. McCarthy of the plaintiff of 24th September, 2008. Those emails do not refer to any alleged agreement by the plaintiff to permit the drawdown of €1.9 million as asserted by the defendant in his affidavit.
28. The defendant also exhibits a letter of 10th October, 2008, written by him following the plaintiff’s failure or refusal to allow Largreen drawdown what is there referred to as € 2.9 million pursuant to a facility letter of 26th May, 2008. Whilst a complaint is made in that letter of the failure or refusal, there is no allegation that any agreement was reached on 23rd September, 2008, following consideration of what is accepted by the defendant to have been an adverse progress report from KRA, rather, it is asserted that, notwithstanding submissions made by Largreen on the adverse KRA report, the plaintiff did not reconsider its position. This relatively contemporaneous letter of complaint is inconsistent with the assertions now made by the defendant in his affidavit.
29. Even if I were to form the view that the defendant has established an arguable cause of action by Largreen against the plaintiff arising out of its refusal to allow drawdown of the facility of €1.9 million in September 2008, I am not satisfied that the defendant has established any arguable claim to damages for loss and damage suffered by Largreen in excess of €18.4 million. In his first affidavit, the defendant, at paragraph 23, quantifies the potential damages on a loss of 137 sales at €26.5 million (for which he took an average price of €250,000, then added an alleged personal contribution and infrastructure costs and deducted likely sales income over time at €150,000 each).
30. When double counting was pointed out in the replying affidavit by Ms. McCarthy, the defendant, in his second affidavit sworn only 8 days later on 23rd April, 2009, then alleged that on a review of the selling price of each of the units the true average was €307,520 rather than €250,000, as originally deposed to in his first affidavit. He exhibited an undated list of alleged selling prices on paper headed “Bergin & associates, Registered Auditors and Accountants” with no explanation as to how such auditors and accountants came to prepare a list of selling prices or their input into same. The defendant also revised his prior estimate of the current average selling prices of the apartments to reduce same from €150,000 to €140,000. There is no evidence other than the assertion by the defendant that Largreen was unable to complete the sales of 137 units by reason of the alleged wrongdoing of the plaintiff. Even that assertion appears inconsistent with the letter of 10th October, 2008, of the defendant, already referred to, in which he stated that the directors of Largreen had then secured third party funding which would finance the third and final phase of the development. There is no evidence other than assertions by the defendant of estimated losses and also a change by him in the basis of the computation of loss which appears to be directed at maintaining a claim in excess of €22.4 million.
31. The assertions made in the defendant’s affidavits must be considered in the context of the undisputed fact that the plaintiff made demand on Largreen for the amounts then due to it on 10th December, 2008, and in default of payment, appointed a receiver to Largreen on 12th December, 2008. There is no evidence of any challenge to the appointment by the plaintiff of a receiver to Largreen, nor any explanation as to why no proceedings were commenced by Largreen against the plaintiff until the day upon which the defendant swore his replying affidavit in these proceedings.
32. Accordingly, I have concluded that the defendant has not met the low threshold established by the principles set out above of an arguable defence to the plaintiff’s claim herein. I have concluded that this is a case in which the Court should exercise its jurisdiction to grant summary judgment. There is no dispute that the principal amount is €4 million. No submissions were made in the course of the hearing as to the form of order in respect of interest pursuant to the Guarantee to which the plaintiff is entitled. I will hear counsel in relation to this.
McGrath -v- O Driscoll & Ors
[2006] IEHC 195 (14 June 2006)
JUDGMENT of the Hon. Mr. Justice Clarke delivered the 14th June, 2006.
1. INTRODUCTION
1.1 The plaintiff (“Mr. McGrath”) is a fisherman who became involved in a series of transactions with investors who are the defendants in one or other of the proceedings set out above. It will be necessary to refer to certain aspects of those transactions in due course. However in simple terms the defendants formed a partnership which purchased a vessel and entered into a management agreement with a company MSV Solstice II Ltd. (“Solstice”) for the management and operation of the vessel. The obligations of Solstice were guaranteed by Mr. McGrath. The funds necessary to purchase the vessel were advanced by Anglo Irish Bank Plc. (“Anglo Irish”) to the partnership subject to a personal guarantee by Mr. McGrath. Furthermore certain arrangements were entered into between the defendants and Solstice which entitled either party, in certain circumstances, to require that the vessel be sold by the defendants to Solstice at a price determined in accordance with the relevant contractual arrangements. The obligations of Solstice under those arrangements were also guaranteed by Mr. McGrath.
1.2 The project ran into difficulties and default was made in relation to the Anglo Irish loan. On foot of the personal guarantee which Mr. McGrath had given for the obligations of the individual partners to Anglo Irish, proceedings were brought by Anglo Irish against Mr. McGrath (“the Anglo Irish proceedings”) which resulted in a judgment in the sum of €6,375,172.78 together with interest and costs. Mr. McGrath, as a surety, claims, in these proceedings, to be entitled to recover the same sum (including interest and costs) together with his own costs of defending the Anglo Irish proceedings against each of the defendants on the basis that they are the primary debtors and are, therefore, obliged to indemnify him (Mr. McGrath) as a surety against whom judgment has been obtained by the principal creditor.
1.3 For reasons which are unimportant to the issues which I have to decide and which stem from certain time limits with which Mr. McGrath had to comply, four separate sets of proceedings were issued. However in substance the claim as against each of the defendants is the same. It should also be noted that in some of the proceedings corporate defendants are named. Those corporate entities are controlled by Mr. McGrath and, it would appear, are not a mark for any damages which might be awarded. In the circumstances judgment as against those corporate defendants was not pursued. In substance, therefore, the issues arise between Mr. McGrath on the one hand and each of the personal defendants named in any one of the four proceedings, (“the personal defendants”) on the other hand.
1.4 Summary summonses claiming payment of the sum in respect of which judgment had been obtained by Anglo Irish together with interest and the costs both of Anglo Irish in bringing, and of Mr. McGrath in defending, the Anglo Irish proceedings, were issued. Appearances having been entered, the proceedings came before me on a series of motions for judgment.
1.5 In substance three points are made by the personal defendants as a basis for resisting summary judgment. They are as follows:
(a) That the proceedings should not have been brought by summary summons and are not, therefore, properly the subject of an application for summary judgment at all.
(b) Without prejudice to that earlier contention it is said that the proceedings are premature in that it is common case that no money has in, fact, been paid by Mr. McGrath to Anglo Irish on foot of the judgment previously obtained.
(c) In any event, it is said that the personal defendants have a valid claim against Mr. McGrath in respect of alleged breaches either by McGrath, or by companies whose performance he had guaranteed, of the various agreements to which I referred. In those circumstances it is said that the personal defendants have a counterclaim arising out of the same set of circumstances of at least a value equal to the claim and that, in those circumstances, either judgment should not be entered on the basis of the counterclaim providing a defence or, alternatively, if judgment is to be entered same should be stayed pending the trial of that counterclaim.
I propose dealing with the jurisdictional issue first. It is not necessary to consider any further facts than those already outlined for the purposes of dealing with that issue. I now turn to same.
2. THE LIMITS ON SUMMARY PROCEEDINGS.
2.1 Order 2 rule 1 of the Rules of the Superior Courts provides for summary proceedings in a limited number of cases. Insofar as potentially relevant to these proceedings sub-rule 1 provides that the summary process can be adopted in respect of:
“(1) In all actions where the plaintiff seeks only to recover a debt or liquidated demand in money payable by the defendant, with or without interest, arising”
from a variety of circumstances including contracts, guarantees, or trusts. The personal defendants argue that in two separate respects the claim fails to come within the ambit of O. 2.
2.2 Firstly, and most importantly, it is said that Mr. McGrath cannot claim to be entitled to recover a debt or liquidated demand by virtue of the fact that he has not, himself, discharged his liability to Anglo Irish.
2.3 Secondly it is said that the inclusion of a claim in respect of an as yet unascertained amount of the costs arising out of the Anglo Irish proceedings renders the total claim such as brings it outside the order.
2.4 In respect of the first point the personal defendants do not contend that a person in the position of Mr. McGrath may not have, in principle, a remedy. They do, however, say that any remedy which may be available to such a person is not one that can be enforced in a summary manner under O. 2.
2.5 The position of a guarantor in respect of whom the principal creditor has obtained a judgment but where no money has in fact been paid on foot of that judgment gives rise to potential difficulties. On the one hand an absolute requirement that such a person must pay the debt before having the opportunity to recover any sums paid from the principal debtor could lead to a situation where an impecunious, or relatively impecunious, guarantor might be faced with an impossible situation in that he would be, in practice, unable to recover from the principal debtor simply because he would be unable to pay the principal creditor.
2.6 On the other hand if a guarantor had, simply because judgment had been entered against him, an entitlement to recover the amount of that judgment against the principal debtor, a serious injustice could arise. Were the principal debtor to be obliged to pay the sum due to the guarantor, there would be no certainty that the guarantor would use that money to discharge the liability to the principal creditor. If the guarantor, having obtained the sum from the principal creditor on foot of a court order, were not to pay that sum to the principal creditor, than the principal debtor would, notwithstanding the fact that he had discharged the debt once, by paying it to the guarantor, be still liable to discharge it a second time if he was pursued by the principal creditor. To meet those competing difficulties courts have evolved appropriate practices to ensure that no injustice can arise.
2.7 In Wolmerhausen v. Gullick [1893] 2 Ch. 514 Wright J. determined, in the case of two co-sureties, that one would be entitled to obtain what was described as a “prospective order” directing the co-surety, upon payment by the surety of his own share, to indemnify him against further liability. It is clear from the report at p. 515 that what was sought in those proceedings was, in the alternative, a declaration that the defendant was jointly and severely liable to contribute with the plaintiff to the discharge of the principal debt, an order requiring the defendant to so contribute, or an order requiring the defendant to indemnify the plaintiff against any sums which might be required to be paid in excess of the plaintiffs proper share. The proceedings would not appear to have been summary proceedings nor could they have been involving, as they did, a claim for a declaration.
2.8 The substance of the courts order is to be found at p. 529 where Wright J. said the following:-
“But I think that I can declare the Plaintiffs right, and make a prospective order, under which, whenever she has paid any sum beyond her share, she can get it back, and I therefore declare the Plaintiff’s right to contribution and direct that, upon the Plaintiff paying her own share, that the Defendant Gullick is to indemnify her against further payment or liability, and is, by payment to her or to the principal creditor or otherwise, to exonerate the Plaintiff from liability beyond the extent of her own share. The Plaintiff must have liberty to apply in Chambers, and generally to apply.”
2.9 It does not seem to me that an order of the type made in Wolmerhausen could be said to be an order in an action seeking “only to recover a debt or liquidated demand in money.”
The order is prospective and, indeed, contingent.
2.10 I have little doubt that Wolmerhausen, and other cases cited, are authority for the proposition that, in an appropriate case, the court can make an order in favour of a guarantor declaring the entitlement of the guarantor in respect of the principal debtor and putting in place appropriate arrangements to ensure that the guarantor will be protected from any inappropriate failure on the part of the principal debtor to meet his liability. However the jurisdictional issue which I have to address is as to whether any such order can be said to come within O. 2 of the Rules of the Superior Courts. The only case to which I was referred in which it would appear that a court made an unconditional order for payment in favour of a guarantor who had not, in fact, paid out on his guarantee is Smith v. Howell [1851] Ex. Rep. 730, where it would appear that the plaintiff recovered from the defendant an amount of rent and repairs which had been the subject of a judgment against the plaintiff (as guarantor) by the landlord and where the defendant was the tenant who had the primary liability.
2.11 It appears to be the case, as asserted by counsel for the personal defendants, that Smith v. Howell is not cited by any of the leading authors in the area. It also seems to me that the potential for injustice (to which I referred above) which would flow from the making of an order such as the one which was, apparently, made in Smith v. Howell would provide good reason for not following that authority. If the defendant in Smith v. Howell had paid the plaintiff on foot of the judgment given by the court and the plaintiff had not, in turn, in fact handed over the money to the landlord then the defendant, as tenant, would have remained liable to pay the same sum again to the landlord. While there is some authority (see in re: Richardson v. St. Thomas Hospital [1911] 2 K.B. 205) for the view that money recovered from the principal debtor by a guarantor in such circumstances is held in trust for the principal creditor, nonetheless that does not ensure that the trust will, in fact, be complied with and does not remove the risk that the defendant might be exposed to having to pay the debt twice. That risk does not, of course, arise when the guarantor has in fact paid some or all of the amount due to the principal creditor thereby extinguishing all or the appropriate part of the debt as against the principal debtor. No risk of double payment therefore arises in those circumstances.
2.12 I was also referred to a series of Irish cases such as Fahy v. Frawley LR Ir XXVI 78 and Gore v. Gore [1901] I.R. 269 but it seems to me that those cases, insofar as they were concerned with an unconditional judgment for the payment of moneys, turned on the question of whether value might have been said to have been provided to the principal creditor by the surety by means other than direct payment of money (such as by the provision of a mortgage). Those cases do not lead me to alter the view which I have taken as to the inappropriateness of making an unconditional order against a principal debtor where no value or payment has been given to the principal creditor by the surety.
2.13 For these reasons I am, therefore, satisfied that a guarantor can only obtain an unconditional order for the payment of a debt or liquidated sum against a principal debtor in circumstances where the guarantor has, in fact, paid the debt or otherwise given value. In other circumstances the guarantor may well be entitled to one of a variety of forms of conditional or prospective orders such as that made in Wolverhausen. However such orders are not, in my view, properly within the ambit of O.2 of the Rules of the Superior Courts and cannot, therefore, be sought in summary proceedings. The rights of parties are effected by the fact that proceedings are brought in a summary fashion under Order 2. A defendant has to persuade the court (or the Master) that he has an arguable defence in order to avoid an early judgment against him. In those circumstances it seems to me that the question of whether a claim comes within Order 2 is not a mere technicality.
2.14 In those circumstances I am satisfied that counsel for the personal defendants is correct when he contends that a claim of the type brought in these proceedings cannot properly be brought in the summary fashion allowed for by O. 2. On that basis it seems to me that I should dismiss the proceedings.
2.15 However, lest I be wrong in coming to that view, I also propose expressing my views on whether it would have been appropriate to have given the personal defendants liberty to defend in the event that the proceedings had been properly brought by summary summons. I now turn to that issue.
3. THE DEFENCE
3.1 As indicated above, the first point made by way of defence was to the effect that the proceedings were premature. I am not satisfied that that argument is well founded. On the basis of the same line of authorities which satisfied me that it is not appropriate to make an unconditional order for the recovery of a debt or liquidated sum in circumstances such as arise in this case, I am also satisfied that it may, in principle, be appropriate to make some form of order whether of the prospective type identified in Wolmerhausen or otherwise. I am not, therefore, satisfied that it is premature for a guarantor who has been subjected to a judgment by the principal creditor to bring proceedings seeking an appropriate form of declaration or prospective order to protect his interests even though he has not, in fact, paid the debt. To hold otherwise would be to expose the guarantor to an analogous risk of injustice to that which led me to take the view that it would be unjust to allow the guarantor to obtain an unconditional order for the payment of monies. In such circumstances, as I indicated above, a guarantor with insufficient funds might have no practical means of enforcing what would otherwise be his entitlement to call upon the principal debtor to discharge his obligations to the principal creditor.
3.2 The question as to whether it would have been appropriate, had the proceedings been properly constituted, to give the personal defendants leave to defend turns, therefore, it seems to me, on the question of whether the personal defendants have established an arguable counterclaim such as would afford a defence.
3.3 It is first necessary to turn to the principles applicable to giving leave to defend on an application for summary judgment. In Aer Rianta v. Ryanair [2001] 4 IR 607 Hardiman J., having reviewed recent Irish authority, noted that those authorities supported the view that “the defendants hurdle on a motion such as this is a low one, and the jurisdiction is one to be used with great care” (at p. 621).
3.3 Having noted the formulation of the test for summary judgment in Banc de Paris v. de Naray [1984] 1 Lloyds Law Rep. 21 (as adopted by the Supreme Court in First National Commercial Bank -v- Anglin [1996] 1 IR 75 at 79) Hardiman J. noted that:
“The ‘fair and reasonable probability of the defendants having a real or bona fide defence’ is not the same thing as a defence which will probably succeed, or even a defence whose success is not improbable.”
In summary, Hardiman J. concluded (at p. 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 defendants’ affidavits fail to disclose even an arguable defence?”
3.4 So far as factual issues are concerned it is clear, therefore, that a mere assertion of a defence is insufficient but any evidence of fact which would, if true, arguably give rise to a defence will, in the ordinary way, be sufficient to require that leave to defend be given so that that issue of fact can be resolved.
3.5 So far as questions of law or construction are concerned the court can, on a motion for summary judgment, resolve such questions (including, where appropriate, questions of the construction of documents), but should only do so where the issues which arise are relatively straightforward and where there is no real risk of an injustice being done by determining those questions within the somewhat limited framework of a motion for summary judgment.
3.6 In considering whether the personal defendants in these proceedings would, in any event, have met what Hardiman J. describes as a relatively low hurdle, it is necessary to say a little more about the complex set of interrelated contractual agreements between the parties. I now turn to those agreements.
4. THE AGREEMENTS
4.1 The scheme for the purchase of the vessel was essentially tax based. As the owners and operators of the vessel, the personal defendants as partners would, subject to compliance with a number of requirements of revenue law, have been entitled to the benefit of capital allowances which, in turn, would have the effect of reducing what would otherwise have been their ordinary tax liability. In order to obtain such benefits it was necessary that the risk of the conduct of the business of operating the vessel should remain with the partners. However, there was no reason, in principle, why the parties should not agree to attempt to minimise the exposure of the partners to such risk. In that context the vessel was to be operated by Solstice in circumstances where, in accordance with the agreements reached, all monies due in respect of the operation of the vessel were to be paid into a bank account of the partnership with all outgoings (including a management fee to Solstice) being paid out of that account. Also of relevance to the issues which now arise was the existence of an agreement providing for a put and call option (“the option agreement”) which would, in the ordinary way, have allowed the partnership to require that the vessel be purchased after five years by Solstice at a price calculated to ensure that the partnership would be in a position to pay off its liabilities to Anglo Irish. Thus the agreements, taken together, contemplate that at the end of the day the partnership would divest itself of the vessel in circumstances where it would be able to use the proceeds of the exercise of its option to sell, to discharge its liabilities to Anglo Irish.
4.2 Of particular relevance to the events that happened were the provisions of the agreements which provided for the possibility of an earlier exercise of the option. The option agreement provided that it might be exercised either on or within six months of 11th December, 2007 or on the occurrence of what was defined in the agreement as an “acceleration event”.
4.3 Under the Third Schedule of the put and call agreement an acceleration event was defined, amongst other things, as occurring where there was:-
“1. A breach by the Optionee or Brendan McGrath of any agreement between the Partners and/or the Partnership and Brendan McGrath or between the Partners and/or the Partnership and the Optionee, and in particular (but not limited to):-
(a) Management and Operation Agreement (date)
(b) Deposit Account Agreement (date)
(c) Personal Guarantee of Optionee (date)
(d) (other)
subject that such breach shall continue after notice in writing specifying the terms of any such breaches given to the party alleged to be in such breach and such breach continues unrectified for a period of 2 months thereafter.”
The other acceleration events do not appear to be material to these proceedings.
4.4 The personal defendants contend that the Optionee (which for the purposes of the agreement was Solstice) was in breach of a number of aspects of the agreements including breaches in respect of the management agreement. Such breach is disputed by Mr. McGrath. In substance, under a number of headings, it is accepted that there may have been a technical breach but, Mr. McGrath contends, such breaches were with the agreement of the personal defendants and, in particular, Daniel Murphy who was the Partnership Agent of the Partnership. There are a whole series of factual disputes arising under this heading which it would be wholly impossible to resolve on the affidavit evidence before me. In any event, it is accepted that, at least in one respect, there was a breach of the agreements by Solstice. Part of the arrangements between the parties was that, as a form of security for the ultimate obligation of Solstice to buy back the vessel, certain sums of money were to be deposited into a secure account so that they could be used as part of the purchase price. It is accepted that this was not done. It would appear to be accepted, therefore, that at least in that respect there was a breach of the agreements.
4.5 In those circumstances it is also necessary to turn to some of the facts.
5. THE FACTS
5.1 It seems to be common case that difficult trading conditions were encountered in the early months of the operation of the venture. The Partnership (through Mr. Murphy) contend that by virtue of the failure of Mr. McGrath (through Solstice) to provide adequate details of trading, they are unaware and unable to ascertain whether those difficulties stemmed from events over which Solstice and Mr. McGrath (as the managers) had no control or whether any fault lay. Mr. McGrath’s case is that the events which subsequently occurred resulted not from any significant breach on his part of the arrangements between the parties but were the result of a precipitated action on the part of the partners in the light of unanticipatedly poor trading results which resulted from market conditions generally. It would be impossible to form any view on the accuracy of the parties’ positions in respect of such matters at this stage.
5.2 In any event the partnership raised written complaints as to what it contended were breaches of the agreements on a number of occasions (certainly on the 25th March, 2003 and the 8th September, 2003). On the partnership’s case, and there is evidence which arguably supports its contentions, those breaches were not resolved. There is therefore an issue to be tried as to whether Solstice and/or Mr. McGrath were in breach of the various agreements and failed to remedy any such breach notwithstanding receiving a written notice thereof, so that two months after such notice an acceleration event, within the meaning of the option agreement, might be said to have occurred. It is also argued by Mr. McGrath that the relevant notices are defective in that they do not mention a two month period or seek to invoke the provisions of the agreement relating to an “acceleration event”. However, I could not conclude that the partners have no arguable case for their contention that they may be able to establish that an acceleration event did occur.
5.3 Matters are then complicated by the fact that the partners purported to terminate the management agreement and retake possession of the vessel. The partners subsequently operated the vessel for a period, through another manager, and thereafter took the vessel out of service and have, since that time, been attempting to affect a sale. In this latter context it is worth noting, in passing, that part of the set of arrangements entered into between the parties was a bond designed to give some comfort to the partners in the event that the vessel was sold at low price. The financial institution entering into that bond has, therefore, a legitimate interest in the sale of the vessel in that it may, in certain circumstances, be required to make up any shortfall. In those circumstances it is said by the partners that the necessity to affect a sale in consultation with that financial institution has contributed to the delay in being able to realise the value of the vessel.
5.4 In any event, the partners thereafter (that is to say after they had taken the vessel out of service for a number of months) purported to exercise the put and call option by notice on the 22nd June, 2005, placing reliance on the existence of an acceleration event.
5.5 Mr. McGrath contests the validity of the exercise of the put and call option. He does so on two principal grounds. Firstly, he says that having regard to the nature of the agreements as a whole it could not have been contemplated that the put and call option could be exercised by the partners in circumstances such as those which arose whereby the management agreement had been terminated and the vessel had been out of the hands of Solstice and Mr. McGrath for a considerable period of time.
5.6 Secondly, it is argued that on a proper construction of the option agreement itself, the right to exercise the option by the partners did not extend so as to enable the option to be exercised as long after the acceleration event as it was, in fact, exercised. As there are a number of possible “acceleration events” (there being more than one letter which might qualify as the necessary written notice to trigger an “acceleration event” two months later) the period between such event and the exercise of the put and call option varies but it is, in any event, in excess of 18 months. Having regard to the requirement for the ordinary exercise of the put and call option within six months of the expiry of the five-year period specified in the agreement, it is said that the put and call option was not validly exercised.
5.7 All of the above raise complex questions concerning the true construction of a series of interlocking contracts and, at least in some cases, depend upon the facts of the operation of those agreements. It seems to me that the personal defendants have more than met the low hurdle of satisfying the court that they have a prospect of successfully arguing that the put and call option was validly exercised by the partners.
5.8 It is common case that Solstice did not comply with the put and call option by purchasing the vessel. If, therefore, the put and call option was validly exercised, then it necessarily follows that the Solstice was in breach. It is equally common case that Mr. McGrath had personally guaranteed the performance by Solstice of its obligations under a variety of agreements including the option agreement. If, therefore, Solstice was in breach of an obligation to purchase the vessel under the put and call option then any losses flowing from such a breach are visited upon Mr. McGrath as guarantor. It, therefore, follows from my conclusion that the personal defendants have established a prima facie case to the effect that they served a valid notice under the option agreement, that there is equally a prima facie case that Mr. McGrath is liable to the partners for any losses attributable to the failure to purchase the vessel by Solstice. It seems clear that the purchase price set out in the option agreement was designed to ensure that it would be sufficient to meet the partner’s obligation to Anglo Irish. Given that these proceedings concern the amount of the partnership’s obligation to the bank (given that that was the sum in respect of which the bank obtained judgment against Mr. McGrath as guarantor) it seems equally clear that it is arguable that any counterclaim would, at a minimum, equal and might well exceed the value of Mr. McGrath’s claim.
5.9 It seems clear, therefore, that the personal defendants have established an arguable claim that they are entitled to counterclaim for a sum at least equivalent to the claim. Before reaching a conclusion as to the consequences of such a finding, it is necessary to turn to one final matter which stems from the fact that it is common case that the relevant monies were lent by Anglo Irish to the personal defendants as individuals so that they might invest in the partnership while any counterclaim is necessarily a claim of the partnership because it arises in respect of a guarantee of the obligations of Solstice to the partnership on foot of the option agreement. It is, therefore, necessary to turn to the situation which arises where a counterclaim of substance is raised.
6. PRENDERGAST V. BIDDLE
6.1 In Prendergast v. Biddle (Supreme Court, Unreported, 31st July, 1957) Kingsmill Moore J., speaking for the court, noted the issue as being as follows:
“On the one hand it might be asked why a plaintiff with a proved and perhaps uncontested claim should wait for judgment or execution of judgment on its claim because the defendant asserts a plausible but improved (sic) and contested counterclaim. On the other hand it may equally be asked why a defendant should be required to pay the plaintiffs demand when he asserts and may be able to prove that the plaintiff owes him a larger amount.”
6.2 Two separate questions appear to arise. The first is as to whether the counterclaim can be said to amount to a defence. It is clear from Prendergast v. Biddle and also from Axel Johnson Petroleum A.B. v. Mineral Group [1992] 1 WLR 270, that where a counterclaim arises out of circumstances which are sufficiently connected to a claim, a set off in equity arises because it would be inequitable to allow the plaintiffs claim without taking the defendants cross claim into account. The first question which the court has to ask, is, therefore, as to whether the counterclaim amounts to a defence. If it does then liberty to defend should be given. That question turns on whether there is a sufficient connection between the circumstances giving rise to the claim, on the one hand, and the counterclaim on the other hand.
6.3 If, however, the counterclaim would not give rise to a set off in equity then the court has to exercise a wider discretion as to whether, in all the circumstances of the case, it is appropriate to grant judgment and, if judgment be granted, whether the judgment should be stayed pending the trial of the counterclaim. In such a case Prendergast v. Biddle gives guidance as to the factors which can properly be taken into account.
6.4 However on the facts of this case I am more than satisfied that there is a sufficient connection between the claim and the counterclaim such as would make it inequitable to allow the claim to be disposed of without also taking into account the counterclaim. The whole series of transactions entered into were part of a package. That package included the banking transactions from which the claim derives. The package also included the wide range of other agreements which give rise to the counterclaim. It does not seem to me that the mere fact that the money was advanced to individuals for the purposes of their investing same into the partnership, which partnership in turn entered into the arrangements which gives rise to the counterclaim, breaks that connection. In all the circumstances I am satisfied that if the counterclaim is made out it would provide the personal defendants with a set off in equity sufficient to arguably extinguish the plaintiffs claim. On that basis I am satisfied that the personal defendants have made out an arguable case to the effect that they do not actually owe any sum to the plaintiff.
6.5 Therefore, even if I had been satisfied that these proceedings were properly constituted, I would have made an order giving the defendants liberty to defend on the basis of the counterclaim contended for in the replying affidavits.