Guarantees
Cases
Danske Bank A/S trading as National Irish Bank -v- Mc Fadden
Danske Bank A/S trading as National Irish Bank -v- RQB Ltd & Ors
Fairstate Ltd v General Enterprise & Management Ltd & Anor
Mehta v J Pereira Fernandes SA
Golden Ocean Group Ltd v Salgaocar Mining Industries PVT Ltd & Anor
Carlton Communications Plc & Anor v Football League
Actionstrength Ltd (t/a Vital Resources) v. International Glass Engineering In.Gl.En. SpA & Ors
ICC Bank -v- Dillon & Ors
Allied Irish Banks Plc -v- Yates
Healy -v- Ulster Bank Ireland Ltd
[2009] IEHC 360 (17 July 2009)
DEFENDANT
JUDGMENT of Mr. Justice Brian J. McGovern delivered on the 17th day of July, 2009
1. The plaintiff is a medical doctor and at all material times carried on practice in Mullingar, County Westmeath. The defendant is a bank. In or about the year 2005, the plaintiff entered into a partnership with a medical colleague, Dr. Patrick Cullen, whereby they acquired lands and premises at Coole, in County Westmeath, with a view to creating a modern medical centre at a former hospital premises. The plaintiff and his partner borrowed substantial sums of money from the defendant and on 9th August, 2006, the plaintiff executed a guarantee (“the guarantee”) in respect of the borrowings. His partner subsequently entered into a guarantee. By December 2006, relations between the partners was deteriorating and there were many disagreements as to how to proceed with the development at the site which included provision for not only a medical centre and ancillary facilities, but also a number of houses. In the spring of 2007, discussions took place between the parties and their advisers as a result of which it was agreed to terminate the partnership. The discussions to dissolve the partnership concluded at the end of July 2007. This involved Dr. Cullen paying a sum of €2,213,607.00 to the plaintiff. Dr. Cullen was to take over the assets and liabilities of the partnership.
2. On 1st August, 2007, the plaintiff lodged the proceeds with the defendant. He claims that he did so following representations made on behalf of the defendant by Mr. Alan Leech to the effect that he was discharged from his guarantee in respect of loans made to the partnership and was freed of any liability to the defendant bank. The plaintiff claims that by lodging the proceeds of the partnership settlement with the bank, he was entering into a commercial relationship under which the defendant agreed to provide various services to him in the nature of “wealth management” services which included commercial, investment and banking services. He claims that he would not have done so if he had not been given the aforesaid representations by the defendant.
3. On 14th August, 2008, the defendant exercised its rights on foot of the guarantee setting off the sum then standing in credit to the plaintiff against the debit balance outstanding in respect of the finance extended to the partnership. The funds transferred on foot of the purported set-off were in US Dollars as the plaintiff had funds in that currency in an account. The amount set off was US$993,983.03. The plaintiff alleges that the defendant was not entitled to use these monies and that they were wrongfully set off and converted by the defendant to its own use. He says that as a result of this he suffered loss and damage. He claims various reliefs as set out in the statement of claim, including damages and declarations, and claims that the defendant is estopped from denying the representations made to him on or about 1st August, 2007, to the effect that the plaintiff had no further liability to the defendant on foot of the guarantee executed by him on 9th August, 2006, in favour of the defendant.
Issues
4. There is no dispute between the parties that the defendant set off the sum of US$993,983.03 against the liabilities of the plaintiff on foot of the guarantee. There is really only one issue in this case and that is whether Mr. Alan Leech, on behalf of the defendant, made the representation contended for by the plaintiff, and if he did, whether the plaintiff acted on foot of the representation to his detriment.
The law
5. In Doran v. Thompson Limited [1978] I.R. 223, a decision of the Supreme Court, Griffin J. stated at page 230:
“Where one party has, by his words or conduct, made to the other, a clear and unambiguous promise or assurance which was intended to affect the legal relations between them and to be acted on accordingly, and the other party has acted on it by altering his position to his detriment, it is well settled that the one who gave the promise or assurance cannot afterwards be allowed to revert to their previous legal relations as if no such promise or assurance had been made by him, and that he may be restrained in equity from acting inconsistently with such promise or assurance. The representation, promise or assurance must be clear and unambiguous to found such an estoppel: see Bowen L.J. at p. 106 of the report of Low v. Bouverie [1891] 3 Ch. 82.”
6. That case was cited with approval by Keane C.J. in Ryan v. Connolly [2001] 1 IR 627. The Chief Justice said at p. 632:
“Applying that general principle to the category of cases in which a defendant may be held to be precluded from relying on a defence otherwise available to him under the Statute of Limitations, the learned judge added: –
‘If the defendants insurers had made a clear and unambiguous representation (in the sense I have explained) that liability was not to be an issue, and the plaintiff’s solicitor had withheld the issue of proceedings as a result, I would have held that the defendants were estopped from pleading the Statute of Limitations’.
In an earlier passage at p.230, Griffin J. had pointed out that, for the principle laid down in Low v. Bouverie [1891] 3 Ch. 82, to apply, it was not necessary that the representation should be one ‘positively incapable of more than one possible interpretation’.
A party seeking to rely on the principle cannot, in other words, rely on a strained or fanciful interpretation of the words used, he must show that it was reasonable in the circumstances for him to construe the words used by the other party in a sense which would render it inequitable for that party to rely on the defence under the Statute of Limitations.”
7. In the same judgment, Keane C.J. continued at p. 633:
“On any view, however, it is clear that a plaintiff who seeks to rely on the law as laid down in Low v. Bouverie [1891] 3 Ch. 82 and Doran v. Thompson [1978] I.R. 223, must be in a position to satisfy the court that there was a clear and unambiguous representation by the defendants that liability would not be an issue from which it was reasonable for the plaintiff to infer that the institution of proceedings was unnecessary. The issue that arises on this appeal is whether the High Court was correct, as a matter of law, in holding that in this case the principles to which I have referred applied.”
8. It seems to me that these are the relevant legal principles which apply in this case.
The plaintiff’s case
9. The plaintiff claims that after he received the proceeds of the sale of his interest in the partnership from Dr. Cullen, he went to the Ulster Bank branch in Mullingar, County Westmeath, where he met with Mr. Alan Leech. The meeting took place on 1st August, 2007. At that time, Mr. Leech was a business centre manager with a title of ‘Relationship Manager’. He was an assistant to a manager. The plaintiff claims that he arrived at the bank with his mother and that they were taken to an office upstairs by Mr. Leech. He told Mr. Leech that the deal had been done in relation to the Coole partnership and Mr. Leech told the plaintiff that he was surprised although he knew the closing of the deal was imminent. After some preliminary conversation, the plaintiff discussed what interest rates he could secure on the monies he was about to deposit. The plaintiff informed Mr. Leech he had spent some considerable time discussing interest rates, terms and conditions that he might be able to obtain from other banks. Mr. Leech told the plaintiff that he was reasonably confident he could not only match any other offers, but could make him a better offer. The plaintiff recalled that Mr. Leech then left the room and came back later on, indicating that he would be able to do so. Then the plaintiff discussed with Mr. Leech his liabilities to the bank and informed Mr. Leech that he had been talking to his solicitor, Mr. Patrick Groarke, the day before, and that he had informed the plaintiff that it was safe for him to go into Ulster Bank with his funds and that he had no liability. The plaintiff claims that Mr. Leech concurred and said, “That is my understanding”. The plaintiff claims that he said to Mr. Leech, “Alan, am I square with Ulster Bank and can you give me your assurances that I have no liability in relation to the project at Coole with Ulster Bank?” He said that Mr. Leech replied, “Neil, you have my assurances”. He then added, “Alan, if I lodge this cheque with you, is it safe from you and is it safe in Ulster Bank?” He gave evidence that Mr. Leech said, “Neil, you are in the clear”, and added, “You let me do the worrying for Ulster Bank”. He then stated, in evidence, that he told Mr. Leech, “Alan, on the basis of those assurances, I am going to continue to do business with Ulster Bank, I am going to continue to have my practice account with you and I am going to deposit these funds with you”.
10. The plaintiff claims that he relied on these assurances and that he did so to his detriment because, having lodged the funds, some time later the bank set off those funds, or a portion of them, against his liabilities arising out of the former partnership.
The defendant’s case
11. The defendant denies that it made the representations contended for by the plaintiff. While Mr. Alan Leech candidly admitted that he had no precise recollection of his conversation with the plaintiff, he does remember the meeting of 1st August, 2007, at the bank. He stated that he was quite sure that he did not give the representations contended for by the plaintiff and that he would have had no authority to do so or to release the plaintiff from his security without obtaining sanction from the Credit Control section of the bank. This was confirmed by another witness from the bank, Ms. Breda Finnegan, who is employed by the defendant as Senior Manager in the North Midlands Business Centre in Mullingar.
Evidence
12. A number of witnesses gave evidence on behalf of the plaintiff and the defendant. In the course of that evidence, significant conflicts of fact arose which I have to resolve in reaching my decision. There was also evidence given in the course of the hearing from which it is possible to draw certain inferences.
13. The guarantee executed by the plaintiff and dated 9th August, 2006, was a formal written document executed by the plaintiff under seal and duly witnessed. It was a normal document of its type. The plaintiff was aware that there would have to be a formal release from that guarantee if he was to be absolved of liability under it. In the course of his evidence-in-chief, he stated that it took approximately six to eight weeks to fine-tune the details of the agreement dissolving the partnership. He said, “ . . . the nub of the agreement was that I would leave my assets, the new practice, the partnership and my medical practice for a consideration in financial terms, that Dr. Cullen would assume the liabilities of the previous business, and that there would be a letter of release from Ulster Bank . . .” (transcript 12th May, 2009, pages 59-60). In the course of his evidence on the same date, he informed the court that when Mr. Leech told him that he was surprised that the deal dissolving the partnership had closed, it “ . . . planted a seed of doubt in my mind because I was surprised in that because I had anticipated that either the (sic) Mr. Leech or Ms. Finnegan would have sent a letter of release to Patrick Groarke and that they would then be fully familiar that all of the closing documents were, in fact, completed . . .” What emerges from this evidence is that that the plaintiff himself appears to have understood that a letter of release would be required to free him of his liability under the guarantee.
14. I accept on the evidence that the normal bank practice is that a guarantor would only be released from a guarantee after the matter was referred to the Credit Department of the bank to consider. A person in the position of Mr. Leech would not have the authority to release the plaintiff or any guarantor from a guarantee without receiving the approval of the Credit Committee. Therefore, if the plaintiff is correct in his assertion that Mr. Leech gave him the undertaking contended for, and a release from his obligations under the guarantee, without reference to the Credit Committee, this was contrary to normal bank practice. It would also have amounted to a breach of well-established procedures in circumstances where the plaintiff had very substantial liabilities to the bank on foot of the guarantee. It is against that background that I must consider the evidence. I have to consider whether those assurances were given by Mr. Leech and, if they were, whether they amounted to “. . . a clear and unambiguous promise or assurance . . .” as required in view of the Supreme Court decision in Ryan v. Connolly [2001] 1 IR 627.
15. I have already referred to the fact that the plaintiff expected that he would need a letter of release from his guarantee when he completed the dissolution of the partnership. The plaintiff accepted, in his evidence, that he did not obtain a letter of release. Instead, he relies on what he says were verbal assurances given by Mr. Leech.
16. 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 had 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 were said by Mr. Leech. As such an undertaking would be contrary to bank practice and most unusual, it requires the plaintiff’s account of the meeting of 1st August, 2007, to be scrutinised.
17. The plaintiff informed the court that when he went to collect the cheque from his solicitor, Mr. Groarke, on 31st July, 2007, he asked him whether it would be safe for him to go back into Ulster Bank with his funds and deposit them. Mr. Groarke told him that he would be safe and that he had no liability. He also says that prior to the closing of the deal he had a checklist which he sent to Mr. Groarke. The defendant called Mr. Groarke as a witness on foot of a subpoena. Mr. Groarke denied that any checklist had been produced to him and quite trenchantly denied that there was any discussion between him and the plaintiff about the plaintiff’s liability to Ulster Bank in respect of loans or guarantees or that the plaintiff sought his advice as to what he should do with the proceeds of sale (transcript 15th May, 2009, pages 20-23). Furthermore, on 1st August, 2007, the plaintiff sent an email to Mr. Groarke after his meeting with Mr. Leech in which he stated:
“I met with Alan Leech, one of the managers with Ulster Bank in Mullingar. I lodged the cheque to a deposit account with them for the moment. He was not aware that our deal had concluded and I am keen to ensure that I am protected from Ulster Bank and, indeed, that my name is removed from any shared accounts concerning the Coole project. I might ask you to contact him to ensure that this is in order . . .”
Mr. Groarke responded on the following day, informing the plaintiff that he had written to the bank seeking confirmation that the plaintiff’s name had been removed from all partnership accounts. Mr. Groarke confirmed that neither on 1st nor 2nd August, 2007, was he informed by the plaintiff that he had received an assurance from the bank that he had been released from his liabilities under the guarantee.
18. When Mr. Groarke was cross-examined by the plaintiff’s counsel about a discussion in which he allegedly told the plaintiff that he had no liability, Mr. Groarke replied,;
“I couldn’t have said that because, not only would it not have been right, but it was clear, (and I have no doubt that Dr. Healy was aware) as transpired on 1st August, that he was not released from the guarantee. I couldn’t release him from the guarantees and I couldn’t tell him he was.” (Transcript 15th May, 2007 p. 37).
19. I accept the evidence of Mr. Groarke.
20. 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 the 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.
21. The plaintiff’s accountant and financial adviser, Mr. Malachy Stephens, said that around the time the deal to terminate the partnership was being concluded, he had a conversation with Mr. Alan Leech and informed him that the deal had been struck and that in closing the deal, the plaintiff would require €2.25 million and would need a letter of release from his liabilities to the bank. He told Mr. Leech to expect such an application to be made by Dr. Cullen’s advisors to the bank. When the dissolution of the partnership was imminent, he received a letter from the bank on 11th July, 2007, setting out the current liabilities of the partners under each of the accounts and stating “Neil Healy continues to be liable for all facilities in the name of Coole Properties Ltd.”. At that time, he accepted that the plaintiff remained liable under these arrangements and while the plaintiff should have been released from his liabilities to the bank on the closing of the deal, that this did not happen.
22. Mr. Leech informed the court that he could not specifically remember what he said at the meeting of 1st August, 2007. He said that he had absolutely no discretion to restructure existing facilities or release existing security in relation to customers. All such matters would have to be approved by the Credit Department after a report was submitted to the Credit Risk Department. I accept that evidence. He did not recall the plaintiff informing him that he had asked his solicitor, Mr. Groarke, whether it was safe for him to go to Ulster Bank with his funds and that Mr. Groarke told him he had no liability to the bank. Neither did he recall informing the plaintiff that he had no liability in relation to the project at Coole. The plaintiff said, in evidence, that he told Mr. Leech that he had met with his solicitor, Mr. Groarke, the evening before the meeting, and that Mr. Groarke had told him that it was safe for him to lodge his funds in Ulster Bank and that he had no liability. Since I accept Mr. Groarke’s evidence that he never said this to the plaintiff, it seems, as a matter of probability, that the matter was not raised at the meeting between Mr. Leech and the plaintiff which supports the evidence of Mr. Leech insofar as he says he has no recollection of the matter being raised. If it was said by the plaintiff to Mr. Leech, then it was misleading. It is perhaps worth noting that the plaintiff, under cross-examination, conceded that he did not ask Mr. Groarke on 31st July, 2007, what the position was in relation to the guarantee.
23. In August 2008, the plaintiff was informed by the defendant that he had liabilities to the defendant in excess of €2.2million and the repayment was sought about the outstanding sum. On 14th August, 2008, the defendant exercised a set off against the debit balance outstanding in respect of the Coole Property Holdings Limited account in the sum of US$993,983.03. Shortly afterwards, two meetings involving the plaintiff took place which are of significance. On 1st September, 2008, Mr. Peter Lynch of Ulster Bank Ireland Limited brought his son to the plaintiff’s surgery as a patient. It was Monday morning. Over the weekend, Mr. Lynch had contacted him to ascertain if he could see his son on the Monday morning. The plaintiff said that he could. It is clear, therefore, that the plaintiff knew that Mr. Lynch would be coming to his surgery with his son. After the medical consultation, the plaintiff asked Mr. Lynch’s son to call his father in from the car park and Mr. Peter Lynch went into the surgery and had a discussion with the plaintiff. Unknown to Mr. Lynch, the plaintiff secretly recorded the discussion. To do so in circumstances where Mr. Lynch was at the surgery because his son was attending as a patient was, in my view, quite improper. In the course of the discussions, Mr. Lynch twice insisted that their conversation was “off the record” and the plaintiff agreed. Notwithstanding that, he sought to use the recording to bolster his case that the Bank had relieved him of his obligations under the guarantee.
24. The other meeting to which I have referred took place on 4th September, 2008, also at the plaintiff’s clinic. On that occasion, the plaintiff was due to meet Mr. Leech and Mr. Roche who would be taking over from Mr. Leech. Mr. Roche could not attend, but the meeting went ahead in any event. That meeting was also secretly recorded by the plaintiff and again he sought to use that recording to bolster his position.
25. In each of these meetings, the plaintiff sought to elicit from the bank personnel an admission that Mr. Leech had agreed, on behalf of the bank, that he was relieved from his liability under the guarantee. He sought to manipulate the discussion and gain such admissions by presenting a scenario which was, at times, inaccurate and misleading. For example, he referred to the assurances which he had received from Mr. Patrick Groarke. Mr. Groarke has emphatically denied that he gave such assurances. In his meeting with Mr. Leech, he gave the impression that he had documented every conversation that he had with him and with his solicitor Mr. Groarke and he informed Mr. Leech that he had written an email to Mr. Groarke to say that he had attended at the bank where Mr. Leech had given assurances that his money was safe. Under cross-examination, he conceded that in his email to Mr. Groarke on 2nd August, 2007, there was no statement by him to Mr. Groarke that he had received such assurances. At each of these meetings, he conveyed the impression that he had suffered a substantial loss in relation to the purchase of a property in Florida when he knew that to be untrue. I will deal with this later in the judgment. The plaintiff was, of course, aware that at the time he recorded his conversation with Mr. Leech, that Mr. Leech had no clear recollection at what transpired at the meeting in the bank on 1st August, 2007, and it was clear from the transcript that the plaintiff had the intention of exploiting this uncertainty on the part of Mr. Leech by suggesting matters to him (some of which were untrue) and inviting him to agree that he had given the assurances for which the plaintiff contends. Having regard to the circumstances in which those recordings were procured, I do not believe the plaintiff should be permitted to rely on them. In any event, I might add that there is nothing contained in those recordings which would assist the plaintiff’s case. All they show is that the plaintiff was prepared to act improperly and go to almost any lengths to bolster his case.
26. I now turn to the Florida property mentioned above. The plaintiff gave evidence that he intended to purchase a Wachovia Bank property at Riverside Financial Centre, 219, Indian River Avenue, Florida, 32796, USA, (The “Wachovia property”) for the sum of US$900,000. He claimed to have suffered significant loss as a result of being unable to proceed with this purchase. He blames this on the fact that the defendant exercised a set-off in respect of funds standing to his account in Mullingar. Mr. Ralph Perrone, a licensed Real Estate Broker in the State of Florida, gave evidence that if the plaintiff purchased the property, it could have been put back on the market at a price of between US$3.7million to US$3.9million. Under cross-examination, he accepted that the purchase of the building would be a very speculative venture unless they intended to wait for a return in many years time.
27. Mr. Geoff Carson, a Certified General Appraiser for the State of Florida and licensed Real Estate Broker, gave evidence on behalf of the defendant. Having set out the many drawbacks in relation to the building, he concluded that it would be very difficult to sell, and stated that the property has a negative cash flow. He added that the plaintiff would not have been able to develop the site unless the Wachovia Bank decided to leave and that this was very unlikely having regard to the terms of the lease. He gave evidence that the property was sold ultimately in 2008, for a sum of US$750,000 and that, in the circumstances, the plaintiff suffered no loss by not proceeding with the deal. I prefer the evidence of Mr. Carson to that of Mr. Perrone for two reasons. In the first place, I hold that he was better qualified to give the evidence, and secondly, his evidence as to the value of the premises was borne out by the actual sale price.
28. The plaintiff was cross-examined on this issue and he conceded that he never paid US$90,000 by way of a deposit. He admitted that he lied to Mr. Leech in the secretly recorded meeting when he told him that he had paid a US$90,000 deposit and lost that deposit. (See transcript of 13th May, 2009, page 71). He conceded that he knew the property was sold in December 2008, for around US$750,000 and that if he had bought it for US$900,000 he would have suffered a loss. Yet, during the hearing, he persisted in maintaining a claim for loss on the Florida property deal. (Transcript 13th May, 2009, page 73).
29. The plaintiff placed considerable reliance on some of the bank documents which he contends support his assertion that he was discharged from any liability to the bank. In September 2007, documents were created under the heading ‘Business Centres Customer-Existing Credit Application’. These documents related to the plaintiff and his former partner, Dr. Patrick Cullen. They comprised an exchange of memoranda between various bank personnel concerning the facilities which were in place and the release of any security, having regard to the fact that the plaintiff was bought out by his former partner. 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 Dr. Cullen. He made this request on 3rd September, 2007. On 10th September, 2007, a memo from Mr. Ian Long, a solicitor with the bank stated, “. . . the security is still held in joint names and amending same may not be correct”. He added later in the same memo:
“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 Cullen. I have amended this on the security screen now. This can be changed back if not correct. On the same date, there is a memo from Mr. Donal Coyle on a document entitled “Sanction Summary Sheet”, it is necessary to retain Mr. Healy’s name on the loan. Did not approach us to have his name removed before now – this would have given us time to re-evaluate our security requirement. Of perhaps more importance, he did not use any of the funds he received from the sale of his share of the assets of the partnership to reduce any of the debt for which he continues to be jointly and severally liable.
If and when the sale of the site with pp for 22 units goes ahead, the payment is then made and at that stage NH can be formerly released. If the sale falls through for whatever reason, the Bank would require the fallback of reliance on the security – something it would be forsaking if he was released.”
30. Taken in its entirety, these memoranda 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. They do not, in my view, support a “clear and unambiguous promise or assurance” made by the bank to the plaintiff. If anything, these documents support Mr. Leech’s evidence, where he explained to the court that he would not have had authority to give any assurance to the plaintiff that he was released from his guarantee without referring the matter to the Credit Committee. I think it is of significance that at the meeting on 1st August, 2007, when the plaintiff handed over the cheque to Mr. Leech and enquired about what interest rates he could get, Mr. Leech left the room to see whether he could match rates already offered to the plaintiff. It seems unlikely that he would have taken such a step in relation to interest, but would have released the plaintiff from substantial liabilities to the bank on foot of a guarantee without referring the matter to anyone else in the bank, even when he knew he had no authority to give such a release.
31. I found Mr. Alan Leech to be a credible witness. He candidly admitted that he had no recollection of the words spoken at the meeting of 1st August, 2007, but was well aware of the extent of his authority. He quite freely admitted that he was not happy about the manner in which the bank exercised a set-off of the plaintiff’s funds against the indebtness of the partnership.
32. I found the plaintiff to be lacking in candour and credibility. He admitted that he had lied to Mr. Leech and Mr. Lynch in respect of his losses claimed over the failed purchase of the Wachovia Bank site and his evidence on other important details was in direct conflict with that of his former solicitor, Mr. Patrick Groarke, whose evidence I accept. The fact that he secretly recorded conversations with Mr. Leech and Mr. Lynch and invited them to comment on facts which he put before them and knew to be untrue further undermines his credibility.
33. The burden of proof is on the plaintiff and he must satisfy the court that, on the balance of probabilities, he was released from his guarantee and that the bank was not entitled to set off his funds and that he suffered loss and damage as a result. In the circumstances of this case, the credibility of the plaintiff is essential to enable him to establish these facts as they depend on the plaintiff’s account of what occurred at the meeting on 1st August, 2007.
34. I reject the plaintiff’s account of the meeting and I hold that the plaintiff is not entitled to the relief claimed. I therefore dismiss the claim. I will hear counsel on what form the order should take, having regard to the counterclaim.
Bacon & Co., Ltd. v Kavanagh
Circuit Case.
26 March 1908
[1908] 42 I.L.T.R 120
Kenny J.
This was the hearing of a case stated by His Honour Judge Barry, County Court Judge of *120 Wicklow, under s. 138 of the Civil Bill Act, 1851 (14 & 15 Vict., c. 57), for the decision of the Judge of Assize on a question of law. The action was brought to recover the sum of £25 1s. 5d. on foot of a guarantee dated Aug. 30, 1904, and signed by the defendant. The guarantee was as follows:—
Carnew, August 30th, 1904.
[6d. stamp]
I hereby guarantee you against loss of any money by Mr. Hayes while in your employment to the amount of forty pounds (£40).
Kate Kavanagh, Commercial Hotel, Carnew.
The action was remitted, and at the hearing in the County Court evidence was given for the plaintiffs that in Aug., 1904, the plaintiffs, who carry on business in Manchester, had in their employment a traveller named Hayes, and that they required him to obtain a guarantee against any loss the plaintiffs might sustain by continuing him in their employment. Hayes accordingly obtained from the defendant the above-mentioned guarantee, and thereupon handed it to the plaintiffs’ manager, who was informed by the defendant that she had signed the guarantee with full knowledge of its effects. Relying on the guarantee, the plaintiffs continued Hayes in their employment, and in the year 1906 he became indebted to them in said sum of £25 1s. 5d., which he failed to pay, and which sum the plaintiffs now sought to recover from the defendant on foot of the guarantee. Counsel for the defendant raised the objection that the said document of Aug. 30, 1904, was not a sufficient memorandum within the Statute of Frauds, inasmuch as the plaintiffs were not named therein, and the word “you” was the only description of the person intended to be benefited by the guarantee. The County Court Judge held the memorandum insufficient, and dismissed the case without prejudice. By consent of the parties he stated a case for the Judge of Assize on the question of law, and the above evidence was set forth in the case. The plaintiffs served notice of appeal against the dismiss.
E. A. Collins, for the plaintiffs, cited Carr v. Lynch, [1900] 1 Ch. 613; Sale v. Lambert, L. R. 18 Eq. 1; Rossiter v. Millar, 3 App. Cas. 1140, 1147; Potter v. Duffield, L. R. 18 Eq. 4. A guarantee not addressed to anybody enures for the person to whom it is delivered: Walter v. Dodson, 3 Carr & Payne 162.
St. L. Devitt, for the defendant, cited Williams v. Lake, 29 L. J. (Q. B.) 1; Williams v. Byrnes, 1 Moore P. C. (N. S.) 154; Coombs v. Wilkes, [1891] 3 Ch. 77; Jarrett v. Hunter, 34 Ch. Div. 182.
Kenny, J.
The only question for decision is whether the document of Aug. 30, 1904, contains a sufficient description of or reference to the parties so as to comply with the Statute of Frauds, which provides that the contract of guarantee cannot be sued on unless the agreement or some note or memorandum thereof is in writing and signed by the party to be charged. I am not called on to construe the portion of the section dealing with signature, because the signature of the defendant is not questioned at all. Numerous authorities have been cited by counsel on each side, and the question is one not free from difficulty, due, in my opinion, to the authorities themselves. The first decision in point of time is Williams v. Lake, 29 L. J. (Q. B.) 1, and were that decision still unmodified, I should feel coerced to hold this memorandum insufficient. It was decided in that case that the parties should be named in the memorandum— that is, by their christian names and surnames— and that consequently the word “you” was insufficient. That case, however, has been undoubtedly modified by two subsequent cases— Williams v. Byrnes, in the Privy Council, reported in 1 Moore P. C. (N. S.) 154, and in the leading case in the House of Lords, Rossiter v. Millar, 3 App. Cas. 1140—which clearly establish the principle that it is not necessary that the actual names of the parties should appear in the memorandum, but if the parties are sufficiently described or indicated or referred to, so that there is no real doubt as to their identity, the statute is satisfied. The application of this principle has led to considerable variety of judicial decision, and we have cases in which the words “proprietor,” or “owner,” or “mortgagee” has been held a sufficient description; while in other cases the words “vendor,”“my client” and “landlord” have been held insufficient. We find Sir George Jessel holding—in Sale v. Lambert, at p. 1 of L. R. 18 Eq.—that the word “proprietor” is sufficient, and at p. 4 of the same volume the same eminent judge holds— in Potter v. Duffield—that the word “vendor” is insufficient. I am satisfied that in all the cases the Court did travel outside the four corners of the memorandum and looked at the surrounding facts and circumstances under which the document was signed, and if it was thereby possible, beyond doubt, to identify the person described, indicated or referred to in the memorandum, the latter was held sufficient. In Potter v. Duffield, L. R. 18 Eq. 4, the defendant denied that he ever was the “vendor,” and there was a conflict of evidence as to who was the “vendor.” If the identity of the vendor was on the surrounding facts made clear I have little doubt that Sir George Jessel would have held that the word “vendor” was sufficient. In Jarrett v. Hunter, 34 Ch. D. 182, there was a doubt as to whether the “vendor” was the trustee and legal owner *121 on the one hand, or the equitable and beneficial owner on the other. In the most recent case on the subject—Carr v. Lynch, [1900] 1 Ch. 613, a decision of the present Lord Justice Farwell— the words “you” and “you having paid me £50” were held to be a sufficient description, so that the identity of the person intended could not be fairly disputed. In so holding it is clear that Lord Justice Farwell, whose views are entitled to the highest respect, went outside the memorandum and ascertained that “you” was unquestionably a certain person named Jayne. In view of these decisions, I feel myself quite at liberty in the present case to look beyond the four corners of this document of Aug. 30, 1904, and to have regard to the evidence given as to how the document came to be signed and given to the plaintiffs. Mr. Hogan, the superintendent of the plaintiffs, deposed before the County Court Judge that the document was handed to him by Hayes after the defendant had signed it. Hogan at once took it to the defendant and asked her did she understand she was guaranteeing the plaintiffs against loss by Hayes. The defendant replied: “I am a business woman. I know what I am doing. I intended to give it to them.” On this evidence, which is uncontradicted, it is quite clear that the plaintiffs and the plaintiffs alone were the persons described, indicated or referred to by the words “you” and “in your employment”; or, in other words, the evidence as to identity is complete. I accordingly hold that these words form a sufficient description of one of the parties, that the document is a sufficient note within the statute, and that a valid contract was created. I reverse the dismiss of the County Court Judge, and give a decree for the amount claimed. The plaintiffs are entitled to costs, including the costs of the appeal and the case stated. I will fix an amount for the costs of the case stated.
Allied Distributive Merchants Ltd v Kavanagh, Supreme Court
May 10, 2002
JUDGMENT of Mr. Justice Geoghegan delivered the 10th of May 2002 [Nem Diss.]
1. This appeal arises out of an application for summary judgment in proceedings commenced by summary summons before the High Court (O’Neill J.) the case having been placed in the judges’ list by the Master.
2. The action was for the recovery of a sum of money allegedly due by the appellants to the respondent on foot of a guarantee in writing. The appellants sought in the High Court to have the action adjourned for plenary hearing but in a reserved judgment the learned judge of the High Court came to the conclusion that the defendants had no bona fide defence and gave judgment against them for €268,085.28 together with costs.
3. The appellants have appealed that judgment but the appeal is confined to the following two grounds of appeal:
“1. The learned trial judge erred in law and in fact in holding that material alterations in the terms of the contract between the principal and the creditor, without the consent of the surety did not have the result of discharging the surety.
2. The learned trial judge erred in law and in fact in holding that the plaintiffs were entitled pursuant to clause 3. of the guarantee to vary the terms thereof without reference to the procedures contained in paragraph 12. of the ‘standard terms and conditions of trading’ which terms were incorporated into the contract of guarantee.”
4. Notwithstanding the wording of the grounds of appeal it was quite clear to this court that the two points being raised on the appeal were issues of law which were capable of being finally decided by this court on the hearing of this appeal. It was agreed by all parties that this court should finally dispose of the case whether it be in favour or against the respondent.
5. The principal creditor in respect of the debt alleged to be guaranteed was Brian Kavanagh Newsagents Limited. The respondent supplied goods to that company under what were described as ” standard terms and conditions of trading” . These were twelve in number but the terms relevant to the arguments in this case were 8, 9, and 12 and I think it useful to cite them in full as follows:
“8. All goods from the warehouse are invoiced on delivery and Direct Delivery goods are invoiced each week and a weekly statement is produced for all accounts. Any goods supplied are payable by direct debit on each Tuesday if due for payment and the credit terms are five weeks for both warehouse and Direct Delivery. In the case of Direct Delivery two weeks credit is granted while processing the invoices and three weeks credit is granted on the statement. The Board of ADM Limited reserves the right to change the credit terms from time to time.
9. Without prejudice to any other rights which ADM may have, if the customer fails to pay the invoice price in full by the due date the customer shall not be allowed any discount given in respect of that invoice or in any other way agreed, and the customer shall pay interest on any overdue amount from the date on which payment was due to that on which it is actually made at 2 per cent over the single A rate quoted by the AIB Bank from time to time and the customer shall reimburse to ADM all costs and expenses (including legal costs) incurred in the collection of any overdue amount.
12. None of the terms of this agreement may be varied or waived in any manner or degree unless such variation or waiver is made in writing and under the seal of ADM.”
6. The guarantee on foot of which the respondent are suing was made on the 7th of December, 1999 between the appellants and the respondent. That guarantee contained a number of terms but for the purposes of the arguments in this case only two of them are relevant that is to say clauses 1 and 3 which read as follows:
“1. In consideration of ADM’s agreement, at the request of the Guarantor to supply or to continue to supply goods and services to or at the direction of and to give credit to Brian Kavanagh Limited (hereinafter called ‘the customer’) the Guarantor Guarantees to ADM that the customer will pay ADM for all the goods and services supplied to the customer, or at its direction, after today (and for goods supplied up to today which amount to £ ) in accordance with the terms of trading of ADM and the Guarantor agrees to pay on demand all outstanding indebtedness of the customer to ADM arising from its account with ADM (including such interest as may arise on that indebtedness and the legal costs of collecting such indebtedness and interest) in full in the event of the customer defaulting in the payment of any monies due by it to ADM.
3. ADM may release or compromise the customer’s liability to it or grant time to the customer or other indulgence to it without effecting (sic) the liability of the Guarantor under this Guarantee.”
7. I should mention in passing that the learned High Court judge decided that nothing turned on the reference to a limit with a blank amount and unsurprisingly there is no appeal against that decision.
8. In his replying affidavit in the application for summary judgment the first-named appellant refers to various account numbers set out in the special indorsement of claim and grounding affidavits and he alleged that, when analysed, the claim related to amounts due on four different dates i.e. the 5th of November, 2000, 6th of October, 2000, 8th of October, 2000 and 16th of August, 2001. He then said that he was advised by his solicitors and counsel that if the High Court construed clause 1 of the guarantee strictly and in accordance with law, it crystallised on the occurrence of the first default the argument being that the respondent continued trading notwithstanding the default and did not immediately enforce payment. Mr. Kavanagh, in his affidavit, submitted that the only sum which could be lawfully due and owing was a sum of £1,864.11 which was the amount due on the date of the first default i.e. the 6th of October, 2000. The appellants submit, as they did in the High Court, that the continued trading in this manner constituted a material alteration in the terms of the contract between the principal and the creditor and that this was done without the consent of the surety. That being so the surety was discharged in accordance with the general law of principal and surety. The appellants do not accept that any such alleged alteration would be covered by clause 3 of the guarantee unless the alteration itself was carried out in the manner provided for in paragraph 12 of the “standard terms and conditions of trading” or in other words by a document under seal.
9. I believe that these submissions are entirely misconceived. The question is not whether the necessary consent was obtained to an alteration of the terms of trading nor whether the variation was in the appropriate form but whether any alteration took place at all. To continue trading with a customer who is in breach of terms binding on him is an indulgence. It is not alteration of the agreement or any of its terms. The question of the applicability of clause 3 does not arise.
In volume 20 of Halsbury’s Laws of England at paragraph 318 the following legal principle is set out:
“If there is no binding agreement to give time, mere omission on the creditor’s part to press the principal debtor for payment will not discharge the guarantor, even if the debtor subsequently becomes insolvent, unless the creditor is bound to use the utmost efforts to obtain payment from the principal debtor before suing the guarantor.”
10. A large number of authorities most of them quite old are cited in support of this proposition. One of the listed cases is an Irish case Belfast Banking and Co. v. Stanley (1867) I.R. 1 CL 693. That was a case heard by the Court of Queen’s Bench (O’Brien J. and George J.). In an agreed judgment delivered by O’Brien J. the following statement of principle appears:
“Admitting this, however, we are of opinion that the statement in the defence of the plaintiffs having neglected for so long a time to make any demand or take any proceeding on foot of the note, is not a sufficient ground for discharging the defendant from his liability as surety. It is a case of mere nonfeasance on the part of the creditor; and it is clearly settled by the several authorities to which we have been referred, and amongst others by the cases of Wright v. Simpson; MacTaggart v. Watson and Madden v. McMullen that the mere nonfeasance of the creditor, or his neglect to enforce his demands against the principal debtor, would not be a sufficient ground for discharging the surety from his liability to the creditor, particularly where it does not appear that the creditor was ever required by the surety to take any such proceedings.”
11. Mere forebearance to sue, or gratuitous indulgence by a creditor is not sufficient to release a surety (see Rouse v. Bradford Banking Co . 1894 A.C. 586 . The principles are correctly summarised in The Law of Guarantees by Andrews and Millett (Third Edition) at page 303 as follows :-
“In the absence of an obligation to pursue him (the principal debtor) timeously the surety will not be discharged by mere passivity on the part of the creditor, that is an omission to pursue the principal. This is so even though the principal subsequently becomes insolvent. The settled view is that it is the responsibility of the surety to see that the principal pays, and not that of the creditor.”
12. Having regard to the view which I have taken, therefore, the two express grounds of appeal do not really arise. I would dismiss the appeal.
Allied Distributive Merchants Ltd v Kavanagh, Supreme Court, May 10, 2002
JUDGMENT of Mr. Justice Geoghegan delivered the 10th of May 2002 [Nem Diss.]
1. This appeal arises out of an application for summary judgment in proceedings commenced by summary summons before the High Court (O’Neill J.) the case having been placed in the judges’ list by the Master.
2. The action was for the recovery of a sum of money allegedly due by the appellants to the respondent on foot of a guarantee in writing. The appellants sought in the High Court to have the action adjourned for plenary hearing but in a reserved judgment the learned judge of the High Court came to the conclusion that the defendants had no bona fide defence and gave judgment against them for €268,085.28 together with costs.
3. The appellants have appealed that judgment but the appeal is confined to the following two grounds of appeal:
“1. The learned trial judge erred in law and in fact in holding that material alterations in the terms of the contract between the principal and the creditor, without the consent of the surety did not have the result of discharging the surety.
2. The learned trial judge erred in law and in fact in holding that the plaintiffs were entitled pursuant to clause 3. of the guarantee to vary the terms thereof without reference to the procedures contained in paragraph 12. of the ‘standard terms and conditions of trading’ which terms were incorporated into the contract of guarantee.”
4. Notwithstanding the wording of the grounds of appeal it was quite clear to this court that the two points being raised on the appeal were issues of law which were capable of being finally decided by this court on the hearing of this appeal. It was agreed by all parties that this court should finally dispose of the case whether it be in favour or against the respondent.
5. The principal creditor in respect of the debt alleged to be guaranteed was Brian Kavanagh Newsagents Limited. The respondent supplied goods to that company under what were described as ” standard terms and conditions of trading” . These were twelve in number but the terms relevant to the arguments in this case were 8, 9, and 12 and I think it useful to cite them in full as follows:
“8. All goods from the warehouse are invoiced on delivery and Direct Delivery goods are invoiced each week and a weekly statement is produced for all accounts. Any goods supplied are payable by direct debit on each Tuesday if due for payment and the credit terms are five weeks for both warehouse and Direct Delivery. In the case of Direct Delivery two weeks credit is granted while processing the invoices and three weeks credit is granted on the statement. The Board of ADM Limited reserves the right to change the credit terms from time to time.
9. Without prejudice to any other rights which ADM may have, if the customer fails to pay the invoice price in full by the due date the customer shall not be allowed any discount given in respect of that invoice or in any other way agreed, and the customer shall pay interest on any overdue amount from the date on which payment was due to that on which it is actually made at 2 per cent over the single A rate quoted by the AIB Bank from time to time and the customer shall reimburse to ADM all costs and expenses (including legal costs) incurred in the collection of any overdue amount.
12. None of the terms of this agreement may be varied or waived in any manner or degree unless such variation or waiver is made in writing and under the seal of ADM.”
6. The guarantee on foot of which the respondent are suing was made on the 7th of December, 1999 between the appellants and the respondent. That guarantee contained a number of terms but for the purposes of the arguments in this case only two of them are relevant that is to say clauses 1 and 3 which read as follows:
“1. In consideration of ADM’s agreement, at the request of the Guarantor to supply or to continue to supply goods and services to or at the direction of and to give credit to Brian Kavanagh Limited (hereinafter called ‘the customer’) the Guarantor Guarantees to ADM that the customer will pay ADM for all the goods and services supplied to the customer, or at its direction, after today (and for goods supplied up to today which amount to £ ) in accordance with the terms of trading of ADM and the Guarantor agrees to pay on demand all outstanding indebtedness of the customer to ADM arising from its account with ADM (including such interest as may arise on that indebtedness and the legal costs of collecting such indebtedness and interest) in full in the event of the customer defaulting in the payment of any monies due by it to ADM.
3. ADM may release or compromise the customer’s liability to it or grant time to the customer or other indulgence to it without effecting (sic) the liability of the Guarantor under this Guarantee.”
7. I should mention in passing that the learned High Court judge decided that nothing turned on the reference to a limit with a blank amount and unsurprisingly there is no appeal against that decision.
8. In his replying affidavit in the application for summary judgment the first-named appellant refers to various account numbers set out in the special indorsement of claim and grounding affidavits and he alleged that, when analysed, the claim related to amounts due on four different dates i.e. the 5th of November, 2000, 6th of October, 2000, 8th of October, 2000 and 16th of August, 2001. He then said that he was advised by his solicitors and counsel that if the High Court construed clause 1 of the guarantee strictly and in accordance with law, it crystallised on the occurrence of the first default the argument being that the respondent continued trading notwithstanding the default and did not immediately enforce payment. Mr. Kavanagh, in his affidavit, submitted that the only sum which could be lawfully due and owing was a sum of £1,864.11 which was the amount due on the date of the first default i.e. the 6th of October, 2000. The appellants submit, as they did in the High Court, that the continued trading in this manner constituted a material alteration in the terms of the contract between the principal and the creditor and that this was done without the consent of the surety. That being so the surety was discharged in accordance with the general law of principal and surety. The appellants do not accept that any such alleged alteration would be covered by clause 3 of the guarantee unless the alteration itself was carried out in the manner provided for in paragraph 12 of the “standard terms and conditions of trading” or in other words by a document under seal.
9. I believe that these submissions are entirely misconceived. The question is not whether the necessary consent was obtained to an alteration of the terms of trading nor whether the variation was in the appropriate form but whether any alteration took place at all. To continue trading with a customer who is in breach of terms binding on him is an indulgence. It is not alteration of the agreement or any of its terms. The question of the applicability of clause 3 does not arise.
In volume 20 of Halsbury’s Laws of England at paragraph 318 the following legal principle is set out:
“If there is no binding agreement to give time, mere omission on the creditor’s part to press the principal debtor for payment will not discharge the guarantor, even if the debtor subsequently becomes insolvent, unless the creditor is bound to use the utmost efforts to obtain payment from the principal debtor before suing the guarantor.”
10. A large number of authorities most of them quite old are cited in support of this proposition. One of the listed cases is an Irish case Belfast Banking and Co. v. Stanley (1867) I.R. 1 CL 693. That was a case heard by the Court of Queen’s Bench (O’Brien J. and George J.). In an agreed judgment delivered by O’Brien J. the following statement of principle appears:
“Admitting this, however, we are of opinion that the statement in the defence of the plaintiffs having neglected for so long a time to make any demand or take any proceeding on foot of the note, is not a sufficient ground for discharging the defendant from his liability as surety. It is a case of mere nonfeasance on the part of the creditor; and it is clearly settled by the several authorities to which we have been referred, and amongst others by the cases of Wright v. Simpson; MacTaggart v. Watson and Madden v. McMullen that the mere nonfeasance of the creditor, or his neglect to enforce his demands against the principal debtor, would not be a sufficient ground for discharging the surety from his liability to the creditor, particularly where it does not appear that the creditor was ever required by the surety to take any such proceedings.”
11. Mere forebearance to sue, or gratuitous indulgence by a creditor is not sufficient to release a surety (see Rouse v. Bradford Banking Co . 1894 A.C. 586 . The principles are correctly summarised in The Law of Guarantees by Andrews and Millett (Third Edition) at page 303 as follows :-
“In the absence of an obligation to pursue him (the principal debtor) timeously the surety will not be discharged by mere passivity on the part of the creditor, that is an omission to pursue the principal. This is so even though the principal subsequently becomes insolvent. The settled view is that it is the responsibility of the surety to see that the principal pays, and not that of the creditor.”
12. Having regard to the view which I have taken, therefore, the two express grounds of appeal do not really arise. I would dismiss the appeal.
Stapleford Finance DAC v Tuthill & Anor
[2020] IEHC 44 (23 January 2020)
JUDGMENT of Mr. Justice MacGrath delivered on the 23rd day of January, 2020.1. Proceedings in this matter were instituted by way of summary summons issued on 16thMarch, 2017. The plaintiff claims, in total, the sum of €143.364.86 against the defendantson foot of guarantees provided by them on the 22nd March, 2001, in respect of the debtsof Adson Salons Limited (“Adson”) to whom monies were advanced by way of facilityletter dated 22nd March, 2001 by Anglo Irish Bank Corporation. The sum advance to thecompany was €250,000 to be repaid by instalments over 84 months.2. It is claimed that by virtue of the provisions of the Credit Institutions (Stabilisation) Act2010, the assets of Irish Nationwide Building Society were transferred to Anglo Irish BankCorporation Limited on 1st July, 2011. Through a series of transactions and mergers, theIrish Banking Resolution Corporation (“IBRC”) was created and this went into liquidationpursuant to the Irish Bank Resolution Corporation Act 2013 (Special Liquidation) Order on7th February, 2013. Further, it is claimed that by virtue of a loan sale on 28th March,2014, the special liquidators of IBRC assigned and transferred the benefit of the securitiesto the plaintiff.3. Letters of demand were issued to the company on 7th December, 2015 seekingimmediate repayment of the sum which was then due of €134,760.44. On 16thDecember, 2016 the plaintiff served a demand on the defendants in respect of theiralleged liability for sums due on foot of the guarantees.4. By application pursuant to notice of motion dated 5th April, 2018 the plaintiff seeks anorder pursuant to O. 37 of the Rules of the Superior Courts for judgment against thedefendants in the sum of €143,364.89.5. The application is grounded on the affidavit of Mr. John Burke, director of the plaintiff. Heoutlines the history of the creation of the loan to the company, the guarantee provided bythe plaintiffs and the transfer of the securities to the plaintiff. Mr. Burke exhibits relevantdocumentation including the facility letter of 22nd March, 2001, signed by the defendantas directors of Adson and by resolution of the same date, authorising the company toborrow the money.6. In a replying affidavit sworn on 3rd May, 2018, the first named defendant raised an issuethat the letter of guarantee upon which the plaintiff was seeking to rely had not beendeposed to by Mr. Burke and it was nowhere exhibited in the proceedings. In a furtheraffidavit of 9th November, 2018, the first named defendant on her own behalf and onbehalf of the second defendant averred that she did not accept that the guarantee wasPage 2 ⇓capable of being transferred or assigned to a third party in the manner in which is allegedto have occurred in this case.7. By way of affidavit of 17th December, 2018, entitled “Affidavit of Debt”, Mr. Burke,updated the amount of the claim and in a further affidavit sworn by him on 2nd April,2019, which has been filed pursuant to leave granted by the court, he avers that thedefendant admitted liability in a letter of 12th December, 2015. He also exhibits lettersdated 19th December, 2016 and 22nd December, 2016 which it is maintained areattempts to resile from the admission contained in the letter of 12th December, 2015.8. Importance has been attached to the letter of 12th December, 2015, which was written inreply to the plaintiff’s letter of 7th December, 2015, in which the plaintiff purported to callin the guarantee. Ms. Yvonne Tuthill expressed surprise at receiving the letter of 7thDecember, 2015 because:-“it was my clear understanding that Anglo Irish Bank had agreed to remove myname as a Guarantor on the facility which was granted to Adson Salons Limitedand, not to myself as indicated in the first paragraph of your letter.The release was requested by me in 2009 after my own company, InishbirchLimited, had ceased trading and it was my personal shareholding in Inishbirchwhich had formed the security for the original guarantee offered to Anglo IrishBank.”9. Ms. Tuthill, in further correspondence replying to letters sent to her on the 15th and 16thDecember, 2016, referred to her letter of the previous year advising and reiterated thatshe had no liability. That she was written to one year later seeking payment within sevendays was, as she described, unacceptable as she was a retired person living on a pension.She denied any liability and advised that “their own records will confirm this”.10. The denial of liability was reiterated in the letter of 22nd December, 2016, in which Ms.Tuthill stated that she never signed a personal guarantee and that in fact the onlysecurity afforded to Anglo Irish Bank was her shareholding in Inishbirch Limited, aposition which was understood and accepted by Anglo Irish Bank when the relevant loanfacility was granted in March, 2001.11. In a replying affidavit sworn on 12th April, 2019, Ms. Tuthill states that any suggestionthat she had admitted liability in the letter dated 12th December, 2015 was entirelymisconceived and that in fact the letter stipulated that it was her shareholding inInishbirch Limited which formed the security for the guarantee and Inishbirch Limited wasdissolved on 20th January, 2012.12. Ms. Tuthill positively avers that she never signed a personal guarantee. She states thatthis is also the position of the second named defendant and maintains the plaintiff’sclaims are based on a bald assertion that a personal letter of guarantee was executed on22nd March, 2001. No letter of guarantee has ever been produced to the court and shePage 3 ⇓avers that any documentary evidence before the court is entirely consistent with herposition.13. In submissions to the court, counsel for the plaintiff, Mr. Hayes B.L., contends that thedenials of the defendants amount to no more than bald assertions and that no legal basisfor the proposition that the guarantee is not capable of transfer has been made onaffidavit. Significant emphasis is placed on the first named defendant’s letter of 12thDecember, 2015, as an admission of liability on foot of the guarantee. It is furthersubmitted that it is implicit from the contents of that letter of 12th December, 2015 thatthe guarantee had been executed by the first defendant and that no issue arose inrelation to the transfer of the interest in the guarantee to the plaintiff. It is also submittedthat the first named defendant has failed to refer to any documentation in support of hercontention that she was removed as guarantor. It is also argued that certain payments inthe sum of €1500 were made on 27th March, 2013 which payment constitutes anadmission of the defendant’s liability to repay the debt. Those repayments are evidentfrom the statements issued by IBRC in respect of Adson’s loan.14. I have considered those bank statements. It appears that payments were made into theaccount of the company between 2012 and 2015. But it seems to me that the importanceof this cannot be overstated in the context of the claims on foot of the alleged guarantee,given that repayments were made in respect of the company’s debt.15. Counsel for the defendant submits that the plaintiff has failed to produce to the court theguarantee upon which it relies and which it is alleged has been executed. Insofar as it iscontended that what is contained in the body of the facility letter constitutes theguarantee, counsel submits the plaintiff has not provided satisfactory proof as required bythe provisions of s. 2 of the Statute of Frauds 1965 and, he further submitted that thereis no term or condition in the guarantee which confers a right to assign or transfer thebenefit of the guarantee to a third party.16. The facility letter of 22nd March, 2001 is directed to the directors of the company, underthe heading “borrowers acceptance”, it contains the signature of the defendants. In fact,their signatures appear in a number of places on that document. Thus, there is a signedacknowledgement and confirmation of the directors understanding of the terms of theagreement. Signatures are provided on behalf of the company. The second part of thatpage is signed by the defendants confirming that they had read the facility letter and thebank’s general conditions which were stated to form part of the agreement between theborrower and the bank. They confirmed that they fully understood the terms of theagreement and acknowledged that they were guaranteeing the performance by theborrower of its obligations under the agreement to the bank. They also acknowledged thatthey had been given due opportunity to take independent legal advice on the effect of theagreement and had waived the opportunity to take such advice.17. Clause 3 of the facility letter provides that the security should be:-Page 4 ⇓“a) the personal guarantee of Mrs. Yvonne Tuthill supported by her 90% shareholdingin Inishbirch Ltd; andb) the personal guarantee of Ms. Alison Tuthill.(together the “Security Documents”)”18. Turning then to the general conditions of the agreement, condition number 8 is entitled“security” and provides at clause 8.1 that:-“as security for the obligations of the Borrower to the Bank hereunder, the bankrequires the Borrower to furnish the security set out in the Facility Letter, whichsecurity shall be in form and substance acceptable to the Bank and its solicitors.”19. Clause 8.2 provides that the security set out in the facility letter from time to time shallsecure all sums now or from time to time due and owing by the borrower (the company)to the bank, whether such liabilities arise from the borrower’s own borrowings or from itsliability as guarantor of other borrowings from the bank. Clause 16 provides for joint andseveral liability on the part of the borrower.20. There is no disagreement between the parties as to the principles applicable in anapplication such as this. As described by Irvine J. in AIB v. Stack [2018] IECA 128, thecourt must be satisfied that it is very clear that the defendant has no defence of theproceedings, otherwise the case ought to be adjourned for plenary hearing. She alsostated that the threshold which the defendant must achieve in order to satisfy the courtto transfer the case to plenary hearing is a low one. Nevertheless, the suggested defencemust amount to more than a mere assertion. There must be substance to the proposeddefence and it must be based on facts which, if true and established, would amount to adefence. It also must be credible.21. Applying these principles, the defendants contend that the defence which they wish toadvance is demonstrably stateable as a matter of law.22. Reliance is placed on the decision in Boyle v. Lee [1992] 1 I.R. 555 where the SupremeCourt clarified that in order to satisfy the requirements of s. 2 of the Statute of Frauds anagreement must contain all of the essential terms which have been agreed. It issubmitted that what is described as a “seven line paragraph” which the plaintiff reliesupon in the document does not contain the material terms and is no more than a generalacknowledgement of the security to be provided. Therefore, it is submitted that there hasbeen a breach and non-compliance with s. 2 of the Statute of Frauds. Significantemphasis in this regard is placed on the plaintiff’s failure to produce the guarantee. It issubmitted that this is a necessary proof which has not been satisfied. It is furthersubmitted that the logical interpretation of the agreement is that the guarantee was to bea stand-alone document, distinct from the facility letter and that it is not appropriate forthe plaintiff to attempt to argue that the seven line paragraph, is in fact a letter ofguarantee. It is submitted that an attempt to rely on this paragraph, containing noPage 5 ⇓material terms, as constituting a guarantee to secure a commercial loan is completelyimplausible. Reference is made by the defendants’ to situations where a separateguarantee and indemnity was executed by the parties. It is therefore submitted that theloan facility contains no more than an acknowledgement of the security to be provided,something which is distinct from the security itself.23. It is also submitted that it is clear from the description of the security in the specialconditions of the facility letter that a distinct letter of guarantee was to be prepared byIBRC bearing in mind clause 3 of the facility letter which stated that the first nameddefendant’s guarantee was to be supported by her 90% shareholding in the othercompany. The seven line paragraph upon which reliance has been placed, it is submitted,makes absolutely no reference to that company or of the first named defendant’sshareholding in that company. There is no explanation for this omission. Therefore, it issubmitted that the plaintiff has failed to verify its claim or to discharge the obligations ofthe Statute of Frauds.24. In Danske Bank a/s trading as National Irish Bank v. RQB Ltd (formerly known asRedquartz Boundary Ltd) [2010] IEHC 347, McGovern J. reiterated that the guaranteemust be strictly construed with ambiguities being resolved in the guarantor’s favour.Counsel for the defendants submits that the terms of the guarantee must therefore bestrictly construed. Ambiguities ought to be resolved in favour of the guarantor. It isimpermissible for the plaintiff to attempt to read the terms of the facility letter into theguarantee. There are essentially two entirely distinct contracts and s. 2 must be strictlyconstrued. Similar type guarantees were considered in Stapleford Finance v. McEvoy[2018] IEHC 99 where separate guarantees were executed. It is thus contended that aswith the case of many loan facilities, this facility contains a mere acknowledgement of thesecurity to be provided as distinct from constituting a guarantee in itself. It is contendedthat the alleged guarantee upon which the plaintiff purports to rely in this case omits toinclude matters such as the limited nature of the guarantee, whether it extends tointerest and costs over and above that limit, whether the guarantee is offered jointly andseverally, the timing and the manner for the calling in of the guarantee, whether it is oneof a continuing nature, the general conditions applicable and the role of the defendant’sshareholding in Inishbirch Limited. This latter consideration, in turn gives rise to thequestion of whether the first defendant could have any personal liability on foot of thealleged guarantee. Further, it is contended that a term conferring a right to transfer thebenefit of the facility letter and the guarantee to the plaintiff, is material and ought tohave been set out in the guarantee itself, in accordance with the decision in Boyle v. Lee.25. It is further disputed that the first named defendant made any admission of liability and ifanything, it is submitted the correspondence is to the contrary. It is further denied thatany repayment of the principal debtor cannot constitute an acknowledgement of liabilityon foot of the guarantee.26. In my view, this latter submission must be correct. On the basis of the evidence nowbefore the court of the principal debt having been paid, cannot be construed as evidencePage 6 ⇓of admission of liability on foot of the guarantee. Indeed, these payments appear to havebeen made in advance of the liability alleged to arise on foot of the guarantee by virtue ofthe demand issued on 16th December, 2016.27. Having considered the submissions of the parties, and the authorities upon which reliancehas been placed, it is clear that the terms of the guarantee, as a matter of law, that anyambiguity or lack of clarity surrounding the guarantee ought to be resolved in favour ofthe guarantor. In this case, the guarantee upon which the plaintiff seeks to rely is thatwhich is contained in a document which, in sequence, appears and arises immediatelyafter the main facility letter, prior to that part of the document which contains theresolution executed by the company and also prior to where the general conditions arecontained. The facility letter states that if there is any conflict between the terms of thefacility letter and the general conditions, the terms of the facility letter shall prevail. Thegeneral conditions do not appear to make any specific reference to the terms of theguarantee and it seems to me, on the face of it, it is arguable that given the reference tothe facility letter under the heading “borrowers acceptance”, that they must be readtogether. That being the case, there is a potential for a conflict between the wording ofthe guarantee as relied upon by the plaintiff, and clause 3 of the facility letter. The courtdoes not have to be satisfied that this is a case which will ultimately be made out at trial,merely that it is arguable. Bearing in mind the constitutional rights of the first nameddefendant to defend proceedings brought against her, I am not satisfied that it is clearthat the defendant has no arguable defence either as a matter of law or as a matter offact. The position of the second named defendant is somewhat less clear. She has notsworn any affidavit but it seems to me that in the interests of justice the entire mattershould be referred to plenary hearing where all issues concerning the liability of thedefendants and the validity of the guarantees can be agitated.28. In all the circumstances, I must refuse the relief sought and transfer the matter toplenary hearing.
Result: Application refused. Transferred to Plenary hearing.
John P. MacEnroe v Allied Irish Banks Ltd
1979 No. 94/5
Supreme Court
31 July 1980
[1980] I.L.R.M. 171
(Griffin J, Kenny and Parke JJ)
GRIFFIN J
(Parke J concurring) delivered his judgment on 31 July 1980 saying: The facts are fully set out in the judgment of Hamilton J, and in the judgment which is about to be deliverd by Kenny J. The material terms of the Guarantee dated 2 November 1972 given by the plaintiff to the defendants (‘the Bank’); of the proposed agreement dated 23 May 1973 between Brian Leonard and the plaintiff for the purchase from the plaintiff of the entire of his shares and of the shares of Greenfield Industries Ltd in Kilgobbin Mink and Stud Farm Ltd (‘the Company’), and of the letter written by Brian Leonard’s solicitor to the plaintiff on 24 May 1973, are also fully set out in the judgment of the learned trial judge and of Kenny J, and it is unnecessary for me to do likewise. I propose in this judgment to refer only to portions of these documents.
The substantial question for determination on the defendants’ appeal is whether the arrangement made by the Bank with Brian Leonard, on behalf of the Company, whereby the Company (which already had 2 trading accounts, Nos. 1 and 2, with the Bank) should open a No. 3 account, was permissible under the terms of the said guarantee, or whether it amounted to a material variation of the terms of the contract of guarantee entered into by the plaintiff with the Bank.
On behalf of the plaintiff it was submitted that the opening of the No. 3 account was in fact a material variation of the terms of the guarantee because it contained a provision that there could be no set off between the No. 3 account *173 and the Nos. 1 and 2 accounts and that accordingly the plaintiff was discharged from his guarantee. On behalf of the Bank it was submitted that the opening of the No. 3 account did not vary or increase the obligation or liability which was undertaken by the plaintiff under his guarantee — that what he guaranteed was the ultimate balance of all monies advanced, together with interest, subject to the limit of his liability of £75,000.
The learned trial judge found in favour of the plaintiff on that part of the case. The plaintiff also claimed damages for detention of his title deeds to his premises at Greenfield, Sandyford, Co. Dublin, and damages for negligence and breach of contract on the part of the Bank. The trial judge rejected these claims and the plaintiff has appealed against these findings of the learned trial judge.
The contract of guarantee was entered into on 2 November 1972, at which time the plaintiff was governing and managing director of and had a controlling interest in the Company. At that time the Company had two trading accounts with the Bank. By May 1973 the Company was in very serious financial difficulties being overdrawn to the extent of more than £80,000. The Bank was not prepared to honour any more cheques of the Company and the alternatives available to the plaintiff were to find a purchaser for the Company, the appointment of a receiver, or to go into liquidation. Of these alternatives, the plaintiff was extremely anxious to find a purchaser for the Company so that his son, Gabriel MacEnroe, might be retained in the Company.
After some abortive negotiations with other parties, agreement with Brian Leonard was reached on 24 May 1973 at a meeting in the plaintiff’s offices in Suffolk Street, Dublin. This included terms that the plaintiff was to arrange for the transfer of the entire share capital in the Company to Williams Park Ltd, a company controlled by Mr Leonard; that the plaintiff would resign as a director of the Company; and that Brian Leonard guaranteed that by the end of October 1973 the deeds of the plaintiff’s property would be returned to him by the Bank, and that he (Leonard) would lodge with the Bank the necessary security to secure such release.
The plaintiff for many years prior to 1973 had considerable business experience; he was also a qualified barrister and practised for some years. In these circumstances, it is almost incomprehensible that, at the meeting in Suffolk Street on 24 May, the plaintiff signed a transfer of his shares in blank and gave the transfer forms to Brian Leonard, putting the latter in a position to control the Company, although he had still to carry out all his side of the bargain, and although it would be several months at least before the deeds of the plaintiff’s premises would be released, if and when Brian Leonard lodged the necessary security with the Bank to secure such release. After that meeting Gabriel MacEnroe, Brian Leonard, and Gerard Martin Wheeler (an accountant who had then acquired a position of prominenece in commercial life in Dublin), who had acted as financial adviser for both the plaintiff and Brian Leonard, went to meet Mr Craigen, the manager of the Bank’s branch at College Street, and the arrangement to open a No. 3 account on behalf of the Company was made. The sum of £10,000 was, immediately, to be provided by Brian Leonard, and was in fact provided by him to meet outstanding cheques of the Company, including *174 a cheque for some £2,173 for rent on the premises of the Company which had earlier been unpaid.
The circumstances surrounding the opening of the No. 3 account are central to this action. On that date, the No. 1 account was overdrawn to the extent of £25,802.88 and the No. 2 account was overdrawn in the sum of £63,015.72, so that the Company was overdrawn to the extent of £88,818.60. As this greatly exceeded the credit which the Bank was prepared to permit, if any moneys to be provided by Brian Leonard were credited to the No. 1 or No. 2 account, the Company would have no working capital. The opening of the No. 3 account was therefore suggested by Mr Craigen, who undertook on behalf of the Bank that moneys credited to the No. 3 account could be withdrawn by the Company, and that no moneys would be credited by the Bank from that account to the No. 1 or No. 2 account without the consent of the directors of the Company. It was also agreed that moneys standing to the credit of the Company in the No. 3 account would not be set off for the purposes of interest against the liability of the Company on foot of the No. 1 and No.2 accounts.
After the meeting with Mr Craigen, Messrs Gabriel MacEnroe, Wheeler and Leonard returned to Suffolk Street, where the plaintff was waiting for them to see how they had fared with the Bank. There was a discussion about what transpired at the Bank, but in respect of that discussion the evidence at the trial was not very satisfactory. Mr Wheeler had died prior to the hearing, and Brian Leonard had left the jurisdiction. It would be reasonable to expect that the plaintiff would want to obtain the fullest details of what transpired at the Bank, but in reference to what he said he was told, he vacillated a good deal in his evidence. The learned trial judge however found that although the plaintiff was informed of the opening of the No. 3 account, he was not informed of the arrangements in respect thereof that had been entered into between the Bank and the Company. He also held that (although the plaintiff subsequently wrote to the Bank stating that Mr Wheeler represented him — the plaintiff — at the meeting with the Bank on 24 May), Mr Wheeler was not the agent of the plaintiff and had no authority from the plaintiff ‘to consent to the variation of the existing arrangement between the Company and the Bank and the plaintiff’s guarantee’. As the learned trial judge had the advantage of hearing and seeing the witnesses, this Court is bound by his findings of fact. Again, as no appeal was taken against the finding that Mr Wheeler was not the agent of the plaintiff at that meeting, that issue does not now arise on this appeal.
Brian Leonard did not fulfil his obligations under the agreement with the plaintiff, and, under his control, and without the injection of funds which he had promised, the Company did not prosper. The Company traded until 7 February 1975 when a receiver was appointed. On 30 May 1975 payment was demanded of the plaintiff of the sum of £75,000, being the limit of his liability under his guarantee. The plaintiff in the meantime had commenced proceedings against Brian Leonard claiming specific performance of the agreement between them, and on 30 July 1975 the late Butler J ordered specific performance of the contract on or before 1 September 1975. Against that decision Brian Leonard appealed to this Court, and on 20 May 1976 the order of the High Court was varied *175 to the extent that the defendant was ordered to arrange for and procure the release of the deeds of Greenfield from the Bank by 1 July 1976. As that order was not obeyed by the defendant, an order for his commital for contempt of court was made on 22 July 1976, but he had absconded before that order could be executed. The plaintiff then commenced this action against the Bank on 23 August 1977.
Counsel for the Bank accepts that, as submitted on behalf of the plaintiff, when a contract or debt is guaranteed, the terms thereof may not be altered without the consent of the guarantor; that any material or substantial variation of the contract between the creditor and the principal debtor will discharge the guarantor if made without his consent, and that if the guarantor is released by reason of any action of the banker, the banker must surrender any securities deposited by the guarantor to re-inforce his guarantee. They accept the principle stated by Cotton LJ in Holme v Brunskill (1878) 3 QBD 495 CA which was adopted in Ward v National Bank of New Zealand Ltd (1883) 8 App Cas 755, and by Lord Dunedin in Egbert v National Crown Bank [1918] AC 903, namely:
The true rule in my opinion is, that if there is any agreement between the principals with reference to the contract guaranteed, the surety ought to be consulted, and if he has not consented to the alteration, although in cases where it is without inquiry evident that the alteration is unsubstantial, or that it cannot be otherwise than beneficial to the surety, the surety may not be discharged; yet, that if it is not self evident that the alteration is unsubstantial, or one which cannot be prejudicial to the surety, the Court will not, in an action against the surety, go into an inquiry into the effect of the alteration.
In Ward’s case the Judicial Committee of the Privy Council said:
A long series of cases has decided that a surety is discharged by the creditor dealing with the principal or with a co-surety in a manner at variance with the contract, the performance of which the surety had guaranteed.
Counsel for the Bank however say that while this principle applies to a particular contract or a particular debt guaranteed by the surety, the variation must be a variation of the contract that has been guaranteed, and that if the variation is one agreed to in the original contract, the surety cannot afterwards complain, and that, in this case, as the plaintiff guaranteed the payment of all moneys due from time to time on any account there was no variation of the contract.
The terms of the contract of guarantee in this case are therefore of paramount importance. Under the contract, the plaintiff guaranteed payment to the Bank of all and every sum of money heretofore or hereafter advanced to or paid for or on account of the Company by the Bank on foot of … current account or otherwise howsoever , subject to a limit of £75,000. He declared that the guarantee is to be a continuing guarantee until the expiration of three calendar months after the receipt by the Bank of notice in writing to discontinue it, and is to be a security to the Bank for the debts, liabilities and engagements of the Company from time to time. It further provided that the guarantee ‘shall be a security for any ultimate balance that shall remain unpaid by the Company to you.’
The guarantee in this case was in the widest terms and the plaintiff was guaranteeing inter alia all current accounts which from time to time the Company should have with the Bank. It was not limited to the Nos. 1 and 2 accounts *176 which were in existence either at that date of the guarantee (2 November 1972) or on 24 May 1973, and there was no provision in the guarantee which would prevent or invalidate the opening by the Company of additional current accounts with the Bank. The guarantee would therefore apply equally to the No. 3 account as to the Nos. 1 and 2 accounts. The plaintiff, as found by the learned trial judge, knew that the No. 3 account had been opened on 24 May 1973, and as his guarantee was a continuing guarantee that it would continue to bind him in respect of all current accounts until and unless Brian Leonard lodged with the Bank sufficient funds or securities to enable his guarantee to be discharged. Indeed, the plaintiff cannot but have known that he would be guaranteeing all 3 current accounts of the Company for at least some months, since 31 October was the date fixed by his agreement with Brian Leonard for the lodgment of the securities.
What the plaintiff was guaranteeing was ‘the ultimate balance that shall remain unpaid by the Company to you’ (the Bank) when the guarantee came to an end, either by notice in writing by the plaintiff to discontinue it, or by the Bank demanding payment of the amount due on foot of the guarantee. To ascertain this balance all the current accounts covered by the guarantee must be taken into account. The arrangement in relation to the No. 3 account was not, in my view, a variation of the obligation or liability of the plaintiff. While under the contract he was guaranteeing all 3 current accounts, subject to a limit of £75,000, he was, under his contract with the Bank, entitled to the benefit of any credit balance which then might be in the No. 3 account for the purpose of off setting that sum against the debit balance, in respect of the No. 1 and No. 2 accounts, to ascertain the ‘ultimate balance’ that remained unpaid by the Company.
It was also argued on behalf of the plaintiff that the plaintiff’s obligation to the Bank in respect of interest was increased as a result of the arrangement made in respect of the No. 3 account. In my opinion, this is not so. On 24 May 1973 the sum due to the Bank by the Company on both accounts was £88,818, almost £14,000 above the limit of the plaintiff’s obligation under the guarantee. If there had been a set off for interest between the 3 accounts the difference in the interest charged to the Nos. 1 and 2 accounts would, according to the evidence, have been £1,236.60. The absence of a set off for the purpose of interest could not therefore affect the liability of the plaintiff under the guarantee.
In my opinion, therefore, the arrangements made on 24 May 1973 when the No. 3 account was opened was not a material variation of the guarantee as alleged by the plaintiff, and accordingly the plaintiff was not thereby discharged from his liability under his guarantee. It follows that he is not entitled to the return of the title deeds to his property held by the Bank as collateral security for the guarantee, and I would allow the appeal of the Bank in respect of the orders of the learned trial judge in that behalf.
The plaintiff also claims damages for negligence against the Bank by reason of the manner in which the No. 3 account was operated by the directors of the Company. The plaintiff’s case on this claim was that the Bank failed to make sufficient inquiries as to whether the Company was misapplying its funds; that by failing to make inquiries there was a breach of duty in tort to the Company *177 and as the plaintiff, who was the person who would allegedly be damnified, there was also a breach of the duty owed to him. The cheques in respect of which the Bank is alleged to have been in breach of its obligation to the Company were those set out in paragraph 13 of the statement of claim and in a list produced by the plaintiff in evidence. Having considered all the evidence, and the circumstances of the case, the learned trial judge was satisfied that the Bank was not in breach of any duty it owed to the Company by reason of the manner in which the No. 3 account was operated by the directors. Brian Leonard was the governing director of the Company, and owned all the shares with the exception of one share held by his co-director, Gabriel MacEnroe. The learned trial judge was satisfied that all payments were authorised either by Brian Leonard or by Gabriel MacEnroe and were within the mandate, and that all reasonable inquiries were made by the officials of the Bank with regard to any cheque in respect of which they had any doubt before they authorised payment. In my opinion, the evidence fully justified the findings of the learned trial judge in this respect, and he was correct in dismissing the plaintiff’s claim.
In the result, I would allow the appeal by the Bank, and dismiss the plaintiff’s cross-appeal.
KENNY J:
Kilgobbin Mink and Stud Farms Ltd (‘the Company’) was incorporated in the State in August 1966. The plaintiff, who owned 16 acres of land at Greenfield, Sandyford, leased 3.5 acres to the Company where it originally carried on the business of breeding mink. The issued share capital of the Company was at all material times £60,000 of which the plaintff held 31,000 ordinary shares of £1 each and Greenfield Industries Ltd, which was owned by a trust company formed by the plaintiff, owned 28,998. The plaintiff was governing and managing director of the company. The Company kept its bank account with the Provincial Bank of Ireland Ltd at its branch at College Street: this bank was subsequently acquired by the defendants (‘the Bank’). The Company also manufactured and sold mink and suede garments and had offices at Suffolk Street.
On 15 August 1969, the Company gave a debenture by way of floating charge on all its assets to secure all its liabilities to the then Provincial Bank and on 7 September 1971 the plaintiff deposited with them at College Street the title deeds relating to his property at Greenfield to secure all monies due by the Company to them. As additional security, the plaintiff, on 2 November 1972, gave a guarantee to the Bank in connection with the accounts of the Company with it.
As the Bank have relied on the exact terms of this guarantee, it is necessary to set out the material terms of it. It is dated 2 November 1972 and is addressed to Allied Irish Banks Ltd. The material terms of it were:
In accordance of advances heretofore made or that may hereafter be made from time to time by you[the Bank] to Kilgobbin Mink and Stud Farms Ltd — hereinafter called ‘the Company’ I hereby guarantee payment to you of all and every sum of money heretofore or hereafter advanced to or paid for or on account of the Company by you on foot of bills of exchange, promissory notes, current account or otherwise howsoever or for which the Company may in any way be liable to you and whether alone or jointly with any other person or persons and whether matured or current at the determination of this guarantee remaining unpaid or in any other way whatsoever with interest thereon at the rate or rates fixed by you from time to time the *178 said interest to be calculated at such times, with such rests and in such manner as are customary with you. Provided however that my liability under this guarantee shall not exceed the sum of £75,000 (seventy five thousand pounds) together with interest at the rate aforesaid from the date of demand on the sum or sume demanded from me. And I hereby declare that this guarantee, until formally withdrawn by me in writing, or in the event of my death, by my personal representative in writing, and all liability thereunder fully discharged, is to be a continuing guarantee until the expiration of three calendar months after the receipt by you from me or my personal representative of notice in writing to discontinue it as aforesaid, and is to be a security to you to the extent aforesaid for the debts, liabilities and engagements of the Company from time to time to you as aforesaid, notwithstanding any intermediate payment or settlement of accounts or any other matter or thing whatsoever, and is to be without prejudice to any other security now held or that may hereafter be held by you for the obligation of the Company. And I do further declare that you may grant time to the Company or to any drawers, acceptors, makers or endorsers of bills of exchange or promissory notes discounted for or received from them … without reference to me or my consent thereto and without prejudice to my liability under this guarantee … And if the Company shall go into liquidation or be wound up either compulsorily or voluntarily or be dissolved you may prove against its estate for the whole of its indebtedness, and no money so received by you shall be considered as received in respect of this guarantee, but the full amount hereby guaranteed shall be payable until you shall have received from all sources one hundred pence in the pound and this guarantee shall be a security for any ultimate balance that shall remain unpaid by the Company to you. But it shall not be incumbent on you to enforce payment from the Company or its estate or from any collateral securities before requiring me to pay any sum or sums of money for the time being unpaid or payable to you by the Company; for it is hereby declared that you shall be at liberty to require payment from me of such sum or sums when and as you think proper. And I further declare that you may determine or vary any credit to the Company, and may hold, take, exchange, vary or release any other securities or guarantees held by you from time to time for the obligations of the Company without reference to me or my consent thereto and without prejudice to my liability thereunder; — And it is hereby further declared that you are not to be concerned or see or enquire into the powers of the directors of the Company or other agents acting or purporting to act on its behalf, and moneys in fact borrowed from you in exercise of such powers shall be deemed to form part of the monies guaranteed even though the borrowing or obtaining of such monies be in excess of the powers of the Company or of the directors or other agents aforesaid, or shall be in any way irregular or defective or informal.
At the time when this guarantee was given the Company had two accounts with the Bank. The first related to the activites and trading operations of the mink farm and the No. 2 account related to the manufacture and sale of mink, suede and other coats. The trading of the company was unprofitable and, in May 1973, one of its cheques for £2,173 was dishonoured by the Bank. On 24 May 1973, the amount due by the Company to the Bank on the two accounts was £88,817 of which £25,802 was due to the No. 1 account and £63,015 was due on the No. 2 account. These drawings were considerably in excess of the limits which the directors of the bank had set.
The plaintiff was anxious to sell all his shares in the Company so that his son Mr Gabriel MacEnroe, who was employed by the Company, would continue to hold his position in it and also because he knew that the Bank was not prepared to give further accommodation. He was negotiating with a company with a quotation on the Dublin Stock Exchange and also with Mr Gerard Wheeler who was an accountant who was acting for a Mr Brian Leonard and also for the plaintiff. On 23 May 1973 Mr Leonard through Mr Wheeler wrote to the plaintiff:
I am prepared to take an interest in Kilgobbin Mink and Stud Farms Ltd on the following *179 conditions:
1. You will arrange for the transfer of the total issued capital in Kilgobbin Mink and Stud Farms Ltd to Williams Park Ltd. This capital is presently held between you and Greenfield Industries Ltd.
2. You will resign as a director of the Company but will continue to have the use of your present office in Suffolk Street until the title deeds of your property at Sandyford are released to you by the Bank.
3. Any monies or benefits secured by you as a result of an action against P.J. Cullen accrues to your benefit.
4. Williams Park Ltd and myself undertake to procure that the two acres of land presently leased by Kilgobbin Mink and Stud Farm Ltd will be transferred to you and Greenfield Industries Ltd in return for release by both you and Greenfield Industries Ltd of all liability on the part of Kilgobbin Mink and Stud Farm Ltd to you and Greenfield Industries Ltd on foot of loans from you and Greenfield Industries Ltd to Kilgobbin. The property will be conveyed with the benefit of all buildings, fixtures and fittings.
5. I guarantee you that by the end of October 1973 the deeds of your property will be returned to you by the Bank and that I will lodge with the Bank the necessary security to secure such release.
6. Until your title of Greenfield deeds is returned to you you will be paid £100 per week as a capital sum. (This clause was subsequently altered by the plaintiff by the substitution of the figure of £5,000 as a capital sum for the figure of £100 per week.)
7. I undertake that as and when the company become solvent I will procure the transfer to Gay of between 25 per cent to 33.33 per cent of the issued share capital of the company.
The plaintiff added a further term to those stated in this letter:
The Bank to be satisfied by a guarantee from another bank or otherwise that they will be paid the present overdraft on demand so that my deeds are free to me.
This proposed agreement was clarified by letter written by Messrs. W. & E. Bradshaw, who were the solicitors acting for Mr Leonard, to the plaintiff and which was delivered to him on 24 May. It read:
We act on behalf of Mr Brian P. Leonard—
Our client is the owner of lands at Brittas Bay valued at approximately £135,000. Our client informs us that you are the owner of 35,000 £1 shares in Kilgobbin Mink and Stud Farms Ltd and that Greenfield Industries Ltd are the owners of 29,998 £1 shares in Kilgobbin Mink and Stud Farms Ltd and that Maura Smyth and Gwen McDonnell also own one £1 share each in the same company.
We are informed by our client that it has been agreed that you will transfer your own shares and also undertake to have Greenfield Industries Ltd shares and those of Maura Smyth and Gwen McDonnell’s shares transferred to our client or his nominee or nominees.
The consideration for the above is that our client will have you released from your commitment to Allied Irish Banks Ltd, Provincial Bank branch, College Green, Dublin by the end of October 1973 and have your deeds of Greenfield released to you and our client will substitute for same the deeds of Brittas Bay.
We hereby undertake on behalf of our client for the consideration above, to have the above agreement carried out as above.
On 24 May the plaintiff, Mr Gabriel MacEnroe, Mr Gerard Wheeler and Mr Brian Leonard met at the Suffolk Street office. Agreement was reached between them in accordance with the letters written by Mr Leonard and Mr Bradshaw for the sale of all the shares in the Company held by the plaintiff, by Greenfield Industries Ltd and by the subscribers. The agreement was however subject to *180 the approval of the Bank and on the same day, Mr Gabriel MacEnroe, Mr Gerard Wheeler and Mr Brian Leonard went to meet Mr Craigen, the then manager of the College Street branch of the defendants. Mr Craigen was informed that the plaintiff was resigning as a director of the Company, that Mr Brian Leonard had been co-opted to the board of the Company, that Mr Wheeler was to be appointed a financial adviser of the Company, that the shares owned by the plaintiff had been transferred to Mr Leonard, that Mr Leonard was to provide immediate funds of £10,000 to meet outstanding cheques, that before 1 July Mr Leonard was to provide sufficient funds either to clear the overdraft on the Nos. 1 and 2 accounts or to reduce it substantially, that the balance was to be cleared within a further three months, that Mr Leonard was to provide satisfactory alternative security and thereby enable the plaintiff’s guarantee and title deeds to be returned to him and that Mr Leonard was to provide an alternative guarantee for the Company’s account, this guarantee to be collaterally secured.
This arrangement did not contain any proposal for clearing the substantial overdraft on the Nos. 1 and 2 accounts. Mr Wheeler, who was the financial adviser of Mr Leonard and of the plaintiff, did not want any sums lodged by Mr Leonard to the account to be credited to either the No. 1 and No. 2 account as this would mean that the Company would have no working capital and would be wholly dependent on the Bank. Mr Craigen suggested that the difficulty could be met by opening a new account to be called the No. 3 account and undertook on behalf of the Bank that no moneys would be credited from the No. 3 account to the No. 1 or the No. 2 account without the sanction of the directors of the Company. It was also agreed that no overdraft would be given on the No. 3 account which was to be the Company’s working account for some time at least. There was a general discussion about the property at Brittas Bay which was owned by Mr Leonard and it was understood that Mr Leonard would deposit the title deeds relating to it with the Bank as security so that the plaintiff’s title deeds and his guarantee would be returned to him. Mr Whelan went back to the Suffolk Street office and told the plaintiff that the Bank approved of the transaction and that a new account (No. 3) for the Company would be opened. At the meeting or shortly thereafter, Mr Leonard lodged £10,000 to the credit of the No. 3 account. The plaintiff had very foolishly signed a transfer of his shares in blank and Mr Leonard acted on it by filling in his own name. The shares in Greenfield Industries Ltd were also transferred to Mr Leonard. At the meeting with Mr Craigen on 24 May it was agreed that the No. 1 and the No. 2 account would be inoperative and Mr Craigen warned those at the meeting that the credit balance on the No. 3 account would not be set off against the debit balance on the No. 1 and No. 2 account for interest purposes.
The mandates for signatures on cheques on the Company’s accounts were that on 26 July 1968 the Company passed a resolution that any cheque signed by any one director of the Company was to be honoured and, on 28 June 1973, a resolution of the directors of the Company was passed that all cheques were to be signed by two signatories, Mr Brian Leonard and/or Mr Gabriel MacEnroe and/or Mr Ivory Cherry and Mrs K. Stanley and this resolution was sent to the Bank.
By August 1973 the plaintiff was highly suspicious of Mr Leonard. No formal agreement for the sale of the shares in the Company had been signed and he suspected that what he called ‘asset stripping’ was being carried out by Mr Leonard by selling goods at less than their cost in order to increase the turnover. The No. 3 account was being used for Mr Leonard’s purposes and the Bank had not received the deeds of Brittas Bay property so that they could release the plaintiff’s deeds of the property at Sandyford to him, and a credit balance was not being built up on the No. 3 account which would enable the directors to reduce the debit on the No. I and the No. 2 account.
The Bank continued to press Mr Leonard to lodge securities or the deeds of other property to enable them to release the plaintiff’s deeds and guarantees. Mr Leonard was the owner of a ferry in Malta and the Bank hoped that, when he completed the sale of it, he would be able to carry out his undertaking. The net proceeds of the sale (£120,000) were in a bank in London but Mr Leonard and Mrs Stanley who was associated with the Company were prepared to have this sum transferred to the No. 3 account only if the Bank undertook to issue a draft payable to Mr Leonard for £108,000. In order to get the £120,000 the Bank gave an undertaking that they would issue a draft for £108,000 payable to Mr Leonard and the evidence given in this case gives strong ground for suspicion that he used this sum to complete the sale of property in Kerry. He was unable to lodge the deeds of Brittas Bay lands because he had deposited these with the Anglo Irish Bank as security for an advance by that bank.
The Company continued to trade at a loss. The Bank despaired of getting either security or money from Mr Leonard and appointed a receiver over the business of the Company on 7 February 1975. On 30 May 1975 the Bank demanded payment from the plaintiff of the amount due on his guarantee. The plaintiff was also indebted to the Bank on his personal account with them. The receiver calculated that Mr Leonard had taken about £100,000 out of the Company’s assets.
The plaintiff began proceedings against the Bank claiming a declaration that he had been discharged from his obligation to them under this guarantee, the return of his title deeds, damages for the Bank’s negligence in conducting the Company’s account and in paying cheques which he said were drawn on the Company’s account but which were obviously for Mr Leonard’s own purposes and damages for detinue because the Bank had retained his title deeds after he had been discharged from his obligation under the guarantee. The Bank denied all the plaintiff’s allegations and counterclaimed for the amount due to them on the guarantee and for the amount due by the plaintiff on his personal account with them.
In the High Court the action was heard by Hamilton J before whom a great volume of oral evidence and of documents were proved. He held that the Bank had discharged the plaintiff from all his obligations on the guarantee by failing to get his consent to the arrangement made on 24 May 1973 and that he was entitled to have the title deeds of the lands at Sandyford returned to him. He made no order on the plaintiff’s claim for damages for negligence and ordered that the Bank were entitled to recover against the plaintiff £24,318.54 on the counterclaim in respect of the plaintiff’s personal account.
Both parties have appealed to this Court against the decision of the High Court. The plaintiff has not appealed against the judgment for £24,318.54. The Bank contend that the plaintiff was not discharged from his obligations under his guarantee for the Company and they are entitled on their counterclaim to judgment against him for the amount due on the guarantee with interest on £75,000 from 30 May 1975 up to date of payment. The plaintiff contends that the trial judge was wrong in dismissing his claim for damages for negligence against the Bank.
The plaintiff guaranteed the payment to the Bank of all and every sum or sums of money heretofore or hereafter advanced to or paid for on account of the Company under current account or otherwise howsoever. The guarantee is stated to be a continuing guarantee and is security for the debts, liabilities and engagements of the Company from time to time notwithstanding any intermediate payment. It is expressed to be a security ‘for any ultimate balance that shall remain unpaid by the Company to you’ (the Bank). It does not contain any prohibition on the opening of further accounts by the Company and is not limited to the amounts due on current accounts at the date it was given. The Bank accepts the principles stated by the majority in Holme v Brunskill (1878) 3 QBD 495 and expressly approved by the Privy Council in Egbert v National Crown Bank [1918] AC 903, that when a guarantor guarantees a transaction between two other persons, neither of them may make any alteration in the terms of the contract guaranteed unfavourable to the interest of the guarantor without his consent and that, if they do this, he is discharged. At one stage of the plaintiff’s evidence he said that he did not know of the opening of the No. 3 account until March/April 1975, and that he did not know that an agreement had been made that no part of the sum standing to the credit of the No. 3 account would be applied in reduction of the amount due to the Bank on the No. 1 account or the No. 2 account until long afterwards. His counsel contended that this prejudiced his position and discharged him from liability on his guarantee.
His counsel replied strongly on the advice of the Privy Council in the National Bank of Nigeria v Awolesi [1964] 1 WLR 1311. In that case the defendant guaranteed repayment of the amount due to the plaintiffs by a relative of his. The plaintiffs subsequently without the guarantor’s consent opened another account for the relative into which substantial sums were paid. The Judicial Committee decided that the opening of the second account discharged the defendant from all liability on his guarantee. In that case however the Judicial Committee decided that, as a matter of construction, the guarantee related to the one account which was in existence when he signed the guarantee and to the amount due on it. In the instant case the guarantee relates to all the Company’s accounts and to amounts subsequently advanced. The National Bank of Nigeria v Awolesi [1964] 1 WLR 1311 was decided on the wording of a guarantee which was completely different to that in this case and does not assist the plaintiff in any way.
The plaintiff had had very bad health from the middle of 1973 and was on the edge of a nervous breakdown. This may explain the many contradictions in his evidence. At one stage in his evidence (question 115 on 14 June) he said that he never knew of the No. 3 account until March/April 1975. In another part *183 of his evidence he said that on 24 May 1973 Mr Wheeler came back to the office at Suffolk Street from the Bank and told him that a new account had been opened. On re-examination, his counsel sought to extricate him from these contradictions and his evidence reads (15 June, questions 218, 219 and 220):
218 Q. Mr Blayney: Mr MacEnroe, you were asked about the No. 3 account
218 A. Yes
219 Q. You said in your direct evidence that on 24 May 1973 you were told that they had opened an account
219 A. Yes
220 Q. What did you understand by that?
220 A. That they had continued on the No. 1 and No. 2 account
The plaintiff is a member of the Bar of Ireland and practised for some years. It is inconceivable that he could have thought that the No. 3 account was a continuation of the No. 1 and No. 2 accounts. He must have appreciated that no one would pay into an account of the Company to enable its business to be carried on if it were liable to be applied by the Bank in reduction of the large overdraft on the No. 1 and No. 2 accounts.
There is moreover another relevant consideration. In my view Mr Wheeler (who had died before these proceedings came to hearing) was the plaintiff’s agent for all purposes on 24 May 1973 and had authority to negotiate with the Bank as to the future arrangement of the Company’s accounts. The plaintiff wrote a number of very long letters to the Bank after the receiver had been appointed and in one of these dated 2 July 1974 obviously dictated by and subsequently signed by him the following passage appears:
I met Leonard, Wheeler and my son again on Tuesday and after some time, as my son wanted to do a deal with Leonard rather than Janelle, I agreed to do a deal on certain terms with Leonard provided that he lodged securities with your Bank to have my securities released and your Bank agreed to accept same and the deeds of Brittas were those offered by him. It was arranged that Leonard, Wheeler and my son would immediately go and discuss the matter with you and if your Bank was agreeable to the arrangement a deal would be done. Wheeler in going to your Bank was representing me as he had previously sought accommodation for me and Greenfield with your Bank and other banks.
This passage shows that Mr Wheeler had full authority from the plaintiff to negotiate a deal with the Bank including an arrangement that none of the sums paid into the No. 3 account would be applied in reduction of the amounts due on the No. 1 account or on the No. 2 account without the consent of the directors of the Company. The only possible conclusion from the letter and from the evidence is that Mr Wheeler had authority to bind the plaintiff to an arrangement which carried out the terms which had been agreed to earlier on that day and to agree that interest was to continue to acrrue on the No. 1 and the No. 2 accounts without any set off of the sums to the credit of the No. 3 account.
As Mr Wheeler had authority to negotiate and conclude all the terms of the arrangement made with the Bank on 24 May 1973, the plaintiff must be held to have consented to all the arrangements which were made at the meeting with Mr Craigen.
There is a further ground upon which the plaintiff’s claim to be released from *184 this guarantee by the events on 24 May fails. The opening of the No. 3 account did not vary or increase the obligation or liability of the plaintiff under the guarantee. He guaranteed payment of the ultimate balance of all monies advanced plus interest subject to a limit of £75,000. In ascertaining what the ultimate balance was, all the accounts of the Company with the Bank must be taken into consideration. The arrangement on 24 May prevented the Bank from using lodgments or credit balances in the No. 3 account towards reduction of the liability on the other accounts. The arrangement of 24 May 1973 prevented the rule in Clayton’s case applying and the plaintiff’s claim that all sums lodged to the credit of the No. 3 account should have been applied to reduction of the sums due on the No. 1 and No. 2 account fails (In re Sherry, London and County Banking Company v Terry (1884) 25 Ch D 692). Thus, the arrangement by which I am satisfied the plaintiff is bound through Mr Wheeler could not have increased the plaintiff’s obligation as to the principal sum due and the plaintiff must have known the basis on which the Bank calculate their accounts, that is, that outstanding interest is added to the principal each six months and ranks as principal. On 24 May 1973 interest on the No. 1 and the No. 2 accounts was of no importance to the plaintiff because the pricipal due on that date (£88,818) exceeded the highest limit of his guarantee (£75,000). There was evidence that if there had been a set off for interest between the No. 3 and the Nos. 1 and 2 accounts, the difference in interest charged on the Nos. 1 and 2 accounts would have been £1,236. Thus the term in the arrangement that the sum to the credit of the No. 3 account would not be set off against the debit on the Nos. 1 and 2 account did not affect or increase the plaintiff’s liability under his guarantee in any way and, having regard to the amount which was due, could not have done so.
In my opinion, the plaintiff was not entitled to a declaration that he had been discharged from his liability under the guarantee by what had been agreed on 24 May 1973 or by any subsequent events and was not entitled to an order for the return of his documents of title which he had lodged. The order of the High Court in relation to both these grounds of relief claimed by the plaintiff should be discharged and the plaintiff’s action, in so far as it relates to the guarantee and his discharge from it, should be dismissed. As he was not discharged from his guarantee, his claim for the return of his title deeds and damages for their detinue must fail. The trial judge dismissed the plaintiff’s claim for negligence against the Bank and having considered the many documents which were discovered by both parties, I think that his decision was right. I have already dealt with the Malta monies and it seems to me that the fact that Mrs Stanley who was acting for Mr Leonard refused to arrange the transfer of the moneys from London to the Company’s account in Dublin unless the Bank undertook to give a draft for £108,000 meant that the Bank could not accept the £120,000 unless they agreed to issue a draft for £108,000.
Reliance was also placed on cheques drawn on the No. 3 account payable to King Finance Ltd. The Bank queried these because they thought that Mr Leonard (of whom they were highly suspicious) was building up deposits with other banks but they were given a perfectly reasonable explanation for these cheques. Mr Leonard undoubtedly used cheques drawn on the No. 3 account to pay some *185 personal expenses but as this is a common practice of directors in private companies, the banks were not put on enquiry in relation to these sums which on the whole were small. Strong reliance was placed by the plaintiff’s counsel on Brightman’s J decision in Karak Rubber Company v Burden [1972] 1 WLR 602. I accept the principles decided by Brightman J in that case. He held that a paying bank was under a contractual duty to exercise such care and skill as would be exercised by a reasonable banker and that care and skill included, in appropriate circumstances, a duty to enquire before paying, and that a reasonable banker would make enquiries when there were grounds for believing that the authorised signatories were misusing their authority for the purpose of defrauding the Company of which they were agents. The circumstances however in which the cheque in that case came to be tendered to the paying bank were so unusual and out of the ordinary course of of banking business and the sum involved was so large that there was no reason for suspecting that someone was using the Company which had its account with Barclays Bank for a fraudulent takeover. In the instant case there was nothing to suggest (except in the Malta Ferry and the King Finance transactions) that there was anything unusual about the cheques which were drawn. They were within the mandate, they were the type of cheques which are drawn in many private companies and paying them was not negligent by the Bank.
Im my opinion, there should be judgment on the Bank’s counterclaim for £75,000 and an inquiry as to the amount of interest due to the Bank under the guarantee from 30 May 1975 up to the date of the taking of the account. There should, in addition, be an inquiry as to the interest due by the plaintiff to the Bank on £24,318 up to the date of the judgment in the High Court.
The defendants should be awarded their costs of the dismiss of the plaintiff’s claim in the High Court and this Court.
Further applications in relation to this case, when the inquiries before the examiner have been concluded and he has made up his certificate, should be made to the High Court.
In the matter of P.M.P.A. (Longmile) Ltd. (in liquidation)
and in the matter of the Companies Acts 1963-1990 P.M.P.A. (Longmile) Ltd. (in liquidation) v. Private Motorists Provident Society, (in liquidation) Applicants, Gulf Oil Ltd., Notice Party
[1993] IR 190
Ex tempore
Murphy J.
24th August 1992
This is an application to sanction a compromise between a number of companies all of which were associated with the Private Motorists Provident Association (“P.M.P.A.”) and are now in liquidation. The proposed compromise relates to the rights of those companies by way of subrogation or otherwise arising from their liability on foot of a guarantee dated the 31st December, 1982, in favour of the Private Motorists Provident Society Limited (“P.M.P.S.”). The facts with regard to the application are set out in the affidavit of Mr. David B. Deasy, the official liquidator of P.M.P.A. (Longmile) Ltd. (“Longmile”), and the exhibits referred to therein. The validity of the guarantee aforesaid was the subject-matter of proceedings before this court and judgments given therein on the 4th March, 1991, and the 26th April, 1991. (see [1992] 1 I.R. 315 and [1992] 1 I.R. 332]
On the 19th December, 1983, when an order was made for the winding-up of P.M.P.S. by the court, it had advanced substantial sums of money to twenty one of the forty four companies which had entered into the guarantee aforesaid. The total sum due on foot of the guarantee whether by the primary debtor or the guarantorsamounted to £2,239,717. A sum of £260,000 has been received by P.M.P.S. from P.M.P.A. Car Leasing Ltd. with the result that calculations for the purposes of the present application were based on a sum outstanding of £1,979,717.19.
The immediate practical difficulty is that it is impossible to say with any degree of precision the amount of the dividend which any of the guaranteeing companies would be in a position to pay. It might be some years before this precise figure could be ascertained. The essential feature of the compromise for which the sanction of the court is sought is that the rights of the parties be determined by reference to estimates which have been carefully and skilfully made but nevertheless estimated. I have no hesitation in sanctioning this approach. The alternative quest for perfection would involve delay and expense which would not be in the interest of any of the parties. However two different propositions have been advanced to the court as to how the computationsalbeit based on estimates of available assetsshould be made. These propositions emanate from Mr. Deasy as official liquidator of Longmile and from Mr. William Horgan, as liquidator of P.M.P.S. In essence, what Mr. Deasy proposes is that each of the guaranteeing companies should contribute to the amount due on foot of the guarantee in proportion to the estimated dividend payable by that company. What Mr. Horgan proposes has been described in Mr. Deasy’s affidavit in the following terms:
“It involves, in effect, the subrogation claims being discharged on the basis of each company making, so far as possible, an equal cash payment in addition to payment of the potential dividend on the primary debt liability.”
As to which of these is the correct procedure as a matter of law I have had the advantage of hearing very helpful argument from Mr. Aston, of counsel, acting on behalf of Mr. Deasy and Ms. Jane Marshall, solicitor, on behalf of Mr. Horgan.
Ms. Marshall explained that the “cash payment” to be made by each company over and above the payment of the appropriate dividend on the amount due in respect of the advance made to it was to be limited to a particular sum. This was described as the “capping” figure.
The legal justification for this approach was to be found in the decision of the Court of Appeal in England (affirming a decision of Mr. Justice Kekewich) in In re Parker: Morgan v. Hill [1894] 3 Ch. 400. In that case the court held that under s. 5 of the Mercantile Law (Amendment) Act, 1856, two co-sureties who had paid the creditor the entire of the debt were entitled to prove in the estate of their co-surety for the full amount of the debt even though they could only recover “the just proportion” which, as between the sureties, the co-surety was liable to pay. These words, “the just proportion”, are taken from s. 5 of the Mercantile Law (Amendment) Act, 1856, and presumably give effect as a matter of law to the equitable principle that the burden should fall equally on the sureties though each or any of them would be liable in full to the creditor. Parker’s case had in fact the interesting variation that whilst the individual sureties were liable only as amongst themselves for their proportion of the guaranteed debt, a guarantor was not confined in his claim but only in his recovery to an amount equal to the just proportion.
Clearly each party to the guarantee must repay the monies advanced to it in the ordinary way by paying the maximum dividend available on the debt due by it. However when it comes to apportioning the liability falling on the various companies by virtue of the guarantee given by it rather than the advances made to it it seems to me that even in an insolvency the just proportion rule should operate rather than the capacity of each company to pay measured by the rate of dividend payable by it.
For those reasons I have preferred what I may call “the Horgan solution” though I think it would be appropriate to pay tribute to the industry of both of the liquidators and their advisers in their efforts to resolve the impasse and expedite a solution to this long and troublesome matter.
National Asset Loan Management DAC v Stapleton
[2020] IECA 98 (09 April 2020)
JUDGMENT of Ms. Justice Donnelly delivered on the 9th day of April, 2020
Introduction
1. This is an appeal against an order for summary judgment made by the High Court (Noonan J.) on the 20th March, 2018 for €6,385,044.64 plus interest. The main point in this appeal is whether the respondent is entitled to pursue, at least for summary judgment, the appellant on foot of a Guarantee, in circumstances where a Mortgage signed on the same day and between the same parties, allegedly contains a non-recourse clause thereby superseding the Guarantee.
Factual Background
2. The appellant was the owner of certain lands in Gorey, County Wexford (hereinafter, “the lands”). On the 17th June, 2005, a company called Exito Limited (hereinafter, “Exito”) was incorporated for the purpose of purchasing the lands from the appellant and developing same. The appellant was at one time a director of, and shareholder in, Exito.
3. By contracts of sale dated the 11th July, 2005 and the 27th October, 2005, the appellant sold the lands to Exito for a sum of €29,000,000.00. The sale was left “resting in contract” with the appellant retaining a bare legal interest in the lands. The sale was left “resting in contract” for the primary purpose as Noonan J. stated, of “avoiding the imposition of stamp duty that would in the normal way apply, and there’s nothing irregular or improper about that. It is a perfectly standard and normal way of proceeding with a transaction of this nature. Because of that fact, the non-completion of the sale, it required the defendant himself to execute the terms of the mortgage.”
4. By letter of sanction dated the 24th October, 2005 (hereinafter, “the First Facility Letter”), Allied Irish Banks plc (hereinafter, “the Bank”) agreed to provide a facility in the sum of €21,500,000.00 to Exito to assist with the purchase of the lands from the appellant (hereinafter, “the Facility”).
5. By letter of sanction dated the 12th July, 2007 (hereinafter, “the Second Facility Letter”), the Bank extended the Facility and added a further sum of €4,550,000.00 which was stated to be for the purpose of developing the lands. The Mortgage and the Guarantee provided by the appellant continued as security for the Facility.
6. Security for the Facility included a collateral mortgage from the appellant over his legal interest in the lands (hereinafter, “the Mortgage” as referred to above) together with a first legal charge from Exito over its interest in the site. Additional security included five several guarantees and indemnities. These were sought from the shareholders of Exito, pro rata as to their shareholding. As a 25% shareholder, the appellant was required by the Bank to provide a guarantee (hereinafter, “the Guarantee”). The Guarantee was for the entirety of the debt of Exito but only 25% of the Facility was said to be recoverable from the appellant.
7. By separate deeds dated the 27th October, 2005, the appellant executed both the Mortgage in favour of the Bank over his interest in the lands and the Guarantee.
8. Pursuant to the National Asset Management Agency Act, 2009, the respondent acquired certain bank assets from the Bank including the above facilities advanced by the Bank to Exito, together with all securities including the Guarantee and the Mortgage.
9. As a result of the downturn in the economy post-2008, the value of the lands declined very significantly. The bank loan was not repaid. The underlying loan was called in on the 29th January, 2016, at which point the sum of €25,540,178.58 was outstanding. On the 10th May, 2016, the Guarantee entered into by the appellant was, in turn, called in following the non-satisfaction of the principal debt by Exito. In 2016, the respondent instituted the present summary judgment proceedings against the appellant in respect of his alleged liability under the Guarantee.
The Mortgage and the Guarantee
10. Clause 3 of the Mortgage specifically limited the Bank’s recourse under that deed to the appellant’s interest in the lands. The Mortgage provided at clause 3.01 as follows:
“The mortgagor hereby covenants with the Bank on demand to pay to the bank all moneys and discharge all obligations and liabilities whether actual or contingent now or hereafter due owing or incurred to the Bank by the Principal … PROVIDED HOWEVER the Mortgagor joins in this mortgage to the Bank solely to charge the mortgaged property with the repayment by the Principal of the secured monies. The Bank hereby acknowledges and declares to the Mortgagor that notwithstanding any other provision of this Deed or any other document, its recourse against the Mortgagor for all or any part of the secured monies and/or breach of covenant herein contained shall be limited solely to the mortgaged property and the Banks right as Mortgagee in respect thereof. The Bank hereby agrees and acknowledges that it shall have no further recourse against the Mortgagor or any other assets of the Mortgagor.” [Emphasis added].
11. Clause 5 of the Mortgage is prefaced with “As continuing security for the payment and discharge to or in favour of the Bank of the Principal’s obligations, the Mortgagor hereby:-…”
12. Under the heading “Continuing Security” clause 5.07 of the Mortgage provides as follows:
“Without any consent from the mortgagor and without affecting the mortgagor’s liability under or the validity of this mortgage/charge, the bank may renew, vary or determine any accommodation given to the principal and this mortgage/charge shall be a continuing security, shall extend to the ultimate balance of the secured monies and shall continue in force notwithstanding any intermediate payment or discharge in whole or in part of the secured monies and notwithstanding any settlement of account or other matter whatsoever and is in addition to and shall not merge with or otherwise prejudice or affect any contractual or other right or remedy or any guarantee, lien, pledge, bill, note, mortgage or other security whether created by deposit or documents or otherwise now or hereafter held by or available to the bank”.
13. Clause 9.03 provides:
“This security is in addition to and not in substitution for any other remedy, lien, security or securities now held or which may hereafter be held by the bank for the secured monies or any of them and nothing herein contained is to be deemed or taken in any manner to effect merger of any such remedy, lien, security or securities or to prejudice or affect the right of the bank at any time hereafter to pursue or otherwise proceed against the mortgagor for payment of all monies due or owing and for the time being remaining unpaid by the mortgagor to the bank and so forth.”
14. Under the definitions section, clause 1.01(f) states “‘the Principal’s Obligations’ means all monies, obligations and liabilities whether certain or contingent which now are or at any time hereinafter may be due, owing or incurred by the Principal to the Bank anywhere on any current or other account or in any manner whatever (and whether alone or jointly or jointly and severally with any other person or persons and in whatever style or name and whether as principal or surety or otherwise).” At clause, 1.01(l) “‘the secured moneys’ means all moneys and liability which the Mortgagor covenants to pay to the Bank or discharge under the covenants hereinafter contained.”
15. The Guarantee provided as follows:
“Damian Stapleton hereby unconditionally, guarantees to and indemnities (sic) the Bank the payment on demand by the Bank of all and every sum and sums of money (‘the Facility’) which now or shall at any time remain due and unpaid to the Bank pursuant to the Facility Letter between the Bank and Exito Limited dated the 24 day of October 2005 (‘the Facility Letter’ which expression shall include any amendments variations supplements or substitutions thereto) together with in all the cases aforesaid all interest discount and other bankers 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 by or to the enforcement of any such security.”
16. The Guarantee further provided that the total amount recoverable from the guarantor would not exceed 25% of the Facility together with costs, expenses and interest.
Clause 6 of the Guarantee provided: –
“This Guarantee shall be in addition to and shall not be in any way prejudiced or affected by any collateral or other security now or hereafter held by the Bank for all or any part of the monies hereby guaranteed nor shall such collateral or other security or any lien to which the Bank may be otherwise entitled or the liability of any person or persons not parties hereto for all or any part of the monies hereby secured be in any wise prejudiced or affected by this present Guarantee…” [Emphasis added].
Ex-tempore judgment of Noonan J. delivered on the 20th March, 2018
17. The appellant had argued that the respondent was not entitled to pursue him on foot of the Guarantee as it was bound by the separate provisions of the Mortgage which, in terms, limited the respondent’s recourse against him to his interest in the lands.
18. Noonan J. applied the principles of contractual interpretation articulated by O’Donnell J. in the decision of the Supreme Court in Law Society of Ireland v. Motor Insurers Bureau of Ireland [2017] IESC 31 i.e. the “text in context” approach. Accordingly, he was required to look at clause 3.01 of the Mortgage not in isolation, but having regard to all the relevant terms within the other documents that were in issue.
19. Noonan J. referred to clauses 5.07 and 9.03 of the Mortgage as well as the terms of the Guarantee itself. In respect of clause 5.07, he found that the following sentence was of particular importance: –
“…is in addition to and shall not merge with or otherwise prejudice or affect any contractual or other right or remedy or any guarantee, lien, pledge, bill, note, mortgage or other security whether created by deposit or documents or otherwise now or hereafter held by or available to the bank”.
In respect of the Guarantee, he noted that clause 6 of same (see above) was especially relevant.
20. Noonan J. held that the contention of the appellant was not supported by the terms of the Mortgage and the Guarantee. He found that the construction contended for by the appellant was a literal and narrow one and would have the effect of rendering the Guarantee “nugatory” and the security “entirely meaningless”. He also held that, when analysed in its proper context, the non-recourse clause in the mortgage only related to the appellant in his capacity as mortgagor and did not “supplant his several personal obligations assumed at the same time as the mortgage was executed by virtue of the terms of the contemporaneous guarantee”.
21. Noonan J. indicated that the “only rational and sensible construction that one can put on these documents as a matter of legal interpretation” was that the liability under the Guarantee was “separate, several and freestanding and was undertaken by the [the appellant] in an entirely different capacity from that undertaken by him under the terms of the mortgage.”
22. Noonan J. was satisfied that the case fell into the category of legal documents that are, to paraphrase the words of Clarke J. (as he then was) in McGrath v O’Driscoll [2007] 1 ILRM 203, “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.” Accordingly, he found that the appellant had not demonstrated that he had a fair or reasonable probability of having a bona fide defence and that the respondent was entitled to judgment in the amount claimed.
Notice of Appeal
23. The notice of appeal encompassed seventeen grounds of appeal. At the hearing of the appeal, the grounds crystallised into a contention that the motion judge erred in law and in fact in construction of the terms of the Guarantee and Mortgage and that while he identified the correct legal principles, he failed to apply them appropriately.
The Applicable Legal Principles
24. In Law Society of Ireland v. Motor Insurers’ Bureau of Ireland, the Supreme Court identified the method of “text in context” as the correct approach to interpretation. In that case, O’Donnell J. stated that the task of the Court was not merely a question of analysing the words used but to try to understand from all the available information, including the words used, what the parties agreed, or what a reasonable person would consider they had agreed. The Court must consider not just the words used but also the specific context, the broader context, the background law, any prior agreements, the other terms, other provisions drafted at the same time and forming part of the same transaction, and what might be described as the logic, commercial or otherwise, of the agreement.
25. Clarke C.J. in Jackie Green Construction Ltd v. Irish Nationwide [2019] IESC 2 referred to his own dissenting judgment in The Law Society of Ireland v. The Motor Insurers’ Bureau of Ireland, where he described the “text in context” method of construction in the following terms:-
“The modern approach has sometimes been described as the ‘text in context’ method of interpretation. It might be said that the older approach in the common law world placed a very high emphasis indeed on textual analysis without sometimes paying sufficient regard to the context or circumstances in which the document in question came into existence. On the other hand, it is important not to lose sight of the fact that the document whose interpretation is at issue forms the basis on which legal rights and obligations have been established. That is so whether the document in question is a statute, a contract, the rules of an organisation, a patent or, indeed, any other form of document which is designed, whether by agreement or unilaterally, to impose legal rights and obligations on either specific parties or more generally. To fail to have sufficient regard to the text of such a document is to give insufficient weight to the fact that it is in the form of the document in question that legal rights and obligations have been determined. However, an over dependence on purely textual analysis runs the risk of ignoring the fact that almost all text requires some degree of context for its proper interpretation. Phrases or terminology rarely exist in the abstract. Rather the understanding which reasonable and informed persons would give to any text will be informed by the context in which the document concerned has come into existence. Perhaps it is fair to say that the main underlying principle is that a document governing legal rights and obligations should be interpreted by the courts in the same way that it would be interpreted by a reasonable and informed member of the public who understands the context of the document in question. Such a person would, necessarily, pay a lot of attention to the text but would also interpret that text in its proper context.”
26. Clarke C.J. went on to state: –
“As is clear from those authorities, it is important to give due recognition both to the text of any document creating legal rights and obligations and to the context in which the words used in the measure concerned were chosen. To fail to give adequate weight to the words is to ignore, or downplay, the fact that those were the words that were chosen to define the relevant legal arrangement. To fail to give adequate weight to context is to ignore the fact that all language is inevitably interpreted by reasonable persons in the light of the context in which that language is used.
In addition, it is clear from the authorities referred to that part of the relevant context is the nature of the document governing legal rights and obligations whose construction is at issue. The more formal the document the less one would expect to find errors or looseness of language. Contractual documents entered into after careful negotiations between experienced lawyers on behalf of the parties may be seen to operate in a different context to, for example, the informal rules of a small association. In all cases the text is important, but part of the context in which that text needs to be considered is the manner in which that text was arrived at, and the circumstances which led to the text being required and/or agreed.”
27. Thus, there is a primacy to be given to the text, but the text must be interpreted in its context. In Point Village Development Limited (in Receivership) v. Dunnes Stores [2019] IECA 233, Whelan J. approved the observation of Lord Clark in Rainy Sky S.A. v. Kookmin Bank [2011] UKSC 50 that “[w]here the parties have used unambiguous language, the court must apply it.” Whelan J. quoted with approval, Lord Neuberger, who stated at para. 15 of Arnold v. Britton [2015] UKSC 36 as follows:
“When interpreting a written contract, the court is concerned to identify the intention of the parties by reference to ‘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’, to quote Lord Hoffmann in Chartbrook Ltd v Persimmon Homes Ltd [2009] UKHL 38, [2009] 1 AC 1101, para 14. And it does so by focussing on the meaning of the relevant words […] in their documentary, factual and commercial context. That meaning has to be assessed in the light of; (i) the natural and ordinary meaning of the clause, (ii) any other relevant provisions of the lease, (iii) the overall purpose of the clause and the lease, (iv) the facts and circumstances known or assumed by the parties at the time that the document was executed, and (v) commercial common sense, but (vi) disregarding subjective evidence of any party’s intentions.”
28. The applicable test for summary judgment was not in dispute. The principles in Aer Rianta Cpt v. Ryanair Ltd [2001] IESC 94 and Harrisrange Ltd. v. Duncan [2003] 4 IR 1 need no repetition. The test was pithily encapsulated by Hardiman J. in Aer Rianta Cpt v. Ryanair when he framed the test as to whether there was a fair or reasonable possibility of the defendant having a real or bona fide defence.
29. It is also appropriate to point to the judgment of Clarke J. (as he then was) in the High Court in McGrath v. O’Driscoll which was cited with approval by the Supreme Court in Danske Bank a/s (t/a National Irish Bank) v. Durcan New Homes and Others [2010] IESC 22, in which he stated: –
“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.”
Discussion and Decision
30. The above legal principles were accepted and relied upon by both parties. The issue of contention was in the application of those principles.
31. The appellant submitted that while the Court was entitled to consider the Mortgage and the Guarantee together, as well as all of the background information where plain words were used, the Court should be very slow to impose upon those words its own view of what the parties may have intended. This reluctance to impose a view applied both to the interpretation by way of the implication of additional terms, and under the guise of “business efficacy” (citing Point Village and the decision on the Court of England and Wales in Sinochem International Oil (London) Co Ltd v. Mobil Sales and Supply Corp (No.1) [2000] 1 All E.R. (Comm.) 474. Summary disposal of legal proceedings is the exception and the Court should be wary of dealing with complex interpretation of legal documents in the compressed format of summary proceedings.
32. I am satisfied that in these summary judgment proceedings, this Court must abide by the principle that it is only where there is no fair or reasonable possibility of the appellant having an arguable defence that the Court should dismiss the appeal. Moreover, as the construction of documentation is at issue, it is only where they can be construed in a relatively straightforward manner and there is no risk of injustice to the appellant that this Court should uphold the order of the High Court granting summary judgment. The overriding principle of construction is that of “text in context”. As Clarke C.J. stated in Jackie Greene Construction Ltd. v. Irish Nationwide, the document is to be interpreted as if by a reasonable and informed member of the public who understands the context of the document in question. This means paying a lot of attention to the text but also interpreting that text in its proper context.
33. The appellant submitted that the motion judge had found that this was a situation where there had been corroboration of the claim that this was a non-recourse loan. He pointed to that part of the judgment in which Noonan J. held that this situation was somewhat different to the usual manner in which these claims are made. This was because the wording of the Mortgage “would appear on its face, when read literally and in isolation, [to] support the [appellant’s] case.” I am satisfied however, that the appellant’s interpretation is not correct. Given the requirement to interpret “the text in context”, Noonan J. was not making a finding of corroboration, he was merely identifying a starting point for the examination of the claim that this was a non-recourse situation. It is also important to note that although there had been a general, if somewhat vague, claim made by the appellant on affidavit that there had been an understanding between himself and the representatives of the Bank that the non-recourse provisions of the Mortgage would take precedence over the Guarantee, this was not pursued at the High Court or on appeal. I am satisfied that this is a situation where the only matter at issue is the interpretation of the deeds themselves.
34. Relying on Analog Devices BV v. Zurich Insurance Co. [2005] 1 IR 274, the appellant submitted that where there is ambiguity in an instrument prepared by one party and presented to the other, it is well-settled that the ambiguity should be resolved contra proferentem. As these deeds were “bank documents”, prepared by the Bank and presented to the appellant for signature, to the extent that there is any ambiguity in them, they fall to be resolved in the manner more favourable to the appellant. The appellant submitted at the very least that this is a matter to go to plenary hearing if the Court is to have adequate regard to the express supremacy of clause 3.01 over inconsistent provisions in the Mortgage itself or in “any other document”. I am satisfied that such an argument only has relevance where the Court finds that there is an ambiguity. Most importantly however, if the Court finds that there is no relatively straightforward construction that can be given to the document, it must allow the appeal and send the matter for plenary hearing.
35. I am satisfied that, in so far as the Guarantee and the Mortgage were signed on the same day and concern issues arising from the indebtedness of Exito to the Bank, the First Facility Letter is an appropriate contractual document to which regard should be had as it puts the Mortgage and the Guarantee into context. In that First Facility Letter issued to the directors of Exito, I accept that there was a distinction between the appellant acting as vendor in providing what was in effect a collateral mortgage and the appellant as one of a number of guarantors connected with Exito, who were accepting a personal responsibility to repay a percentage of the Facility. This is apparent from the various security requirements which were provided for in the Facility; the Mortgage from the appellant, a first legal charge from the borrower over all its rights and interest in the site, and several guarantees and indemnities. The fact that those guarantees were pro-rated from the shareholders in Exito was important because the appellant was engaged in two separate roles, i.e. as vendor of his bare legal interest and as a shareholder. The requirement in the special conditions also indicate an awareness on the Bank’s part in the importance of the Guarantee as the Facility required the Bank to be provided with Certified Net Worth Statements for each of the guarantors.
36. It is of some note that the Guarantee in itself was an unambiguous guarantee and indemnity by the appellant of the debts of Exito to the Bank but which only permitted the total amount recoverable to be 25% of the Facility. A significant feature is that clause 6 of the Guarantee also provides that the Guarantee is in addition to and not prejudiced or affected by any collateral or other security. Clause 3 of the Guarantee also provides that it shall not be considered to be satisfied by any intermediate payment but shall be a continuing security and shall extend to cover any sum or sums of money which for the time being constitutes the balance due from Exito to the Bank. On its face therefore, the Guarantee is enforceable regardless of any other collateral and security and there is no bar to recovery in summary proceedings against the appellant.
37. The crucial issue of course, is the construction of the Mortgage itself. The parties put forward diametrically opposed versions. The appellant put forward a complex interpretation of the Mortgage. His overall contention is that the wording of clause 3.01 of the Mortgage specifically excludes recourse against the appellant (save in respect of the mortgaged property) arising from the provisions of “any other document”, which phrase includes the Guarantee.
38. The appellant pointed to the wording in clause 3.01 which is a promise to pay the liability of a third party (Exito). He submitted that the covenant to pay is not actually connected to the charging clause of the Mortgage and points to the opening part of clause 5 of the Mortgage above. He submitted that what is charged is not a liability of the mortgagor to the Bank established by clause 3.01 but rather the liability of Exito to the Bank. In clause 3.01, the proviso states that the mortgagor joins in the Mortgage to the Bank solely to charge the mortgaged property with the repayment by the principal (Exito) of the secured monies. He pointed to clause 1.01 which defines the secure monies as the covenants of the mortgagor to pay the Bank or discharge the covenants. He submitted that if taken literally, there was nothing with which to charge the mortgaged property because Exito does not itself covenant to pay what the mortgagor covenants to pay under clause 3.01 (by reference to the definition of secured monies). Of course, the mortgagor actually promises to pay the already existing liability of Exito. Clause 5 charges the already existing and direct liability of Exito to the Bank.
39. In referring to clause 3.01 and to the limitation on the Bank’s recourse, the appellant submitted that there is a direct link between the secured monies and the covenant contained in the Mortgage in respect of which the Bank’s recourse against the appellant is limited and to the direct liability of Exito to the Bank. The appellant pointed also to the Guarantee which he says is not dissimilar to the Mortgage in so far as it is a guarantee of the entirety of Exito’s liability to the Bank, but subject to the proviso that only 25% is recoverable. Indeed, the appellant submitted that the liability under each deed is total. In that situation, the appellant submitted that the respondent’s contention that there is a distinction between the liability under the Mortgage and the liability under the Guarantee is not watertight. Both instruments have the effect of the appellant assuming a responsibility to pay a debt owed by Exito to the Bank.
40. In those circumstances, the appellant submitted that the justification for constraining the operation of the limitation on recourse contained in the proviso to clause 3.01 breaks down. Therefore, the limitation “notwithstanding any other provision of this deed or any other document” applies.
41. The respondent on the other hand, submitted that clause 3.01 of the Mortgage, is the most important clause and has three component parts to it. The respondent referred to the covenant to pay and disagreed with the appellant who submitted that this did not support the security in the case. In the respondent’s submission this is the consideration that underpins the charge.
42. That part of the clause which provides the reason for the mortgagor joining the Mortgage reflects the fact that the appellant as vendor, with bare legal title to the lands is not taking on any direct liability of Exito, but is simply ensuring that the Bank will have security not just over the beneficial interest of the lands because of the Exito charge, but will have security over all the appellant’s legal interest over the lands.
43. In relation to the third part, which is the most contentious and which provides that the recourse against the mortgagor is restricted, the respondent pointed to the recourse as being all or any part of the secured monies and/or for breach of covenant. Counsel submitted that the monies secured are those which the mortgagor covenants to pay. This, he submitted, is the covenant referred to at the beginning of clause 3.01. The recourse of the Bank to the appellant is excluded in respect of the covenant to pay and any beach of covenant in the Mortgage. In his submission, this was a self-contained document which was plain on its face. There was an agreement to pay the monies but the appellant was only joining the Mortgage for the purpose of securing the lands in favour of the Bank. Thus, the Mortgage creates a liability and then gives comfort in the liability in respect of the same document. The appellant in reply to this submission said that the respondent had failed to engage with his central contention that what was charged was not the liability of the mortgagor to the Bank as in clause 3.01, but rather the liability of Exito to the Bank.
44. The respondent argues that the interpretation placed on it by the appellant flew in the face of commercial sense, the arrangements disclosed by the Facility and security documentation and, the fact that the Mortgage limitation was addressing the covenant to pay under the Mortgage. On the other hand, the appellant submitted that it is not necessary or appropriate in an application for summary judgment to speculate on why the Guarantee was entered into. In so far as the Mortgage secured the debt, the provision of the Guarantee could be seen as a ‘belt and braces’ approach. The Court was reminded that occasionally parties can make bad deals and it was not a part of the Court’s function to interfere with a bad deal.
45. The appellant submitted that the situation whereby a Mortgage contains a covenant on the part of the mortgagor to pay the debt of a third party was a somewhat unusual one. I do not accept that it is particularly unusual in the circumstances that occurred here where there was a “resting in contract” situation. It is also true that parties may enter into a bad deal, if so, it is not a part of the Court’s function to interfere with what has been agreed between the parties. That is not the same as saying that a court must wilfully blinker itself as to both the specific and broader context, including prior agreements and what might be termed the logic, commercial or otherwise, of the agreement. As stated above, those are among the matters a court is obliged to take into account in the “text in context” approach to construction. I am satisfied therefore that in light of the context of the First Facility Letter, the provision of two separate securities, independently executable, is part of the context that must be taken into account in the construction of the deeds.
46. Turning directly to the Mortgage; clause 3.01 is the covenant by the appellant as mortgagor to pay the Bank all monies and discharge all obligations and liabilities of Exito. That covenant to pay is subject to the proviso that the appellant was only joining the Mortgage solely to charge the mortgaged property with the repayment by Exito of the secured monies. Those secured monies, as earlier defined, were those which the appellant covenanted to pay to the Bank or discharge under the covenants in the Mortgage.
47. The contentious clause limits the Bank’s recourse against the appellant for all or part of the secured monies or breach of covenant contained in the Mortgage deed solely to the mortgaged property and the Bank’s right as mortgagee in respect thereof, notwithstanding any other provision or any other document. The Bank acknowledged that it shall have no further recourse against the mortgagor or any other assets of the mortgagor.
48. The appellant complains that the respondent’s assertion that it is plain on its face does not in fact make the Mortgage plain on its face. In my view, the reality is that when read in a straightforward manner and paying particular attention to the text of the Mortgage, the plain meaning of the Mortgage is that it was designed to deal, in a self-contained fashion, with the security being provided by the appellant over his bare legal interest in the lands. The three components of clause 3.01 are interlinked and also interplay with the interpretation of “the secured monies” in clause 1.01. The covenant in clause 3.01 does not create an obligation to pay beyond what might be recovered under the Mortgage. The proviso and the limitation on recourse are clearly directed to the position of the appellant in his capacity as mortgagor and not in his capacity as guarantor. This interpretation is further enhanced by the clear contextual background of the terms of the Facility and of the separate Guarantee (executed on the same day). The reference to “any other documents” when considered in context does not have the wide ambit contended for by the appellant.
49. I also agree with the respondent’s submission that when one construes clause 3.01 in this light, the subsequent clauses 5.07 and 9.03 make perfect sense. Under 5.07, the covenant to pay the secured monies under the Mortgage is in addition to and shall not merge or otherwise prejudice any separate security held by the Bank including any guarantee. Thus, clause 5.07 is entirely inconsistent with the argument that the Guarantee is unenforceable. The appellant submitted that the motion judge had made inconsistent findings in that although the terms of the Mortgage did not affect the right to recover under the Guarantee, the motion judge had appeared to rely upon clause 9.03 as evidencing a right to proceed against the appellant in his capacity as guarantor. In my view, it is not so apparent from the judgment that the motion judge held that clause 9.03 gave a right to proceed against the appellant in his capacity as guarantor. In any event, I am satisfied that this clause serves the function of preserving rights. It ensures that rights are not lost inadvertently or that the rights under the Mortgage do not distract from existing rights.
50. In relation to the submission of the appellant concerning the interpretation of the charging clause at the beginning of clause 5, I am satisfied that this point must be rejected in light of the true construction of clause 3.01 as set out above. The covenant to pay is set out at the beginning of clause 3.01 and relates to the secured monies which are those obligations of Exito to the Bank which the appellant as mortgagor covenanted to pay under clause 3.01. The proviso makes clear that the appellant/mortgagor joined the Mortgage solely to charge the mortgaged property with the repayment by Exito of the secured monies. The interpretation of these provisions as set out above is entirely consistent with that contained at the outset of clause 5.01.
51. Despite the submissions of the appellant that summary judgment cannot be granted on the Guarantee because of the stated limited recourse in the Mortgage, a considered, careful and straightforward construction of the Mortgage does not have that effect. There is no injustice in permitting the respondent to obtain summary judgment against the appellant. For the reasons set out in this judgment I would dismiss the appeal.
52. As this judgment is to be delivered electronically, it is necessary to add that Whelan J. and Power J. agree with the judgment.
Whelan J:
I have had the opportunity to read the judgment delivered by Donnelly J. and I agree with the
conclusions reached therein.
Power J:
I have had the opportunity to read the judgment delivered by Donnelly J. and I also agree with
the conclusions reached therein.
Result: Appeal dismissed.
McGrath -v- Godfrey
[2016] IECA 178 (15 June 2016)
JUDGMENT of Ms. Justice Irvine delivered on the 15th day of June 2016
1. This is an appeal against the order of the High Court (Barr J.) made on 11th January, 2016 and perfected on 12th January, 2016, whereby he refused the defendant’s (Mr. Godfrey’s) application to set aside an order of the Master of the High Court dated 14th February, 2014. That Order granted the plaintiffs liberty to enter final judgment against Mr. Godfrey for a total sum of €1,400,000 together with interest on the sum of €1m from 8th May, 2012, and an order for their costs to be taxed in default of agreement.
Background
2. The background to the judgment is that on 19th December, 2012, the plaintiffs issued summary summons proceedings on foot of personal guarantees allegedly afforded by Mr. Godfrey to each of them dated 21st May, 2007. Those guarantees were stated to support a total sum of €1m. loaned by them to Greenhill Investment Limited, a company of which Mr. Godfrey was a director and which has an address in Bulgaria. That loan is not disputed. The company having defaulted upon its repayment obligations, the plaintiffs, by letter dated 8th May, 2012, called upon Mr. Godfrey to meet his liabilities under the guarantees.
3. It should be stated that Mr. Godfrey’s application to set aside the order of the Master dated 14th February, 2014, was supported by his own affidavit sworn on 14th December, 2015. The matters which he relied upon were replied to by Mr. Orm Kenny, the plaintiffs’ solicitor, in an affidavit of 6th January, 2016. Mr. Godfrey did not seek to file any supplemental affidavit challenging the content of Mr. Kenny’s affidavit which dealt with the service of the summary summons, notice of motion and grounding affidavit and also the matters relied upon by Mr. Godfrey to support his assertion that he had a bona fide defence to the proceedings.
4. In his notice of appeal dated 22nd January, 2016, Mr. Godfrey made a number of assertions as to fact, many of which related to the service of the proceedings, which he had not deposed to on affidavit when his application was dealt with in the High Court. Yet further factual claims were advanced by him in his written submissions. In addition, he lodged a number of further affidavits in support of his appeal.
5. The first of these affidavits was that sworn by Ms. Anne Murphy on 8th February, 2015, wherein she stated that she had accompanied Mr. and Mrs. Godfrey to Bulgaria on 17th January, 2013, and that they had remained there until 25th January, 2013. The second was an affidavit sworn by the defendant’s wife, Mrs. Margaret Godfrey, on 5th February, 2016. In her affidavit she stated that when she arrived home from Bulgaria on 25th January, 2013, she saw no document in the house with her husband’s name on it. She also confirmed that during the weeks which included 24th June 2013, and 20th January 2014, no post had arrived for her husband from the plaintiffs. She also advised that on 18th December, 2013, a man had come to their home looking for her husband. When she informed him that he was not there he allegedly put his foot in the door and was persistent to the point that she told him that she intended calling the gardai with the result that he left. The third affidavit was that of Mr. Joe Godfrey, the defendant’s son, who asserted that his father left home at 7:55 a.m. on 16th January, 2013, and did not return until 25th January 2013. He claimed that nobody had come to the door of the house that morning and that he had found no document left in the letterbox. Thankfully, for the purposes of this appeal, it is not necessary to consider the weight that a court might reasonably attach to affidavits, such as those to which I have just referred, wherein the deponents have each asserted that they are in a position to recollect what, if any, post came through the letterbox of their home on a particular day or in the course of a particular week several years earlier.
6. Given that this is not an appeal from an interlocutory order, the approach which has been adopted by Mr. Godfrey on this appeal in seeking to introduce the aforementioned new material is highly irregular and is not in conformity with the Rules of Court. However, given that he represented himself at the hearing of the appeal, I feel that I should briefly summarise the more significant matters referred to by him in the aforementioned documentation, given that I am satisfied that these matters are not critical to or determinative of the outcome of the appeal.
7. Mr. Godfrey maintains that:-
(i) he was never served with the summary summons either personally or by ordinary pre-paid post;
(ii) he was not at his home on 18th December, 2013, when Mr. McGlynn attended for the purposes of seeking to effect service of the notice of motion. His wife was present but she was not served;
(iii) the summons should have been sent by registered post because post “goes missing” in Ireland;
(iv) there were no personal guarantees and he signed no such documents;
(v) the first he knew of any court proceedings was in July, 2015 when he was advised of the existence of a European Enforcement Order, and
(vi) the effect of the judgment obtained against him has been that his shares in his Bulgarian companies have been seized and those companies are in the process of being liquidated and their assets sold off at a substantial undervalue.
Chronology and summary of the evidence before the High Court
8. The following is a brief chronology and summary of the evidence which was before the High Court Judge at the time he made his order.
9. As I have already stated, the plaintiffs issued a summary summons on 19th December, 2012. Mr. Simon Kennedy, the solicitor on record for the plaintiffs at that time, in his affidavit of 13th March, 2013, averred that he travelled to Limerick on 16th January, 2013, for the purposes of effecting service. He telephoned Mr. Godfrey prior to his arrival and told him that he had a document to serve on him. Mr. Godfrey advised him that he was going to Bulgaria and said he would phone back with the name of the solicitor upon whom the summons could be served. When he did so he advised Mr. Kennedy that he was not prepared to accept service. He did not want to be rushed in light of his travel arrangements. He then advised Mr. Kennedy that he was not at his home at Fedamore.
10. Mr. Kennedy, according to his affidavit, then drove to the defendant’s home where he states he saw a man and woman walking to a motor car. They went back into the house as soon as they noticed him. He states that he was satisfied that the man in question was Mr. Godfrey. Accordingly, he tried to telephone him again but this time his phone went through to an answering machine. He left a message stating that he intended posting the High Court writ through his letterbox.
11. Mr. Kennedy’s account of what transpired between himself and Mr. Godfrey on 16th January, 2013, was brought to the Court’s attention in the course of an application for substituted service made on 24th June, 2013.
12. An order for substituted service of the summons was duly perfected by Birmingham J. on 26th June, 2013, and this permitted service to be effected by ordinary pre paid post on Mr. Godfrey at his home address. Service was effected on 28th June, 2013, and an affidavit relating to that service was sworn on 17th July, 2013.
13. Regrettably, further difficulties were encountered when the plaintiffs sought to serve their motion for liberty to enter final judgment. At that stage, Mr. David McGlynn, a summons server, travelled to the defendant’s address for the purposes of serving the relevant documents. Mr. McGlynn, in his affidavit sworn on 6th January, 2014, deposed to the fact that when he attended at the defendant’s home the door was answered by a female who identified herself as Mr. Godfrey’s wife and that when he asked to speak to Mr. Godfrey he then came to the door. As soon as Mr. Godfrey began to read the documents handed to him, Mr. McGlynn stated that Mr. Godfrey became very aggressive and abusive. As already advised, Mr. Godfrey denies any such conduct in circumstances where he maintains that he was not present on that occasion. Regardless of the dispute between the parties as to what actually occurred, the plaintiffs’ advisers clearly concluded that proper service had not been effected and that it would be necessary to apply once again for an order for substituted service of the motion for liberty to enter final judgment.
14. That application for substituted service was made to Peart J. on 20th January, 2014, when he made an order permitting service of the motion to be effected by ordinary pre paid post at Mr. Godfrey’s home address. Mr. Orm Kenny, the plaintiffs’ solicitor, by affidavit dated 7th February, 2014, deposed to the fact that he served the notice of motion and the order of Peart J. by posting the same to the defendant at his aforementioned address on 30th January, 2014.
15. On 14th February, 2014, the defendant having failed to appear to the motion, the Master of the High Court granted the plaintiffs liberty to enter final judgment against Mr. Godfrey. Judgment was later entered in the sum of €1,543,880 on 17th April, 2014.
16. As already stated, Mr. Godfrey maintains that he only became aware of the judgment in July, 2014 and that it then took ten weeks for his solicitor to ascertain how the judgment had been obtained against him.
17. Mr. Godfrey further advised in the course of his affidavit of 15th December, 2015, that he had a bona fide defence to the proceedings including but not limited to the fact that the plaintiffs had entered into a contract with a limited liability company of which he was a director, namely Greenhill Investment Limited, which was registered in Bulgaria and which contract contained a clause giving the courts of Bulgaria exclusive jurisdiction concerning any contractual matters as might arise between the parties. Thus, he maintained that he had no liability to the plaintiffs and that the justice of the case required that the judgment be set aside and that he be given liberty to defend the action.
18. In reply, Mr. Orm Kenny in his affidavit sworn on 6th January, 2016, referred to the history concerning the service of the proceedings so as to demonstrate that Mr. Godfrey could not have been unaware of the existence of the proceedings. He maintained that it was perfectly clear that the defendant was engaged with the proceedings from the time the plaintiffs first sought to effect service of the summons upon him on 16th January, 2013. He thus challenged the credibility of Mr. Godfrey’s claim that he was taken by surprise when judgment was entered against him. Further, Mr. Kenny asserted that Mr. Godfrey could have no bona fide defence to the proceedings because the claim was against him personally and not as against his company. The claim was one based upon guarantees which were repayable on demand and lawful demand had been made by letter dated 8th May, 2012. Further, the guarantees provided that the parties thereto would submit to the jurisdiction of the Irish courts.
The relevant principles
19. The jurisdiction of the Court to set aside a judgment obtained in default of appearance is contained in Ord. 13, r. 11 of the Rules of the Superior Courts, 1986. It provides as follows:-
“Where final judgment is entered pursuant to any of the preceding rules of this Order, it shall be lawful for the Court to set aside or vary such judgment upon such terms as may be just.”
20. It is clear from this rule that the relief that may be afforded to an applicant is one which is at the Court’s discretion. However, the rule provides no guidance as to the circumstances in which a Judge might exercise that discretion and neither does it seek to impose any time constraints upon the intended applicant. Helpful assistance in relation to the first of these matters is however to be found in the decision of Peart J. in Allied Irish Banks plc v. Lyons [2004] IEHC 129, in which he emphasised the breadth of the discretion conferred by the rule and the necessity for the Court to seek to achieve justice for both the plaintiffs and the defendant. This is what he said at p. 4 of his judgment:-
“Clearly a wide discretion is given to the Court in its task of achieving justice between the parties, but the interests of both parties must be taken into account in the weighing exercise undertaken by the Court in considering the interest of each party, and not simply the hardship and distress pleaded on behalf of the applicant in this case.”
21. It is usual for an applicant who seeks relief under Ord. 13, r.11 to be in a position to demonstrate that there was some sort of irregularity in the proceedings or the procedure whereby the judgment was obtained. Where such an irregularity is established the Court will normally set aside the judgment without enquiring into the merits of the applicant’s proposed defence and will do so without the imposition of any terms. The logic which underpins this approach is that given that the judgment should never have been obtained in the first place the parties should rightly be restored to the position they would have enjoyed had judgment not been so obtained. This is what Clarke J. stated at para. 2.1 of his judgment in O’Tuama v. Casey [2008] IEHC 49 concerning the jurisdiction of the Court in such circumstances:-
“[W]here judgment is obtained irregularly, the court will normally set aside the judgment without enquiring into the merits of the proposed defence. The logic of this position is that the judgment should not have been obtained in the first place and a plaintiff who has obtained judgment irregularly should not have any benefit by reason of having obtained judgment in that fashion. On the other hand, where judgment is obtained regularly, the court may, nonetheless, be persuaded to set aside the judgment so as to permit the defendant to defend the proceedings but will only do so after considering the possible merits of the defence which the defendant would wish to put forward.”
22. It is important in this context to note that the Court will demand proof of strict compliance with the Rules of Court by a party who seeks to stand over a judgment obtained in default of appearance. This, in my view, is extremely important having regard to the potential grave consequences for any defendant against whom judgment is obtained, as is aptly demonstrated by the matters deposed to by Mr. Godfrey in the present case. In this case the plaintiffs maintain that that they strictly complied with the relevant Rules of Court and that the affidavits of Mr. Kennedy and Mr. McGlynn clearly establish that the service effected on Mr. Godfrey was in compliance with the Court orders earlier referred to.
23. If, a court is satisfied that a plaintiff obtained judgment in an entirely regular manner, the defendant who seeks to set aside that judgment faces a significantly enhanced burden of proof. The relevant principles would suggest that they must demonstrate first that they have a bona fide defence to the proceedings. After all, it would be wholly unjust to a plaintiff if a court were to set aside a judgment which they had obtained unless it was satisfied that it was doing so for the purposes of enabling a defendant mount a credible defence to the proceedings. In this regard Peart J. in Allied Irish Banks plc v. Lyons accepted that the threshold to be met by the defendant was higher than merely establishing an “arguable case”. He adopted the threshold approved of in The Saudi Eagle [1986] 2 Lloyd’s Reports 221, where it was held by Sir Roger Ormrod that it was insufficient to establish an “arguable case”. It was necessary for the applicant to demonstrate that their intended defence had a “real chance of success”. Secondly, the applicant must convince the court that, having regard to all of the relevant circumstances and in particular the interests of each of the parties, the balance of justice would favour the setting aside of the judgment.
24. Balancing the interests of the parties is far from straightforward when a court is satisfied that the applicant has established the existence of a defence which has a real chance of success. The deliberations of Peart J. in Allied Irish Banks plc v. Lyons demonstrate the dilemma for the presiding judge. In that case Peart J. had to balance the prejudice to AIB who had obtained judgment and registered that judgment as a mortgage against the second named defendant’s premises against the prejudice to be visited upon her if she were not permitted to defend the proceedings. The latter alternative would have left the second named defendant to seek to remedy her situation by suing her solicitor whose mistake it was that enabled the bank to obtain judgment and register it against her home. He referred to the stress, potential costs and uncertainty regarding the outcome of that litigation, which he noted would be ongoing at a time when the bank would be free to seek to execute its judgment against her family home.
25. Often times, in its efforts to strike a balance between the interests of the parties, the court will grant the relief sought but impose terms and conditions on the defendant in an effort to provide some type of security for the plaintiff who is likely to be prejudiced by the granting of the relief sought.
26. The most frequent example of this type of application i.e. an application to set aside a judgment which was regularly obtained is one brought by a defendant who seeks to rely upon some mistake on the part of their solicitor as a result of which judgment was obtained against them. The decision in Allied Irish Banks plc v. Lyons is one such example.
Decision
27. In the present case the High Court judge decided Mr. Godfrey’s application on the grounds that he was satisfied that the summary summons and the motion seeking liberty to enter final judgment had been validly served in accordance with the two orders for substituted service earlier referred to. In other words he was satisfied that the judgment had been obtained in a regular fashion in accordance with the Rules of the Superior Courts. In coming to that conclusion the trial judge referred to the relevant affidavits of service.
28. Mr. Godfrey’s principal complaint before the High Court was that he only became aware of the instigation of the proceedings after judgment had been obtained and that he had not been served with any notification of the proceedings. What he did not contest, however, was the plaintiffs’ assertion that service had been effected in a regular manner in strict compliance with the Rules of Court and the orders for substituted service.
29. Thus, I am satisfied that the High Court judge was correct in concluding that the judgment had been validly obtained by the plaintiffs. That being so, the only basis upon which Mr. Godfrey was entitled to seek to have the judgment set aside was to demonstrate that he had a real chance of successfully defending the proceedings and to convince the Court that in all of the circumstances and having regard to the interests of all of the parties, that the balance of justice favoured the granting of the relief sought.
30. The fact that a court may be satisfied that a judgment was regularly obtained having regard to proof of compliance with an order for substituted service, does not mean that a defendant who can establish that they have a real chance of successfully defending the proceedings and can prove that they knew nothing of the proceedings might not seek to rely upon that fact to urge the that the justice of the case would favour the judgment being set aside. For example, if a defendant against whom judgment was obtained on foot of an order for substituted service which directed that service be effected by ordinary post to his home address, could establish that his house lay vacant in Ireland three months either side of the date upon which service was effected because he and his family were on a six-month sabbatical in another jurisdiction, undoubtedly the court, even though satisfied that valid service had been effected, would be entitled to consider whether those facts might, having regard to the interests of the other party, justify the judgment being set aside. However, he would only be entitled to pursue that argument if he could satisfy the court that he had a real chance of successfully defending the claim.
31. However, a plaintiff who obtains an order for substituted service does not have to prove that the defendant actually received the documents the subject matter of that order in order to satisfy the court that the judgment was regularly obtained. After all, an order for substituted service is only made if the court is satisfied that in effecting service in the manner proposed, the proceedings are likely to reach the defendant or come to his knowledge. The right to order substituted service exists, inter alia, so as to ensure that proposed defendants will not readily be able to evade service of legal documents and thus thwart a plaintiff’s right of access to the courts. It would be pointless if, in circumstances where a plaintiff had obtained judgment having complied with an order for substituted service, a defendant could seek to set aside that judgment, regardless of whether they had a bona fide defence to the proceedings, based upon an assertion that they had not actually physically received the proceedings. A wily defendant might decide to evade service comfortable in the knowledge that once advised that judgment had been obtained he would likely be in a position to successfully apply to have the judgment set aside on a simple averment that he personally had never received copies of the proceedings.
32. Accordingly, even if Mr. Godfrey had the right and entitlement to rely upon the affidavits of Margaret Godfrey, Anne Murphy and Joe Godfrey, the same could not avail him for the purposes of arguing that the judgment was obtained irregularly such that he was entitled, without any further consideration of the existence of his likely defence to the proceedings, to have the judgment set aside.
33. Notwithstanding the conclusion of the trial judge that the summons and notices of motion were properly served and the judgment regularly obtained, the High Court nonetheless enjoyed discretion to set aside the judgment if satisfied that Mr. Godfrey had a real chance of successfully defending the proceedings and that having regard to the interests of all of the parties that the justice of the case warranted such an approach. Accordingly, the second issue for this Court’s consideration is whether the trial judge’s failure to exercise that discretion in favour of the defendant can be impugned.
34. As is often stated, even though an appellate court enjoys the right to interfere with an order made by a High Court judge in the exercise of his or her discretion, significant deference should be afforded to such orders and they ought not lightly be interfered with. See the decision of this Court in Collins v. Minister for Justice, [2015] IECA 27 and that of MacMenamin J. in Lismore Builders v. Bank of Ireland Finance [2013] IESC 6.
35. As advised earlier, where a plaintiff has obtained judgment in a regular manner, prior to setting aside such a judgment, the Court must be satisfied that the defendant has demonstrated that they have a defence which has a real prospect of success.
36. Mr. Godfrey, in his only affidavit sworn in the High Court, raised only one ground upon which he might defend the proceedings. He sought to rely upon the fact that the contract entered into between the plaintiffs and Greenhill Investment Limited had an exclusive jurisdiction clause which provided that any contractual dispute between the parties thereto would be governed by the laws of Bulgaria and subject to the exclusive jurisdiction of the Bulgarian courts.
37. Mr. Orm Kenny, in his replying affidavit, drew the Court’s attention to the fact that the plaintiffs’ claims were brought on foot of personal guarantees. They were not claiming pursuant to the terms of the contract referred to by Mr. Godfrey in his affidavit. He also referred to the jurisdiction clause in those guarantees which provided that the parties thereto had agreed to submit to the jurisdiction of the Irish courts. Thus he maintained on his client’s behalf that Mr. Godfrey had no potential defence to the proceedings and that in the circumstances it would be unjust for the Court to set aside the judgment.
38. Having regard to the content of Mr. Kenny’s affidavit and the fact that Mr Godfrey advanced no other potential ground of defence in the course of the High Court hearing, I am quite satisfied there was no legal or factual basis upon which Barr J. could have exercised his discretion in favour of Mr. Godfrey.
39. Mr. Godfrey, in the course of this appeal, has sought to convince the Court, by reference to materials that were not put before the High Court, if the judgment were to be set aside that he could mount a defence to the claim which has a real chance of success. His defence centres upon his assertion that he never saw or signed any personal guarantees. However, that is nothing more than a bald averment and he has not set out any facts to challenge such evidence as has been advanced by the plaintiffs in support of their claim. For example, notwithstanding the affidavit of Mr. Kenny in the High Court, which made it abundantly clear that the plaintiffs’ claim was based upon individual guarantees, and which guarantees were exhibits to the grounding affidavit, Mr. Godfrey did not challenge the validity of that claim, or the validity of the documents themselves. Further, by letter of 8th May, 2012, (exhibit PMcG 3 to the affidavit of Padge McGrath), the plaintiffs’ solicitors wrote to Mr. Godfrey at his address at Fedamore, Co Limerick, referring to the personal guarantees which he had allegedly executed in favour of each of the plaintiffs and wherein five separate demands referring to those guarantees were enclosed. He has not denied on affidavit receipt of this letter and its contents and neither as he provided any explanation as to why he did not challenge its contents. Also, in the course of the appeal before this Court, when referred to one such guarantee Mr. Godfrey accepted that the signature thereon would appear to be his. In any event, given that these were not matters raised before the High Court they do not fall to be dealt with by this Court in its assessment as to the manner in which the trial judge exercised his discretion.
40. For my part, having regard to the evidence which was before the High Court I am quite satisfied that Barr J. cannot be faulted for the manner in which he exercised his discretion. Insofar as Mr. Godfrey has come before this Court is a lay litigant I believe that it is important for Mr. Godfrey to understand that even if he had put all of the evidence which he has sought to introduce in this Court before the High Court, it would have been well within the High Court judge’s discretion to have refused to set aside the judgment.
Conclusion
41. For the reasons stated earlier in this judgment I am not satisfied that the High Court judge erred in the manner in which he exercised his discretion when he refused the defendant’s application to set aside the judgment obtained by these plaintiffs on 17th April, 2014.
42. The judgment so obtained was procured in a regular manner and in accordance with the Rules of the Superior Courts. In particular, service of the relevant documentation was effected on the defendant in the manner provided for in the orders made providing for substituted service. These were the orders made by Birmingham J. on 26th June, 2013, and Peart J. on 27th January, 2014.
43. The High Court judge, having been satisfied that the plaintiffs had fully complied with their obligations under the Rules of the Superior Courts concerning service of the summons and the motion for judgment, was entitled to uphold the aforementioned judgment.
44. In circumstances where the judgment was obtained in a regular manner, the onus was on the defendant to demonstrate the existence of a defence which had a real prospect of success and thereafter to establish the existence of some special circumstances such that, having weighed the interests of both parties, would have warranted the trial judge setting aside the judgment. Integral to that issue was proof by the defendant that he would be in a position to pursue a defence which had a real chance of success if the order were to be set aside. For my part, I am satisfied that he did not discharge that onus in the materials which he put before the High Court. That being so there was no need to consider further whether any issues which Mr. Godfrey has raised concerning his knowledge of the proceedings might have given the Court good reason to set aside the judgment.
45. For the sake of completeness, having regard to the fact that Mr. Godfrey appeared before this Court as a lay litigant and sought to introduce evidence which he had not put before the High Court, I will do more no more than express my considered view that even if all of that evidence had been placed before the High Court judge, I am satisfied that he would have been acting well within his discretion had he refused to grant the defendant the relief which he sought.
46. For all of these reasons I would dismiss the appeal.
McGrath v O’Driscoll
, High Court, June 14, 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.
Lombard and Ulster Banking Ltd v William Murray and Maire Murray
1985 Nos. 880 SP and 820 SP
High Court
7 May 1986
[1987] I.L.R.M. 522
The plaintiffs in 1981 lent a company called Verona Investments a sum of £250,000 in accordance with the terms of a facility letter of 10 August 1981. Verona were the registered owner of a plot of land near Bullock Harbour, Dun Laoghaire, contained in Folio No. 14601 of the County of Dublin. Two apartment blocks had been built on the land and Verona were planning to build two more through the agency of an associated company called Aegis Investments Ltd. The money was lent to assist Verona to purchase four freehold penthouse apartments in the existing blocks. Naturally the plaintiffs required security for their loan. They sought and obtained a legal mortgage of the four penthouses, and required the defendants herein (who were directors of Verona) jointly and severally to guarantee the repayment of the debt and to support this guarantee with a mortgage of a house in Dargle Road, Kilcroney, and another in Whitworth Road, Drumcondra.
The plaintiffs at the same time also lent a further substantial sum to Aegis. Mr William Murray (the first named defendant) was a director and secretary of this company and it was granted a licence by Verona to develop the Bullock Harbour site by building a third block of twelve luxury apartments on it. A facility letter of 24 August, 1981 stated that £500,000 was to be lent for the purpose of this development and required that as a security for its loan, (a) a first legal mortgage over the building licence be granted by Verona to the company, and (b) in addition that the repayment of the debt would be guaranteed in the manner set out in the letter. The first of these was a guarantee by Verona who were required to support it by *524 a mortgage of the four freehold penthouse apartments and also of the freehold site contained in Folio 14601. The second was a joint and several guarantee of the defendants (and a third party, a Mr Tom Farrington) to be supported by charges on the Dargle Road property and the Whitworth Road property referred to in the earlier facility letter.
Both companies defaulted in their repayments. On 14 March of this year Aegis owed the plaintiffs £682,908.62 whilst Verona owed them £320,714.88
Arising out of Aegis’ debt the plaintiffs instituted two sets of proceedings. They did not sue Aegis for the debt (presumably because of its lack of assets) but instead brought proceedings against the first surety, Verona, and Aegis jointly for possession of the lands in Folio 14601, basing their claim on their rights as mortgagees of the respective interests of the defendants in the lands. A decree for possession was made on 25 July 1985. Both defendants appealed and the matter is pending before the Supreme Court.
The second set of proceedings are the ones with which I am concerned. In an action (Record Number 1985 No. 820) the plaintiffs sued two of the other sureties of the Aegis debt, Mr and Mrs Murray, claiming, as mortgagees, possession of the defendants’ lands at Dargle Road. The deed of mortgage on which they rely was entered into on 9 November 1981 between the plaintiffs, Aegis, and the defendants. In it the defendants and Aegis jointly and severally convenanted to pay on demand all monies which Aegis might owe the plaintiffs, and the defendants, as beneficial owners, conveyed the fee simple interest in the lands at Dargle Road (which are more particularly described in the endorsement of claim on the summons herein) to the plaintiffs. Clause 5(f) of the deed provided that the plaintiffs could at any time enter into possession of the mortgaged property. Possession was demanded and refused and thereafter these proceedings were instituted.
The defendants do not deny that Aegis is indebted to the plaintiffs as alleged, and do not dispute the validity of their guarantee or the mortgage. However, they resist the plaintiffs’ claim on the ground that if the plaintiffs succeed in confirming the High Court order for possession of the lands in Folio 14601 (which Verona and Aegis have appealed) then the proceeds of sale of those lands will be sufficient to pay the debt due by Aegis. In other words, it is submitted that the plaintiffs are not entitled to exercise the right to possession given to them under the mortgage deed until they have exercised the rights they assert against the principal debtor (Aegis) and another surety (Verona). The defendants have not made clear what their grounds of appeal are, or what the plaintiffs’ rights would be if they should lose the appeal and be deprived of their remedy against the defendants’ co-surety.
There is no doubt that a creditor is not bound to sue the principal debtor before suing a surety (see Halsbury’s Laws of England , 4th Ed. Volume 20, paragraph 186) and I do not understand the defendants, defence to the *525 present claim as being based on (a) the failure of the plaintiffs to sue their principal debtor (Aegis) for the debt, or (b) the fact that these proceedings were instituted prior to the conclusion of the proceedings taken against their principal debtor (Aegis) as mortgagors of the licence agreement relating to the Bullock Harbour lands. The defendants’ submission is a different one. Their suggestion is that before suing them as surety of Aegis’ debt and exercising their rights as mortgagees of the Dargle Road property, the plaintiffs should firstly have maintained their claim against the defendants, co-surety (Verona) and should the Supreme Court so order they should exercise their right to possession and sale of the Bullock Harbour lands before seeking payment from a sale of the defendants’ lands. In effect this seems to me to be based on an extension of the equitable doctrine of marshalling of securities and the defendants appear to assert that they enjoy some equity which would require the plaintiffs to seek redress against the defendants’ co-surety before releasing the security which the defendants gave to support their guarantee.
But I do not think that the doctrine of marshalling is of any assistance to the defendants. As pointed out in M’Carthie v McCarthy [1904] I IR 100:
The right and duty to marshal funds constantly arise when a Court of Equity is administering those funds, but marshalling is merely an arrangement or adjustment which the Court makes for the purpose of giving effect to some existing or established equity, and the extent to which it will be applied varies according to the nature of the equity on which it is based (at p. 114).
The doctrine cannot be relied on as a defence to proceedings instituted by a creditor against one of several co-sureties, and the authorities to which the defendants’ counsel referred do not establish any equity which would entitle one surety to require that a creditor should maintain a claim against another co-surety which it had already instituted before seeking redress against a co-surety. Gee v Liddell [1913] 2 Ch 62 was a decision relating to the parties to be joined in a foreclosure action. The court’s judgment referred to the interest of a co-mortgagor in the estate of a person to whom the money is advanced. But this has no relevance to a situation, like the present one, in which two sureties have separately mortgaged different properties as security for their separate guarantees. The same comment applies to In re A Debtor (No. 24 of 1971) Ex parte Marley v Trustee of the Property of the Debtor [1976] 2 All ER 1010 and In re, Pettortou (A Bankrupt), Ex parte Trustee of the Property of the Bankrupt [1985] I All ER 285, the first being a joint mortgage entered into by a father and his son in favour of a creditor who had advanced money to the son, and the second being a joint mortgage by a husband and wife of a family home in theit joint names in favour of a bank to whom the husband was indebted.
I can see no reason, therefore, why the plaintiffs cannot pursue their remedies against the defendants under the mortgage given as security for *526 their contract of guarantee. It was submitted on the defendants’ behalf that a decree for possession was not the appropriate remedy in this case. I agree that at one time it was considered that a decree for possession in a mortgage suit was a remedy available only as ancillary to other relief. But that has not been the case for some considerable time (see Irish Permanent Building Society v Ryan, [1950] IR 12).Accordingly, there will be a decree for possession, subject to the filing of an affidavit by the plaintiffs’ solicitors under Order 9, r. 14 verifying the averment that there is no one in possession of the lands other that those served with the summons herein.
Whilst it is not necessary for the court in proceedings where a mortgagee is seeking an order for possession to determine the amount due to the mortgagee I think I should point out (because the point was raised by the defendants’ counsel) that after the deed of 9 November 1981 was executed, by which the defendants covenanted to pay all sums due by Aegis to the plaintiffs, the plaintiffs entered into a written guarantee on 10 February 1983 in respect of Aegis’ indebtedness to the bank. But this was expressly limited to the sum of £450,000 together with interest thereon at the rate recoverable by the plaintiffs from Aegis at the date of demand and thereafter at the same rate until payment. The parties it seems to me have amended their agreement of 9 November 1981 by the terms of the later agreement of guarantee and on a sale by the plaintiffs as mortgagees of the property the amount due to them must be calculated by reference to the sum to which they are entitled under the 1983 guarantee.
The second action before me (Record No. 1985 No. 880) is a claim by the plaintiffs against the defendants as sureties for the debt owed by Verona to the bank. As already pointed out to support this guarantee the defendants agreed to give a first legal mortgage over, inter alia, certain property at Whitworth road, Drumcondra. In fact a mortgage of this property was executed to secure the defendants’ guarantee of Aegis’ debt in the deed of 9 November 1981 to which I have already referred. The parties, however, agreed to release that property from that mortgage and the defendants agreed with the plaintiffs that they would make an equitable mortgage by way of deposit of Title Deeds of other property known as ‘Tower House’, at Santry, in the City of Dublin, (which is described with greater particularity in the summons herein) to support their guarantee of Verona’s indebtesness. The equitable mortgage was duty effected by the deposit of the Title Deeds on 22 December, 1983. Verona has failed to pay the plaintiffs what they are owed and the plaintiffs have instituted these proceedings claiming a well charging order and sale of the Santry property.
Again, the defendants have not contested the indebtedness of Verona to the plaintiffs, or the validity of the guarantee or of the equitable mortgage. But Mr Murray has challenged the plaintiffs’ right to a well-charging order (see paragraph 6 of his affidavit of 12 February last) by *527 suggesting that if the Supreme Court should confirm the order for possession of the Bullock Habour lands contained in Folio No. 14601 that ‘it can expect to realise a sum greater than the principal debtor’s indebtedness to the plaintiffs’. But this defence is clearly based on an error of fact. Folio No. 14601 was not charged with any liability in respect of Verona’s debts (only the fee simple of four penthouses were subject to a mortgage in their favour) and if an order for possession is confirmed in the earlier proceedings which are now under appeal and the lands are sold the plaintiffs can deduct the amount due under the guarantee of Aegis’ debts but not sums payable to them by Verona. Clearly, therefore the defendants have no defence to the well charging order to which the plaintiffs as equitable mortgagees are entitled.
The facility letter of 10 August 1981 to Verona required that the defendants herein should execute a joint and several guarantee. This they did on 11 August 1981. Under its terms, however, their total liability was limited to a sum of £250,000 ‘together with interest thereon at the rate recoverable by the bank from the customer at the date of demand and thereafter at the same rate until payment…’. As the plaintiffs do not appear to have calculated the sum due by the defendants according to this provision I will adjourn the hearing to allow this to be done. I will then make a well charging order in relation to the sum now due under the terms of the guarantee.
In Re Harold Clifford Pring, a Bankrupt
High Court.
16 May 1947
[1947] 81 I.L.T.R 116
Dixon, J.:
The first matter that arises is a contention by Mr. McCann which, if well-founded, would fundamentally affect the position and rights of the Irish National Insurance Co. Ltd. (whom I shall call “the Insurance Co.”) This is that, by entering into the agreement of 5th March, 1943, they thereby took a security in respect of their possible liability under the guarantee of 4th January, 1943, and precluded themselves from relying on any implied right of indemnity. The principal authority for this proposition is the case of Toussaint v. Martinnant (2 Term. Rep. 100). This case was decided in 1787, at a time when it had not been long established that a surety, who had not taken a countersecurity, could nevertheless recover over against his principal. The same concession had not then been extended to a surety who had taken a security; but I am not satisfied that it is now the law that a surety who takes a security loses any other right of recoupment or indemnity he may have. The case cited seems rather isolated, its facts were rather special—in particular, the surety had taken a bond from the principal conditioned for payment of the amount of the guaranteed instalments before the first of them would be due—and it is not cited in the text books as an authority for the proposition in question as a rule of law now applicable. Indeed, the modern text-books do not lay down any such proposition; except, perhaps passages in Halsbury based on Toussaint v. Martinnant.
The effect of the agreement of 5th March, 1943, seems to be that, if there were default *119 in the performance of the contract of 7th January, 1943 (which may conveniently be called the “building contract”) and to which the guarantee of 4th January, 1943, related the assignment to the Insurance Co. of the contract of 23rd May, 1942 (which may be called “the engineering contract”) would become operative and the Insurance Co. would be bound to complete it. The underlying idea was, evidently, that the engineering contract would prove sufficiently advantageous to recoup the whole or part of the prospective loss by the Insurance Co. on the building contract. In fact, the Insurance Co. lost on both contracts and thus is obviated the question which might have arisen as to the party entitled to any excess of profit on the engineering contract over the loss on the building contract. On the other hand, counsel for the Insurance Co. renounces any claim to prove in the bankruptcy for the loss on the engineering contract.
I hold that, notwithstanding the agreement of 5th March, 1943, the Insurance Co. is entitled to prove in the bankruptcy for their loss on the building contract. Before coming to the question of the amount of such loss, it is necessary to state my view of the situation which has arisen and of the respective rights and liabilities of the parties. It is quite clear that the building contract was, before its completion, validly determined by the Board of Works under clause 19 thereof on 17th June, 1943. The contract then ceased to be operative except in so far as it provided for this contingency. The main provision in this respect—and the only one dealing with the rights of the contractor—is clause 20. Under this clause, there is a provision that, in case any work shall have been done by the contractor for which he shall not have been paid, the Board shall, on the completion of the work but not sooner, pay to the contractor such a sum of money only as the architect, or some other fit person to be appointed for that purpose by the Board shall, under his hand, certify to be the value of such work. In making such certificate, the architect or such other person is, on the one hand, to make all just allowances to the contractor and, on the other hand, to debit or charge him with all extra expenses (if any) caused by the determination of the agreement and by the completion of the works either by the Board or by engaging another contractor or other contractors. There is a further provision for the Board entering and taking possession of the works and all materials etc. upon the ground, and making to the contractor, in respect thereof—presumably in respect of the materials etc.—such allowance (if any) on the completion of the works but not sooner as the architect or some such other fit person as aforesaid shall certify to be proper.
The reference in these portions of clause 20 to the completion of the works relates back to the commencement of the clause where it is provided that the Board should have power to cause the works to be proceeded with by themselves and by such person or persons as they shall think proper and to do and execute all such works as they think proper for completing the works; and there is a complementary provision for the architect certifying the amount expended in the completion of the works and that the contractor shall pay to the Board, as liquidated damages, any excess of that amount over the balance (if any) of the contract price as might remain in the hands of the Board. Presumably, such excess could legitimately come within the “extra expenses … caused … by the completion of the works” which may be included in the other certificate provided for in clause 20 and already referred to; and the unpaid balance of the contract price might, in some circumstances, be a “just allowance” for the purposes of that certificate.
The works provided for in the Building Contract were in fact completed by the Insurance Co. under an arrangement with the Board of Works and by the employment of another builder. I have not the precise terms of that arrangement before me but, whatever it was, I do not think it could be claimed that the works had been completed by the contractor in accordance with the building contract. There is nothing to suggest that the notice determining that contract on 17th June, 1943, was waived or withdrawn; and I think it is reasonably clear, and hardly disputed, that the Insurance Company caused the works to be completed as in their view a less expensive alternative to paying the Board of Works what it might cost the Board of Works to complete. In so far as there was an arrangement with the Board of Works, I must hold that that arrangement was a fresh contract in the sense of not reviving or continuing the building contract. As between the Insurance Co. and the bankrupt, the net loss of the Insurance Co. would be the difference between what the completion cost them and the amount received by them from the Board of Works. The position of the latter, as one would assume even if it was not implicit in the correspondence would seem to be that they were not going to pay more in all, whether to the Insurance Co. or to the bankrupt or to both, than the original contract price.
This net loss of the Insurance Co. is the amount for which they would be entitled to *120 claim in the bankruptcy, if two preliminary questions are resolved in their favour. The first would bear only on the question of amount, viz. whether they had used their best endeavours to minimise the loss. They obtained several tenders for the completion of the works and it is not suggested that the figure they accepted was unreasonable. Accordingly, I do not think any difficulty can arise on the question of amount. The second question is whether they are precluded from claiming by the terms of the guarantee bond which is conditioned for the surety, on default by the contractor, satisfying and discharging the damages sustained by the Board of Works. It is said that, in the events that have happened, the Board of Works have sustained no damage as they have not paid and are not liable to pay more than the original contract price, and that the Insurance Co. have paid no damages. This contention, however, overlooks, I think, the reality of the situation which does not seem to me to differ essentially from the Board of Works having themselves completed the works and been recouped the excess costs over the contract price by the Insurance Co. Accordingly, I think this contention fails.
I cannot deal with the matter of this net loss on the basis that the Insurance Co. is clearly entitled to receive the unpaid balance of the contract price from the Board of Works. That is a matter primarily between them and outside the bankruptcy. Neither can I treat it as a simple question of apportioning that balance. I think the supervening adjudication of the bankrupt makes this difference that I have to differentiate between the rights of the bankrupt as against the Board of Works and the rights of the Insurance Co as against the Bankrupt. I am not satisfied that a right of set-off or subrogation exists in the circumstances of the present case nor have I been referred to any authority on the point. The case of McMahon Ltd v. O’Neill ([1915] 2 I. R. 384, 49 I. L. T. R. 129) cited by Mr. Kelly, is very analogous inasmuch as neither the bankruptcy nor the fact that the builder had not been paid in full for the portion of the work done by him prevented the sureties being held entitled to be recouped to the extent of the unpaid contract price, but the actual decision only concerned a portion of the retention moneys as to which the claim of the Official Assignee had already been declared to be barred. The consideration of the claims of the Official Assignee and the other parties to the balance of the retention moneys was postponed.
Accordingly, the position as I see it is that the bankrupt, as represented by the Official Assignee is entitled as against the Board of Works to the amount, if any, certified by the architect under the provision of clause 20 of the contract already referred to. I do not know if this will be much or little but, quite possibly, something will be payable since he was not, apparently, paid in full for the work he did and, in the actual events, the Board of Works were put to little extra expense in respect of completion. This is based on the view which I take that there has been a completion of the works within that clause. The items and amounts in that certificate are a matter for the architect. In particular, it is a matter for him to say whether the whole or any part of the sum of £99 14s. 1d., alleged to be incurred as expenses due to the delay in completion, should be debited as an expense caused by the determination of the agreement or by the completion of the works. If he debited the whole of this sum to the contractor, I do not think it could be said to be unreasonable or improper. Similarly, it is a matter for him what sum, if any, he inserts as an allowance in respect of the plant and materials on the site or used by the contractors who completed the work. The amount in respect of this mentioned in the correspondence is £220 18s. 0d., but this figure is not binding on the architect.
If, as may happen, the certificate shows some balance due to the bankrupt, this may have the effect of increasing to that extent the loss of the Insurance Co. Whether it does or not depends on the terms of their arrangement with the Board of Works with which I am not now concerned. If, as I assume, the Board of Works have not contracted to pay more than the original contract price in one way or another, it will clearly increase the loss of the Insurance Co. and they should be entitled to amend their proof of debt accordingly.
The foregoing covers all the matters now in dispute save the sum of £136 2s. 8d. in respect of which I granted the amendment of the notice of motion sought by Mr. McCann. This represents a sum paid before the bankruptcy to an attorney of the contractor and later transferred to the Insurance Co. and credited by them against their loss on the building contract. It suffices to say as to this amount that I do not see on what principle I could direct them to pay it over to the Official Assignee their greatest liability being to give credit for it as they have done.
In the light of the foregoing. I can deal with the several claims for relief as follows:—
(a) Does not arise. *121
(b) Declare the Official Assignee entitled to claim such sum, if any, as may be certified by the architect or other person under clause 20 of the building contract as due to the bankrupt.
(c) to (g) Do not arise.
(k) Declare the Irish National Insurance Co. Ltd. entitled to prove in the bankruptcy for the said sum of £1,530 6s. 7d. and for such further sum, if any, as may represent a loss sustained by reason of the declaration at (b).
(j) to (n) Do not arise.
(j) (1) and (2) (Amendment) Refused.
As to costs, the matters raised were important and required to be decided and I think all the parties should have their costs as costs in the bankruptcy.
Cases Duress Undue Influence
ACC Bank -v- Dillon & Ors
[2012] IEHC 474 (12 November 2012)
Judgment of Mr. Justice Charleton delivered on the 12th day of November 2012
1.0 The plaintiff bank seeks judgment against the first defendant Gerard Dillon and the second defendant Patrick Corrigan for €1,493,181, representing personal loans to each of them, and also seeks judgment against the first defendant and the second defendant, jointly and severally, for €5,383,181 in respect of guarantees for the indebtedness of the third defendant Cordill Construction. That company as it is now in the receivership of the plaintiff bank through a fixed and floating charge over its assets. The appointment of a receiver was in May 2011. Any question as to its loans has already been dealt with, or is being dealt with, elsewhere in the commercial list.
1.1 The background to the case is a series of three loans to Cordill Construction to develop a site at The Claddagh in Galway City. The first was for €3,490,000 for a term of twelve months and is evidenced by a facility letter dated 23rd November, 2006; the second was for €750,000 for a term of twelve months to purchase an additional adjoining site and is evidenced by a facility letter dated 3rd January, 2007; and the third was for €1,000,000 for a term of nine months and is described as “additional development finance” in the relevant facility letter which is dated 6th September, 2007. Gerard Dillon and Patrick Corrigan were directors of Cordill Construction. These facility letters do not contain the usual personal guarantee by directors which is an almost standard obligation of bank loans at this time. Instead, in the first such facility letter reference is made to the “net worth statement” of Cordill Construction as borrower and a condition is inserted that should this drop below the level then disclosed to the plaintiff bank, the directors would each have to give a personal guarantee jointly and severally in the amount of €750,000 each. No such guarantee was ever given despite the net worth of the borrowing company falling markedly, as did the net worth of a great majority of construction companies in Ireland, from the autumn of 2008. Instead, in a series of meetings and telephone calls at that time, the plaintiff bank insisted on personal guarantees from the directors for the continuation of the then overdue loan facilities. These personal guarantees were given by the first and second defendants, who claim not to be bound by the same.
Defence
2.0 The defence of the first and second defendants is that prior to entry into the loan facilities, the plaintiff bank, through its relationship manager in Longford, Michael Dillon, the brother of the first defendant, represented that: (1) at no time in the future would the plaintiff bank require the furnishing of personal guarantees by either the first or second defendants in respect of monies loaned to Cordill Construction; (2) at no time in the future would the plaintiff bank require personal guarantees to be furnished by the first and second defendants in order to ensure that the loans granted to Cordill Construction were not called in and/or a receiver appointed; (3) it was the policy of the plaintiff bank at that time that such loans entered into by Cordill Construction would not then and would not at any future stage require to be backed by personal guarantees from the first and second defendants; (4) the policy of the plaintiff bank would not be subject to alteration in that regard; (5) the banking relationship in the present and in the future would always be non-recourse to the first and second defendants.
2.1 This is the core of the defence. In addition, a number of claims are made based upon a lack of consideration for the guarantees by the directors, the tort of misrepresentation and a collateral contract based on the claims made. These defences cannot succeed without the core defence being established by the first and second defendants and central to that defence is that the personal guarantees obtained in the autumn of 2008 were procured by duress.
2.2 Personal borrowings were also taken out by the first defendant. In evidence it has not been claimed that there is any basis for any defence to the claim for judgment on these loans. Instead, it is argued that since damage has been caused to the first and second defendants by duress, a counterclaim based on this tort is sustainable.
Key events
3.0 In a credit report dated 15th July, 2006, the plaintiff bank’s relationship manager Michael Dillon introduced his brother and his brother’s company Cordill Construction as suitable for a business relationship with the plaintiff bank. He noted that the directors would not give personal guarantees, as this was not their policy. In evidence for the defence he said that his brother, the first defendant, was adamant that this would not happen. The credit committee of the plaintiff bank noted this situation but there is nothing in the documentation either then or later to support the proposition that a representation was made by Michael Dillon that the bank were never to return and seek a personal guarantee. Instead, he made it clear that while he might introduce the business, the credit committee of the plaintiff bank would make all the decisions. That position, he said, was well known if not to the first and second defendants as businessmen then to Tom O’Callaghan, the financial controller of Cordill Construction, who did not give evidence. Insofar as contrary evidence has been given by the first defendant Gerard Dillon, it does not overcome the ordinary proposition that business prudence would have dictated proper analysis within the company as to any major financial commitment. Added to that, the facility letters of 23 November, 2006, 3 January, 2007 on 6 September, 2007 are clear as to their intent and purpose; all were signed by the first and second defendants as directors of Cordill Construction.
3.1 Throughout 2007, the market for residential property responded negatively to sales of houses and apartments; this market was overvalued by around 300%, with development land being overvalued by much more. The apartments at The Claddagh in Galway did not sell. A cash flow crisis was thus caused in Cordill Construction. It was hoped that in 2008 the market would return to the inflated values of 2006. That did not happen. Five years later, the true position as to the property values in Ireland is yet to be firmly established. As of 2008, the term of all of the loans had expired. On 20 August, 2008 a meeting was held in the plaintiff bank’s premises at which Gerard Dillon and Tom O’Callaghan attended for Cordill Construction and the plaintiff bank was represented by senior credit managers. Most of these gave evidence, with the exception of Eric Gottenbos who could not attend as he was in Australia and an attempt to take video evidence from him was futile because of a breakdown in technology.
3.2 I take the case given by the first defendant at its highest. He says that he was told that if personal guarantees were not forthcoming from the directors, the first and second defendants, that the bank would exercise its rights under the loan agreement with Cordill Construction to call in a receiver. This, he said, would have the effect of undermining State contracts, as the company was then the second largest school builder in Ireland, would disrupt existing contracts and because receivers rarely carry on businesses as a going concern, would cause the 50 employees of the company and 200 or more site workers in various jobs to lose their employment. This was regarded by Gerard Dillon, a clearly decent person, as a horrible prospect which left him with no option but to furnish personal guarantees. At the meeting itself, no agreement was forthcoming from him. He claims that his will was overborne by that meeting and in particular by the threat made to appoint a receiver. On 5 September, 2008, the matter went to the credit committee of the plaintiff bank. It decided that personal guarantees were required from the directors. On 10 September, 2008, a spirited refusal was delivered from Cordill Construction to the plaintiff bank protesting against personal guarantees. On 1 October, 2008 the credit committee affirmed that personal guarantees were required in the event that the term of the loans were to be extended. On 6 October, 2008, a senior official in the bank, Eoin Gavigan, rang Gerard Dillon and told him of the decision of the credit committee. The next day the first and second defendants changed their minds and agreed to supply personal guarantees for the Cordill Construction loans. A report to that effect by Eoin Gavigan was sent to the credit committee on 13 October, 2008 and two days later it agreed that extending the term of the loans was the appropriate course to take, rather than the appointment of a receiver. The relevant guarantee documentation was sent to the first and second defendants and was returned signed on 8 December, 2008. A complaint was made in the course of the exchanges by letter, already referred to, that a penal rate of interest was being charged. This was treated by the plaintiff bank as a complaint and was dealt with by a refund which would be large in other circumstances but which made little difference to the level of indebtedness of all of the defendants by this stage. The relevant guarantees were headed with a black warning box, all too familiar in these cases, stating that if the debts were not repaid by the borrower the guarantors would be personally responsible and that legal advice of an independent variety should be sought.
Past consideration
4.0 A contract not under seal must be supported by consideration. This means that there is either some detriment to the promisee, for instance by giving value, or some benefit to the promisor. However many parties there are to a contract, this principle can be looked at in a mirrored away from the point of view of each party vis-à-vis the other. One party gets something by giving their promise to give something, while the other party has the expectation of that benefit and at the same time promises or delivers a value which the other wants in return. Rarely will courts condemn a bargain on the basis of the inadequacy of consideration as sometimes it is to the benefit of the parties to establish an underlying bargain by reference to the legality of a price that does not reflect the surface reality. Beneath the surface may be something which the parties to the contract want to happen and which they have pursued through fair negotiation. An example might be the sale to the State of a historic building where a family no longer have the means to restore it, the sale taking place in the expectation that public money will preserve part of Ireland’s heritage for the benefit of its people. Such sales, for instance of Kilkenny Castle, have taken place for a nominal value. Similarly, a small rent, which does not reflect the relevant market rent may be agreed in order to ensure that a lease of premises is subject to the certainty of landlord and tenant law as opposed to the vagaries of an agreement among friends. A caretaker agreement might be chosen instead as another legal instrument that establishes certainty but with a very small return. Without such a substratum, an improvident bargain may be relieved in equity or the nature of the interaction between the parties to a contract may be scrutinised as to whether their relationship undermines the quality of their bargaining power with a view to analysing whether undue influence should result in a contract being avoided.
4.1 A bank loan is a promise to make money available for a particular time. The borrower promises to repay within that time. The lender is not obliged to extend the loan beyond the term bargained for. In some circumstances, the written terms of a collateral contract are subject to such a clear and express purpose by way of representation that the parties minds may be said to have met and agreed thereon. Such a collateral agreement, despite a written contract that does not seem to include it, may bind any attempt to step outside it. Such obligations cannot be open-ended; they must be precise. Rarely can a collateral bargain be resorted to so as to overturn what the parties have reduced to writing as their entire contract. But if there is proof that an underlying and express purpose in definite form was agreed, then there may be an enforceable contract that is collateral to the principal agreement. A representation by one of the parties that the written form is to be expressly overridden in respect of a particular term may also enable a contract to be construed outside the written form; Curtis v Chemical Cleaning and Dying Co [1951] 1 KB 805 and generally Treitel – The Law of Contract (13th ed, Peel, 2007, London) pp 260-262 as to overriding exemption clauses. The proof required for these forms of contractual alteration battles against the certainty of express written terms. Whilst a collateral contract is not impossible despite a written agreement, it is not proven in these circumstances.
4.2 The plaintiff bank did not give an open-ended assurance that, no matter what might happen, personal guarantees would never be required from the directors of the borrowing corporation. As a matter of ordinary sense, it must be remembered that such a company might collapse; it might be taken over by individuals less trustworthy than the first and second defendants; the buildings that were the subject of the loan might be so badly built as to be unsaleable; or the term of the loan might be so extended as to change any reasonable underlying expectation that might be proven by either party to the contract. What happened here was that because of the personal guarantees given by the first and second defendants, the loans were extended through renewals on 13 November, 2008 to 30 April 2009; on 14 April, 2009 to 30 October, 2009; and on 21 December, 2009 to 30 April, 2010. As noted, it was another year before a receiver was appointed by the plaintiff bank in May 2011. In each instance, there was a demand for repayment which could not be met and in each instance the original contract had terminated and required fresh consideration to support any new bargain.
4.3 McKay and Another v. National Australia Bank Ltd [1998] 1 V.R. 173 has been cited as supporting the defence of past consideration. It is not an authority which can relieve the first and second defendants of their personal guarantees for the debts of Cordill Construction. In that case, the bank held guarantees from two directors of a corporation. When the bank became concerned that their level of security might be inadequate, a fresh level of guarantee was sought and obtained from those directors. The consideration was expressed as being the provision of “banking accommodation” and was attractively dressed up as a forbearance “to enforce immediate payment”. This was not sufficient. On appeal, the Supreme Court of Victoria overturned a decree in favour of the bank at first instance and reasoned that consideration was past: the loans had not been called in and the original guarantee of the directors was an existing bargain that had not been replaced by a new contract supported by anything additional to the existing arrangements. Such consideration as there had been was past and the new arrangements were not supported by any fresh consideration from the defendant bank. The judgment of Winneke P. at pp. 177-178 sets out principles that also represent the law in this jurisdiction:
It is, of course, well established that the contract of guarantee, if not under seal, must be supported by consideration and that the onus of proving that there is consideration to support it is on the party who seeks to rely upon it: J. O’Donovan and J. Phillips, The Modern Law of Contract of Guarantee, 3rd ed., [1966], pp. 52-3. The consideration relied upon to support the guarantee must be real and valuable and not illusory or a sham: Reid Murray Holdings Ltd. v. David Murray Holdings Pty. Ltd. [1972] 5 S.A.S.R. 386. Thus the mere recitation in a document of guarantee that the guarantee was given for consideration for “advances to be made” by the person to whom the guarantee was given will not, by itself be sufficient to support the guarantee if the evidence demonstrates that no such advances were, or were intended to be made: Elder, Smith and Co. Ltd. v. McKellar [1895] 21 V.L.R. 644 at 668, per Hood J.
Furthermore, “past” consideration is not sufficient consideration. A guarantee given to secure debt already incurred, but unsupported by any further consideration, will fail for want of valuable consideration:
… if it is evident that the guarantee was intended to be limited to past transactions alone, for example, because the surety new that the principal debtor was already indebted to the creditor in an amount exceeding the limit of the surety’s guarantee, the guarantee will be void as being given without consideration.
Chitty on Contracts, 27th ed., (1994), p. 1314: see also Halsbury’s Laws of England, 4th ed., re-issue, vol. 20, para. 140.
In this case the document of guarantee, executed by the appellants on 20 February 1987, was in the respondent bank’s usual form. The consideration for the giving of guarantee was expressed as follows:
IN CONSIDERATION of the Bank at the request of the Guarantor making loans and advances or providing banking accommodation to the customer whether alone or jointly or in conjunction with any other person and/or in consideration of the Bank at the request of the guarantor for daring to enforce immediate payment of money is (if any) now due and owing by the customer to the Bank …
It was not contended by the respondent, either before the learned judge or on appeal, as any consideration by way of “forbearance to sue” was given by the bank to support this guarantee. No demand had been made by the bank for repayment of the existing debt and no request had been made by the debtor or the appellants for any such forbearance. As the instrument of guarantee itself recognises, the mere fact of forbearance is not of itself sufficient consideration for a person becoming surety for an existing debt. There must be either an undertaking to forbear or an actual forbearance as the surety’s request: Halsbury’s Laws of England, 4th ed., re-issue, vol. 20, para. 142; Murphy v. Timms [1987] 2 Qd. R. 550 at 551, per Kneipp J.
4.4 In an analysis of whether consideration is past or current, the strict order of events is not necessarily decisive. The substance of a bargain may be what may seem to be different transactions that are, in fact, aspects of the one contract. The renewal of the loans in this case do not form part of the one contract; rather, what has been outlined involves a series of different transactions each of which could be supported by a continued promise by the company to pay back the loan within a new term. Such alterations could also be supported by a different rate of interest or could require some different form of security. Times have changed since 2008 and the era when the mass media were claiming that Ireland was one of the richest countries in the world. Regrettably, it is not within the power of the law to relieve guarantors of bargains entered into through a state of hope that the market might return to the inflated levels for property prices that were at their height in 2006. Instead, the courts are required to apply the law.
Duress
5.0 If the contract to guarantee the repayment of loans by Cordill Construction was made under duress then it is voidable. Seeking an underlying rationale for the doctrine of voidability on the grounds of duress informs an application of the defence to the facts of this case. Contracts are made on a rational basis between those who have negotiated, or who have held out goods and services generally, so as to achieve a mutually acceptable bargain. A contract is a meeting of minds as to the obligations of each party to it. Any contract which is not the free expression of one of the parties to an apparent agreement cannot properly be described as a meeting of minds. In bargaining with each other, the parties to any prospective contract are never entirely free. Either they will be driven by what they want to achieve, which is the purpose of their desire to enter into mutually acceptable commercial relations, or they may be motivated by needs. The purpose driving any party into a bargain may in some instances be so pressing that revealing why they wish to benefit from that which the other side may supply would skew the bargain markedly against any expectation for mutual advantage. Negotiation is therefore a process of careful interaction in order to achieve a consensus. A consensus is nonetheless achieved notwithstanding that one party may be sore at what it has had to give and the other jubilant at what has been achieved.
5.1 It is a principle of contract law that the law should not scrutinise the adequacy of consideration supporting a contract; absent undue influence and improvident bargain. Parties should be left to sort out the benefits and burdens of obligations that are to be crystallised in agreement. A contract, when made, is what the law enforces and the law enforces contracts in accordance with the express terms of that which the parties have expressed to be their bargain. In the rare instances where the law intervenes to supply terms that have not been expressed, the approach is always what is required in the context of the bargain already made, and not what the court might substitute as fair to ameliorate an agreement or to replace any apparent imbalance with what might be more acceptable. The doctrine of duress is not part of the law in order to interfere in the context of an imbalance in bargaining powers where that want in balance is merely the result of a difference in commercial bargaining power in negotiations conducted at arms length.
5.2 It also more than difficult to see that the defence of duress would ever be established simply because of an allegation that one side took apparent advantage of the weariness of the other at a stage in negotiation. The law must allow a measure of appreciation to the stresses of commercial negotiation. How, in any event, would such an application of the doctrine of relief from a contract entered into under duress, were it to be so extended, ever be proven? Duress as a defence in contract law had a similar origin to that defence as an answer to a criminal charge. The threat of violence is no longer necessary to establish that a contract was entered into under duress. Nor is it necessary that consent to bargain is negatived; rather that consent must have been so wrongfully obtained that it can properly be described as an illegitimate and significant cause of the party ostensibly contracting giving assent.
5.3 It seems to me that principles such as the availability of an alternative course of action, a protest at the term agreed or bargain extracted, the availability of time and space to think and recourse to independent advice are items of evidence within which the illegitimacy of pressure may be analysed as constituting, or not amounting to, duress. The threat to do something unlawful, such as blackmail, will establish a sufficient degree of illegitimacy to enable the defence in most instances. This is notwithstanding that it can be the case that a threat to reveal a crime may be to adopt a lawful course of conduct. It is the failure to independently peruse that course from the point of view of public spirit and instead linking it to a commercial course of bargaining that is illegitimate. Even where a threat is wrong, it must be such as to wrongfully establish coercive effect on the mutuality which the law expects in the nature of the contract. Economic duress, far removed from the physical origins of the defence, can be sufficient as in B & S Contracts and Design Ltd v. Victor Green Publications Ltd [1984] I.C.R. 419. There a contract to exhibit at a show was altered by a threat from the organiser to cancel seeking additional payment from the exhibitor because the organiser had been made subject to additional payment demands by its workforce. That particular case would also be an example of past consideration being insufficient to support a contract for the new exhibition charge.
5.4 The first defendant Gerard Dillon gave a fair account of the meeting of 28 August, 2008. He is an honest person. It is appropriate in the context of the plea of duress to expand on the detail already given as to this meeting and how it fits into the sequence of events by quoting his account. He described thus how he was first asked to consent to the directors of Cordill Construction giving personal guarantees if the loans were to be extended:
At the meeting Eric Gottenbos – the minute he opened his mouth – you were saying about terms, I didn’t feel they were terms – it was as if a mad bomber had jumped on a bus full of kids and I was told everything is going to blow up or else you sign this. That’s not what you’d call a choice. There was no choice. The repercussions were a huge. Leave me out of it and you take 60 staff, wives, kids, families, mortgages. You take all the suppliers and subcontractors, just save four, five, six hundred of them and loans, they were all going to get burned because of this. That’s not a choice. If you think that’s a choice – I don’t know if you employ people, right, I don’t know if you have your own company or whatever were you employ people but if you do … what I would say to you is don’t ever do it because it’s a massive, moral responsibility.
5.5 Absent from this vivid account was any allegation of overbearing conduct or of the directors being subjected to interrogation-type pressures. The plaintiff bank stood to lose, at the then apparently existing property prices, about €1 million. In the event, the probable loss to the bank would now be of the order of €4 million. The first and second defendants stood to lose their business and the hope of recovery from the position they were in. In the context of a difficult situation, the bargaining power of the plaintiff bank was stronger. It was lawful for the plaintiff bank to appoint a receiver over Cordill Construction and it was lawful to seek to bargain out that final step by the directors seeking further time to pay or by the bank giving further time in return for a personal guarantee that the directors. The circumstances of negotiation were certainly fraught but that does not of necessity always amount to illegitimate pressure. Further, the first and second defendants were advised by the financial controller of Cordill Construction, time was allowed to pass before a final decision was made and the decision was entered into on both sides in the expectation that the end not yet come for the overheated residential property market. All of that is within the level of appreciation that must be allowed in commercial bargaining. It is not duress.
Other issues
6.0 I propose to briefly deal with any other issues in the case. There is no evidence of representation by the bank that, into the future, personal guarantee would never be sought. Such representation might be established by silence in the face of an express requirement by the directors of Cordill Construction that no circumstances would ever change their relationship with the bank. Even was that to be so, once the term of any loan expired, if the money was not to be called in, then a new and separate contracts have to be negotiated. No defence to the personal indebtedness of the first defendant has been established. In terms of apparent authority, the evidence does not establish that the first and second defendants understood Michael Dillon to have authority to bind the bank. Instead, the balance of evidence shows that the credit committee alone had such authority and that everyone understood this. A legal analysis as to the effect of representations as to the future may be relevant to another case, but not this one. Consent to the personal guarantees was not improperly obtained. There is nothing in terms of a collateral contract based on representation or misrepresentation which could alter what the parties have agreed and have reduced to writing. The evidence in that regard is insufficient. There was adequate consideration for the guarantees. The destruction of the asset of the bargain by the creditor acting to the prejudice of the guarantor, as in Black v. Ottoman Bank [1862] 15 All E.R. 573, does not arise at all.
6.1 The second defendant did not appear at the trial. As to the personal indebtedness of that defendant and of the first defendant, this has been properly proven. There is no defence established.
Result
7.0 In all the circumstances, I am obliged to give a decree against the first and second defendants, jointly and severally, of €5,383,181. I am further required to give a decree against the first and second defendants for €1,493,181 in respect of their additional personal borrowings.
Ulster Bank Ireland Ltd. v. Fitzgerald
[2001] IEHC 159 (9th November, 2001)
JUDGMENT of Mr. Justice Diarmuid B. O’Donovan delivered on the 9th day of November, 2001 .
1. At the outset, on the application of Counsel for the Plaintiffs to which the Defendants did not object, I amended the title to these proceedings by substituting the name Ulster Bank Ireland Limited for the name Ulster Bank Limited as Plaintiffs.
2. The Plaintiffs claim herein, as against the First Named Defendant, is for the sum of £203,971.85, together with interest thereon, and, as against the Second Named Defendant, for the sum of £106,832.92, together with interest thereon. The said sums of money are alleged to be due and owing by the Defendants to the Plaintiffs; firstly, in respect of monies advanced by the Plaintiffs to and at the request of the Defendants and each of them on foot of a joint and several personal Current Account number 53631019 (hereinafter called the “Current Account”) maintained by the Defendants at the Tralee Branch of the Plaintiffs Bank situate at 43-44 Ash Street, Tralee in the County of Kerry, secondly being monies due and owing to the Plaintiffs by the Defendants for principal and interest under and by virtue of a guarantee in writing dated the 16th October, 1997 whereby the Defendants and each of them, in consideration of the Plaintiffs giving time, credit, banking facilities or other accommodation to Fernhill Developments Limited of 11 Denny Street, Tralee, County Kerry (hereinafter called “the Debtor”), guaranteed payment to the Plaintiffs on demand of all present or future or actual contingent liabilities of the Debtor to the Plaintiffs howsoever incurred and, thirdly, monies due and owing by the Defendants to the Plaintiffs for principal and interest under and by virtue of a guarantee in writing dated the 12th March, 1998 whereby the Defendants and each of them, in consideration of the Plaintiffs giving time, credit, banking facilities or other accommodation to the said Debtor guaranteed payment to the Plaintiffs on demand of all present or future or actual or contingent liabilities of the Debtor to the Plaintiffs howsoever arising.
3. By Order of this Honourable Court made herein on the 26th June, 2000, it was Ordered ( inter alia ) that the Plaintiffs do recover from the First Named Defendant a sum of £215,881.34 and the cost of these proceedings, when taxed and ascertained.
4. The Plaintiffs claim aforesaid against the Second Named Defendant came on for hearing before me on Wednesday 10th October, 2001. At the commencement of the hearing, Counsel for the Second Named Defendant indicated to me that, in accordance with paragraph 12 of an Affidavit sworn herein by the Second Named Defendant on the 4th February, 2000, she accepted liability to the Plaintiffs for the principal sum of £10,169.35, together with interest thereon amounting to £1,036.57, on foot of the Current Account aforesaid and, for their part, Counsel for the Plaintiffs indicated that they were satisfied to accept the said sums in satisfaction of their claim against the Second Named Defendant on foot of the said Current Account.
5. Insofar as the Plaintiff’s claims against the Second Named Defendant on foot of the said guarantees in writing, respectively dated the 16th October, 1997 and the 12th March, 1998, were concerned, the Second Named Defendant, through her Counsel, maintained that the said guarantees in writing were not enforceable against her for the reason that, while she accepted that the signatures to the said guarantees, which purported to be hers, were, in fact, made by her, she asserted; on the one hand, that she, personally, had no financial interest in either of the said guarantees and, on the other, that she had been persuaded to execute the said guarantees by an undue and wrongful influence exercised over her by the First Named Defendant who is her husband; a wrongful influence of which the Plaintiffs were aware, or are deemed to have been aware.
6. In the course of the hearing before me, I heard evidence from a number of witnesses and, in particular, I heard evidence from Mr. Teddy Reynolds, who was the Manager of the Branch office of the Plaintiff’s Bank situate at Ash Street, Tralee in the County of Kerry at the material time, and from the Second Named Defendant, Catherine Williams (otherwise Fitzgerald). Mr. Reynolds gave sworn testimony that he had witnessed the signatures of both of the Defendants to the said guarantees respectively dated the 16th October, 1997 and the 12th March, 1998 and he said that both guarantees were signed by each of the Defendants on the dates upon which each guarantee purported to have been signed and that they were signed by each of the Defendants in his presence and, in his office at the Plaintiff’s Bank at Ash Street aforesaid. He agreed that the Defendants were not present together, on the occasions upon which each of the said guarantees had been executed by them. However, he said that, before each of the Defendants had executed the said guarantees he had explained to each of them the meaning of the guarantees and the reason why they were required by the Plaintiff bank. Moreover, he was adamant that, before the Second Named Defendant had executed either of the said guarantees, he had told her that she could obtain legal advice with regard to the guarantees. However, notwithstanding that advice, she had signed the guarantees on the spot. Mr. Reynolds’ testimony was challenged on two grounds; firstly, it was put to him that, while the Second Named Defendant conceded that she had executed both of the said guarantees and while she conceded that she could not recall exactly when and where she had executed them, she would say that they had not been signed by her in his presence. Furthermore, it was put to him that the First Named Defendant could not, as Mr. Reynolds had asserted, have signed the said guarantee of the 16th October, 1997 in his office at the Defendant’s bank at Ash Street aforesaid because the fact of the matter was that, on that date, the First Named Defendant had attended a conference in Dublin and, accordingly, had not been physically present in the town of Tralee during banking hours. In that regard, the Second Named Defendant gave a sworn testimony that, while she accepted that she had executed both of the said guarantees and that she could not recall, precisely, when and where the said guarantees had been executed by her (she thought, perhaps, that she had signed them at her home), she was adamant that she had never signed either guarantee in the presence of Mr. Reynolds in his office. Moreover, the Second Named Defendant gave sworn testimony that, on the 16th October, 1997, her husband, the First Named Defendant, had attended a conference in Dublin and, accordingly, had been away from the town of Tralee for the entire of the day and, therefore, could not, as Mr. Reynolds had asserted, have signed a letter of guarantee on that date in Mr. Reynolds office. Furthermore, I heard evidence from a Ms. Renee McManus who, at the material time, was Personnel and Administration Manager of the C.I.F and who said that, on the 16th October, 1997, she had been responsible for organising a conference hosted by the C.I.F. in the city of Dublin; a conference which had commenced at 8 o’clock am. Ms. McManus produced a register purporting to the list the names of the persons who had attended that conference and, among those names, is that of Kenneth Fitzgerald. However, Ms. McManus could not say for how long the person named as Kenneth Fitzgerald on the said list, had attended the said conference; nor, indeed, did she ever say that she had actually seen the First Named Defendant at the said conference. The clear implication of the evidence of Ms. McManus, when taken in conjunction with that of the Second Named Defendant, was that the First Named Defendant could not having signed the said guarantee of the 16th October, 1997 in the office of Mr. Teddy Reynolds at the Plaintiff’s bank at Ash Street aforesaid, as Mr. Reynolds had asserted and that, therefore, Mr. Reynolds testimony in that behalf was, to say the least of it, unreliable and, accordingly, he could not be considered to be a credible witness. However, although I was advised by Counsel for the Second Named Defendant that the fact of the matter was that the First Named Defendant had been in Court at all material times throughout the hearing of these proceedings, he was never called as a witness to contradict Mr. Reynolds’ evidence that he had signed the said guarantee of the 16th October, 1997 on that date and that he had signed it in Mr. Reynolds office aforesaid. In those circumstances and, given that Mr. Reynolds positively denied the suggestion that Kenneth Fitzgerald had not signed the said guarantee dated the 16th October, 1997 on that date in his office, I do not accept that he did not do so. As judgment has already been obtained against Mr. Fitzgerald and, therefore, he could not be prejudiced by giving evidence and exposing himself to cross examination, I think that I am entitled to infer from his failure to do so that he is not prepared to give sworn testimony that he did not, as Mr. Reynolds has said that he did, sign the said guarantee of the 16th October, 1997 on that date in Mr. Reynolds’ office. Accordingly, notwithstanding the evidence of the Second Named Defendant and that of Ms. McManus, I accept Mr. Reynolds’ evidence that Kenneth Fitzgerald did indeed sign the said guarantee of the 16th October, 1997 on that date and in Mr. Reynolds office aforesaid. Moreover, as it follows that I consider that the evidence of Catherine Williams (Catherine Fitzgerald) in that behalf is, to say the least of it, unreliable, I also prefer the evidence of Mr. Reynolds that Ms. Williams (Fitzgerald) signed both of the guarantees aforesaid in Mr. Reynolds office, in his presence and upon the dates upon which each guarantee purports to have been executed to the evidence to the contrary given by Ms. Williams (Fitzgerald).
7. While, as I have already indicated, Catherine Williams (Catherine Fitzgerald) accepted in evidence that she had executed the said guarantees in writing respectively dated the 16th October, 1997 and the 12th March, 1998, she maintained that she could neither recall the dates upon which she had executed either of those documents or where she was at the time that she had executed them. Moreover, she was adamant that she had not executed them in an office at the Tralee Branch of the Plaintiff’s Bank at Ash Street aforesaid and that she had not executed them in the presence of Mr. Reynolds. As I have also indicated, I do not accept her evidence in that regard because I prefer the evidence of Mr. Reynolds with regard to when and where Ms. Williams (Fitzgerald) executed those guarantees. Ms. Williams (Fitzgerald) also asserted in evidence that, when she was signing the guarantees, she did not appreciate what she was signing but that she did so because her husband prevailed upon her to do so. In that regard, she said that, had she not signed the guarantees at the request of her husband, there would have been extra problems between them; particularly, as he had insisted that he knew what he was doing and that she should trust him. In that context, Ms. Williams (Fitzgerald) gave evidence that, towards the end of the year 1997 and early in the year 1998, her marriage to Mr. Fitzgerald was in difficulties, that he worked long hours and was rarely at home, and when he was, he was inclined to drink to excess, became intoxicated and verbally abusive to her. She maintained that the situation was compounded by the fact that, during that period, their daughter, Laura, was very unwell and spent some time in hospital with the result that she and her husband were kept further apart. Indeed, Ms. Williams (Fitzgerald) made it very clear to me that she believed that her marriage was breaking up but that, after her husband had made an appointment for marriage counselling for both of them, which in fact, he subsequently cancelled, the relationship between them improved and he reduced the extent of his drinking. This would have been in the month of March, 1998 and Ms. Williams (Fitzgerald) offered this improvement in the relationship as one of the reasons for acceding to her husbands’ insistence that she execute the said guarantee of the 12th March, 1998, in that, had she not done so, she was convinced that it would cause further trouble between them and again threaten their marriage. She also told me that her husband had told her that, had she not signed the guarantee of the 12th March, 1998 there would have been insufficient monies available to pay the staff of the creditor with the result that the business of the creditor would collapse. In that regard, I was persuaded by the evidence of Ms. Williams (Fitzgerald) that she and her husband and children were dependant on the income from the business of Fernhill Developments Limited for their daily living.
8. In the light of the foregoing, I am prepared to accept that Kenneth Fitzgerald may, indeed, have exercised inordinate pressure on his wife to execute the guarantees aforesaid and I am prepared to accept that she believed that she had little option but to sign them. Moreover, while I do not think it necessary for the purposes of this Judgment to determine whether or not the influence in that regard exercised by Kenneth Fitzgerald over his wife was unlawful, I think that it may well have been so. However, whether or not it was, I heard no evidence whatsoever to suggest that Mr. Reynolds, or, indeed, any other representative of the Plaintiff Bank had even an inkling that there were difficulties in the marriage of Kenneth Fitzgerald and Catherine Williams (Catherine Fitzgerald) or that there was any other reason why Catherine Williams (Catherine Fitzgerald) might not had been a free agent; in the sense that she not do so of her own free will, when she executed the said guarantees. Accordingly, if the Second Named Defendant executed the said guarantees as a result of undue influence exercised over her by her husband, which, as I have indicated, may well be so; although I do not think it necessary for me to come to any conclusion on that point, I am satisfied that the Plaintiffs were not aware of that fact. Moreover, as it is well settled that, where they are parties to the same contract, the relationship of husband and wife does not give rise to a presumption of undue influence and, accordingly, the burden of proving undue influence is on the party alleging it, I am not persuaded that the Plaintiffs had constructive notice that the Second Named Defendant executed the said guarantees as a result of undue influence exercised over her by her husband; if that be the case.
9. Apart from the foregoing, Counsel on behalf of Ms. Williams (Fitzgerald) submitted that, as she had no financial stake in the business of the Debtor and her husband, Kenneth Fitzgerald, had, the Plaintiffs were on notice that there was a risk that she may have been unduly influenced by her husband to execute the said guarantees and, accordingly, they were obliged to urge that she obtain independent legal advice before she executed them. In that regard, Counsel submitted that it was not sufficient that Ms. Williams (Fitzgerald) be advised by the Bank that she was entitled to seek independent legal advice before executing the guarantees, as Mr. Reynolds said that he had advised her. Counsel argued that, in this case, it was especially necessary that Ms. Williams (Fitzgerald) be urged to obtain independent legal advice before executing the said guarantees because, by executing them, she was putting her family home at risk. Insofar as these submissions are concerned, I have to say that, I do not accept that Ms. Williams (Fitzgerald) did not have a financial stake in the business of the creditor. Certainly, she gave sworn testimony to that effect and, in particular, she said that she was neither a shareholder, nor a director of Fernhill Developments Limited and, that, while she may have signed documents in which she is described as the secretary of the company, she was not aware that she was the secretary thereof. Apart from the fact that that evidence appears to me to be inconsistent with the contents of an Affidavit which Ms. Williams (Fitzgerald) swore herein on the 4th February, 2000 in which she seems to acknowledge she was a shareholder and director of Fernhill Developments Limited, as I have already indicated, I was persuaded by her evidence that her family, which included herself, relied on the income generated by the business of Fernhill Developments Limited for their day to day living and, accordingly, I have no doubt but that she had a financial stake in the business of the company. Moreover, there is absolutely no substance to the suggestion that, by signing the said guarantees, Ms. Williams (Fitzgerald) was putting her family home at risk because, in the event that the Plaintiffs enforced the said guarantees against her, their only relief would be a money Judgment which would not necessarily affect the family home.
10. In the circumstance thus I am satisfied that a presumption of undue influence does not arise merely because the two defendants (being husband and wife) executed the said guarantees respectively dated the 16th October 1997 and the 12th March 1998 and given that I am also persuaded that Catherine Williams (otherwise Fitzgerald) had a financial stake in the business of Fernhill Developments Limited, I do not consider that there was any obligation on the plaintiffs to urge on Ms. Williams (Fitzgerald) that she should obtain legal advice with regard to the said guarantees before she executed them. In that regard, there is no doubt but that the courts are not required to intervene to protect a contracting party from ill-advised action and, therefore, if it be the case that it was ill-advised for Ms. Williams (Fitzgerald) to execute the said guarantees (I am not convinced that it was) the court is not entitled to relieve her of her obligations thereunder merely because a more prudent person might not have signed them. Neither, in the absence of any actual or constructive knowledge that Ms. Williams (Fitzgerald) was not a free agent when she executed the said guarantees (if it be the case) were the Plaintiffs under any obligation to take any special steps to ensure that she obtained independent legal advice. Indeed, given that the actual forms of guarantee executed by Ms. Williams (Fitzgerald) contained a note at the top headed by the words “IMPORTANT” strongly recommended that any persons signing the guarantee should seek independent legal advice before doing so, I think that it was above and beyond the call of duty for Mr. Reynolds to advise Ms. Williams (Fitzgerald) to seek independent legal advice before signing those guarantees, as I am satisfied that he did. In this regard, I was referred to a number of authorities; the suggested import of which was that, in the particular circumstances of this case, there was an obligation on the part of the Plaintiffs to warn Ms. Williams (Fitzgerald), before she signed the said guarantees, that she and her matrimonial home were potentially liable for the debts of the creditor and that, therefore, it was essential that she obtain independent legal advice before so doing. In particular, I was referred to the cases of Barclays’ Bank Plc. .v. O’Brien and Anor. ([1994] 1 AC 180) and The Governor and Company of the Bank of Ireland .v. Michael Joseph Smyth and (by order) Una Smyth ([1995] 2 IR 459). However, both of those cases were concerned with a direct threat to a family home; the Barclays’ Bank .v. O’Brien case arising from a bank’s attempt to enforce a surety executed by a wife with regard to a transaction in which she had no financial stake and the Bank of Ireland .v. Smyth , arising from a bank’s attempt to recover possession of a family home in respect of which the wife was alleged to have executed a consent pursuant to the Family Home (Protection) Act 1976. In this case, however, as I have already indicated, I am satisfied that no threat to Ms. Williams’ (Fitzgerald) family home resulted from the guarantees aforesaid executed by her and, in any event, she had a financial stake in both of those guarantees. In those circumstances, I reject the contention that the said guarantees are not enforceable against her.
11. As I have already indicated, the Second Named Defendant has accepted liability to the Plaintiffs for a principal sum of £10,169.35 with interest thereon amounting to £1,036.57 on foot of the current account aforesaid and, in the light of the evidence which I heard, I am satisfied there is currently due and owing to the Plaintiffs by the Second Named Defendant on foot of the said guarantee dated the 16th day of October 1997 a sum of £50,000 for principal and accrued interest thereon calculated to the 21st day of September 2001 amounting to £12,021.39 together with continuing interest thereon from the 21st day of September 2001 at a rate of £13.36 per day and on foot of the said guarantee the 12th day of March 1998 a sum of £45,000 for principal and accrued interest thereon calculated to the 21st day of September 2001 amounting to £11,514.59 together with continuing interest on the said sum at a rate of £12.02 per day the date of payment. Accordingly, there will be judgment for the Plaintiffs against the Second Named Defendant for a sum of £129,741.90 together with continuing interest at a rate of £25.38 per day from the 21st day of September 2001 to date of payment.
ACC Loan Management Ltd -v- Sheehan
[2016] IECA 343 (21 November 2016)
JUDGMENT OF MR. JUSTICE MICHAEL PEART DELIVERED ON THE 21ST DAY OF NOVEMBER 2016
1. In these proceedings the appellant bank seeks judgment against the defendant in the sum of €166,746 and interest on foot of his personal guarantee and indemnity which he executed on the 12th March 2008. This guarantee was one of a number of conditions of a loan sanctioned by the bank to Newmarket Foods Limited (“the company”) by a facility letter dated 5th March 2008. The loan was for a term of ten years and was repayable on demand, and until any such demand was made it was repayable by monthly instalments.
2. In due course the company defaulted on its loan repayments, and on the 19th June 2013 the bank sent a letter of demand to the defendant calling upon him to discharge the amount owing by the company on foot of his guarantee. He failed to do so, and on the 7th October 2013 the bank issued these proceedings by way of summary summons.
3. Following the entry of appearance by solicitors acting for the defendant, the bank issued a motion seeking liberty to enter final judgment for the amount claimed to be due by the defendant on foot of his guarantee and indemnity. That motion came before the Master of the High Court in the normal way pursuant to the procedure provided for in Ord. 37, r.1 of the Rules of the Superior Courts. The defendant filed a replying affidavit to this motion in which he raised a number of issues by way of defence to the bank’s claim, and sought to have the proceedings adjourned for full plenary hearing so that those issues could be determined.
4. The Master of the High Court transferred the motion to the court list in view of the contested issues disclosed on the affidavits, as he is required to do under Ord. 37, r.6 RSC, and that is how the bank’s motion came to be determined by Ms. Justice Murphy who gave her judgment on the 17th December 2015 in which she concluded that an arguable defence was raised by the defendant which required to be determined by way of plenary hearing. Having then adjourned the matter for mention to the 9th February 2016, she made an order of that date directing a plenary hearing, and also gave the usual directions as to further pleadings to be delivered. It is against that order that the bank now appeals.
5. The company to which the loan was made was principally owned and operated by the defendant’s brother, Vincent Sheehan. It manufactured and distributed sauces throughout Ireland. In fact the defendant owned a 5% shareholding in the company, but was unaware of that fact until it was revealed during the course of these proceedings in an affidavit filed on behalf of the bank. He was also a director of the company though in his first replying affidavit he stated that he did not become aware of that fact either, until his solicitor made a search in that regard. According to his replying affidavit he never participated in the affairs of the company qua director, and that his brother never consulted him in relation to the running of the company.
6. In his first affidavit at para. 6 he gives some detail of how he first became involved in the business and the nature of that involvement. He states the following:-
“ … My dealings with the company arose when my brother Vincent Sheehan approached me in 2008 and indicated that he was in financial difficulty and was anxious to save his business. At that time my brother Vincent had a manufacturing facility in Northern Ireland. He then obtained the old Castlemahon Chicken Factory in Castlemahon, County Limerick. I believe that Vincent may have leased this property. He then borrowed money from ACC Bank and needed it to develop the plant further by way of upgrading its fabric and buying appropriate machinery and the payment of wages/working capital.[Vincent], prior to this, when he was manufacturing the sauces in Northern Ireland, with my permission, built a shed/warehouse on my property at Gorteen, Dromcollogher, County Limerick. I recall that I was paid €500.00 per week by way of rent for the premises and for my dealing with [deliveries] from the manufacturing plant. I would unload the [deliveries] into the warehouse. I would then receive orders and I would make up the orders and Vincent would arrange for couriers to call to me to deliver the various orders to various people. That was the full extent of my dealings with Newmarket Foods Limited. I say that I ceased receiving the said payments of €500.00 a week from Newmarket Foods Ltd on 31st July 2014”.
7. In his second affidavit he made a clarification to what he had stated in this regard by stating at para. 4 thereof:-
“I say that there is a slight error in my earlier affidavit when I averred that I received payments of €500 per week by way of rent the premises at Gurteen, Dromcollogher in the County of Limerick up to the 31st July 2014. For the purpose of clarifying the position, I did receive payments of €500 per week from Newmarket Foods Ltd up until the date that the company went into liquidation which occurred on or about 6 July 2010”.
8. In addition to requiring a personal guarantee and indemnity from the defendant, the bank’s facility letter specified another security condition, namely “a first legal mortgage and charge over the 1625 sq. ft warehouse and 2 acres at Gorteen, Dromcollogher, Co. Limerick”. This warehouse and two acres of land were part of lands owned by the defendant which were comprised in Folio 3690F Co. Limerick. To facilitate the creation of a mortgage and charge over the warehouse and 2 acres, that part of the defendant’s lands were transferred out of that folio and into a new folio comprising only those lands, namely Folio 61958F, Co. Limerick.
9. The defendant says that he was informed by his brother that the extent of his personal liability under the guarantee and indemnity that he being asked to sign was the warehouse and 2 acres which were the subject of the mortgage and charge. He says that if he had known that by providing this guarantee he was putting his entire farm at risk he would not have agreed to provide the guarantee. He says that while David O’Connor, solicitor, advised him about providing a charge over the warehouse and 2 acres of land, he was never advised by him, nor informed by his brother, that he was putting his entire farm at risk. Mr. O’Connor was the solicitor who was acting for the defendant’s brother and the company in relation to the provision of security for the loan.
10. Shortly after the issue of the facility letter to the company, the bank wrote to David O’Connor, solicitor on the 7th March 2008. This letter stated that the bank understood that Mr. O’Connor was acting for the company in relation to a commercial loan to the company and gives some details of that loan. It then states that the bank’s security will comprise a guarantee and indemnity from Vincent Sheehan to be supported by the assignment of a life policy in his name, and a guarantee from the defendant which was to be supported firstly by a first legal mortgage and charge over the warehouse and 2 acres of land, and secondly by an assignment of a life policy in his name.
11. The letter went on to state that the Bank was prepared to release the loan funds to Mr. O’Connor upon receipt of 16 specified items, one being:-
“13. Letter from Guarantor Solicitor confirming Guarantor received independent legal advice prior to execution of Guarantee & Indemnity document”.
12. By letter dated 8th March 2008 to the bank David O’Connor, solicitor stated:-
“We are acting [for the] Guarantors for Newmarket Foods Limited. We confirm that Vincent Sheehan and Gerard Sheehan were offered independent legal advise [sic] and they waived same. We confirm that the Guarantee and Indemnity was explained to them in full and they understand the nature and effect of same but nevertheless they decided to waive their right to independent legal advise [sic].”
13. The defendant has stated on affidavit that nobody from the bank ever met him or ascertained his status vis-à-vis the company, or advised him that independent legal advice would be appropriate. He says that he knew that his brother was in some financial difficulty, and that he felt pressurised into providing the guarantee but that he was assured by his brother that the extent of his liability under the guarantee was the value of the warehouse and the 2 acres of land over which the charge was being created.
14. While those averments were made in the context of a plea that he executed the guarantee under the undue influence of his brother, that particular defence was rejected by the trial judge. It is implicit in her judgment that she considered that it did not meet the threshold for plenary hearing. Nevertheless the averments are relevant also as background facts to his defence that the bank failed to comply with its own condition for the drawdown of the loan of letter confirming independent legal advice to Guarantors by simply accepting at face value the statement by the company’s solicitor that the defendant had waived his entitlement to independent legal advice, and that accordingly the guarantee is unenforceable against him. He claims that there was an onus on the bank to seek a confirmation of waiver directly from the defendant before permitting a drawdown of the loan, and that it was not appropriate to simply accept at face value a letter in that regard from the company’s solicitor. He states that if it had been explained to him that by executing the guarantee he was putting not only the warehouse and two acres at risk but also his entire farm of land, he would never have agreed to same. He says also that he was unaware that Mr. O’Connor had written his letter dated 8th March 2008 to the bank, and denies that the contents of that letter reflect the nature of the advice given to him by Mr. O’Connor. In any event he makes the point that as Mr. O’Connor was acting for the borrower company, any advices which he gave to the defendant cannot be considered to be independent legal advice. I should add that Mr. O’Connor witnessed the execution of the guarantee by the defendant.
15. The bank on the other hand submits that it was entitled to rely upon Mr. O’Connor’s confirmation that the defendant had waived his entitlement to get independent legal advice, and to allow drawdown. It is noteworthy that in an affidavit sworn on the bank’s behalf by David Phillips on the 13th January 2015 he states the following in relation to the contents of Mr. O’Connor’s letter dated 8th March 2008:-
“9. I say and believe that there was clearly some discussion between the defendant and his solicitor, Mr David O’Connor, with respect to limiting the charge to the warehouse and 2 acres of lands rather than providing a charge over his entire lands. This is evident from Mr. O’Connor’s letter to the defendant dated 11th of March 2008.
10. However I say and believe that it is clear that there was no discussion in terms of limiting his guarantee to provide that it was only enforceable against the secured property.”
16. It would appear therefore that the bank accepts that the defendant did not receive advice in relation to the contents of the guarantee and indemnity document prior to signing it.
17. As I have indicated, and as noted by the trial judge, the replying affidavits filed by the defendant on the motion for judgment sought to raise two matters by way of defence to the bank’s claim, namely undue influence by his brother, and secondly, the legal advice provided to him by Mr. O’Connor was not independent legal advice, and was in any event wholly deficient in that he was never advised that his entire farm and livelihood was potentially being put at risk under the guarantee. On this appeal we are concerned with only the second proposed defence. It seems clear from the judgment of the trial judge that she did not consider that the first ground was sufficiently arguable to be permitted a plenary hearing, and there is no cross-appeal by the defendant against that conclusion.
18. Having concluded that there was no evidence to support an arguable defence on the basis of undue influence, the trial judge moved on to address the second proposed defence. At paras. 36 – 37 she expressed her conclusion as follows:-
“36. It is in the interests of those who seek to rely on [contract of guarantee] to ensure that all formalities have been properly complied with. In this case, the plaintiff wrote to the borrower’s solicitor on 7th March 2008, indicating that as a requirement of drawing down the funds the Bank wished to be provided with a ‘letter from Guarantor Solicitor confirming Guarantor received independent legal advice prior to execution of Guarantee & Indemnity document’. This is an eminently sensible approach. After all, the sureties are exposing themselves to liability for the borrower’s debts and it is in the bank’s interests to ensure that the sureties are fully aware of the consequences of executing the guarantee so that in the event that it is necessary to call in the guarantee there can be no dispute as to the sureties’ liability thereunder.
37. In this case, having stipulated that, as a condition of releasing the funds, the plaintiff required confirmation that the sureties had received independent legal advice, the plaintiff altered its position and decided to accept the borrower’s solicitors’ word that the sureties had waived their entitlement to independent legal advice. One might have expected that, as a minimum, they would have required signed waivers from the proposed sureties, but they did not do so. They chose to rely on an assurance from the borrower’s solicitor that such an entitlement had in fact been waived. It seems irrelevant to the Court that the sureties were, in fact, unaware of the Bank’s stipulation to the borrower’s solicitor until after the letter of demand on foot of the guarantee. The fact remains that the Bank waived its own requirement without notice to the sureties. Now, as they seek summary judgement on foot of the guarantee, that which they sought to avoid by insisting on independent legal advice, has come to pass. The defendant guarantor maintains that the advice given to him by the borrower’s solicitor was deficient and that had he realised the scope of the guarantee, which he was required to execute, he would never have signed the guarantee. The Court notes that no evidence, one way or the other, has been adduced from the borrower’s solicitor, as to the nature or extent of the advice given by him to the defendant. It may transpire, on a full hearing, that the advice was perfectly adequate. However, as matters stand, it seems to the Court that the defendant has an arguable defence that he should not be bound by the terms of the guarantee entered into by him on 12th March, 2008. On that basis, the Court refuses the plaintiff’s motion for liberty to enter final judgment against the defendant.”
19. The Court’s order adjourning the case to plenary hearing, as drawn, and giving directions as to the delivery of the statement of claim by the plaintiff and a defence by the defendant, does not specify that the defence to be delivered must be confined to the issue of independent legal advice and/or its adequacy.
20. The bank’s notice of appeal points to a number of grounds upon which it contends that the trial judge fell into error. They can be summarised as follows:-
(a) That she erred in her conclusion that the defendant required legal advice or independent legal advice if the guarantee is to be valid and enforceable, given that he was a director and shareholder of the borrower company, and had a commercial arrangement with the company.
(b) It was perfectly satisfactory for the bank to the borrower company and the defendant to be represented and advised by the same solicitor where the defendant was a director and shareholder of the company.
(c) The trial judge was incorrect to conclude that the bank was on notice of the deficiencies in the legal advice given to the defendant given the contents of Mr. O’Connor’s letter to the bank dated 8th March 2008.
(d) That the adequacy of any legal advice given to the defendant was a matter between the defendant and Mr. O’Connor, and not a matter for the plaintiff.
(e) The conclusion of the trial judge that the letter from the bank to Mr. O’Connor dated 7th March 2008 was part of the agreement between the bank and the defendant, in circumstances where the condition regarding confirmation that the defendant received independent legal advice prior to drawdown by the company was not part of the loan agreement, and where in fact the defendant was unaware of the letter dated 7th March 2008 until 2014.
(f) The bank did not in fact breach the condition referred to as to independent legal advice, and was entitled to rely upon the letter dated 8th March 2008 which it received from the defendant’s solicitor which informed it that such advise had been waived by the defendant. It is submitted that this was an acceptable means of complying with the condition.
(g) Where the trial judge rejected the proposed defence of undue influence because there was no evidence to support it being an arguable ground, the presence or absence of independent legal advice and the adequacy of any advice received by the defendant from Mr. O’Connor was irrelevant to the bank’s claim for judgment under the guarantee.
(h) The trial judge failed to apply, or have regard to, the correct test when adjourning the case to a plenary hearing, without limiting the trial to the sole ground of defence which she considered to be arguable.
21. The defendant’s notice pleads that the trial judge was correct in the conclusions she reached. He submits that the guarantee is void. He points to the fact that the bank itself knew that the defendant was not in receipt of independent legal advice and that he ought to receive such before entering into this guarantee. He submits that in circumstances where it had identified that the defendant was someone who needed to be independently advised it was obliged to ensure that this happened, and it therefore included it as a requirement before drawdown could take place. It is submitted that where the bank did not comply with its own requirement it would be unconscionable for the bank to succeed in obtaining judgment on foot of the guarantee.
22. He submits that the condition as to legal advice was one that was for the benefit of both parties and not just for the bank so as to ensure that the defendant would not be able to raise this sort of defence in the event that proceedings had to be brought against him if the company defaulted on its loan. He reiterates that it was for his benefit too, and that the bank realised that this was the case, and hence included the condition because it knew that the loan was solely for the benefit of the company, and that the defendant had little or no direct involvement in the company. He submits that the importance of the requirement that he receive independent legal advice is clear from the events that unfolded where, contrary to what he had understood to be the extent of his exposure under the guarantee as informed by his brother, and where no information or advice was given by Mr. O’Connor, at least according to the plaintiff, his entire farm was placed at risk in the event of default by the company.
23. In its oral submissions to this Court the bank has submitted that in so far as the defendant makes a complaint that his solicitor failed to advise him as to the extent of the guarantee, contrary to what is stated in the letter dated 8th March 2008, it is a matter between the defendant and that solicitor, and does not affect the enforceability of the guarantee. It submits that even having specified the condition as to independent legal advice, it was entitled to rely upon Mr. O’Connor’s letter in reply stating that the defendant had waived his entitlement to same, and to permit the loan to be drawn down by the company. It also submits that Mr. O’Connor should be considered to be independent in the sense that he was not acting for the bank, and even though he was acting for the company, the defendant and his brother were directors and shareholders of the company.
24. The bank has asserted its disbelief that the defendant did not understand the nature and scope of the guarantee he gave, and that in any event the guarantee itself which the defendant freely signed without undue influence contains no limitation as to its scope, and the defendant must be taken to have understood the document that he signed. In the bank’s submission, the guarantee makes it clear that the defendant’s liability extends to all the liabilities of the company and is not limited in any way, and in particular, to the assets over which the defendant was agreeable to have a charge registered, i.e. the warehouse and two acres of land.
25. The bank also notes that the defendant did not seek to defend the proceedings on the basis of a unilateral mistake. It submits that this is unsurprising since it has not been alleged that the bank represented to the defendant that the guarantee was in any way limited as to recourse.
26. The bank submits that there is no general requirement that before a guarantee is enforceable the bank must have satisfied itself that the guarantor has received legal advice, be it independent advice or otherwise, and that if a proposed guarantor is uncertain as to what he/she is undertaking by executing a guarantee, it is a matter for that person to seek advice. If that advice turns out to have been deficient in any way, that, it is submitted, is an issue between them and the legal adviser, but does not affect the validity and enforceability of the guarantee. In this regard the bank has referred to what is stated by Birmingham J. in Allied Irish Banks plc v. McKenna [2014] IEHC 122 as follows:-
“So far as independent legal advice or more specifically the alleged lack of it is concerned, there is no requirement in law that an adult entering into a guarantee on behalf of the company of which he is a director and shareholder should have independent legal advice”.
I would just note in passing that it does not appear from the judgment of Birmingham J. that the bank had itself made it a condition for drawdown that it must receive a confirmation that such advice had been provided to the guarantor.
27. In so far as the bank’s letter to Mr. O’Connor dated 7th March 2007 contained a condition for drawdown that the bank would receive confirmation that the defendant had received independent legal advice, the bank points also to the fact that the guarantee document itself expressly warns the proposed guarantor in the following terms: “Before you sign this guarantee and indemnity, you should obtain independent legal advice”. It also submits that the defendant does not seem to have been aware of the letter from the Bank to the solicitor prior to executing the guarantee.
28. The bank has also sought to rely upon what is stated by Laffoy J. in ICC Bank v. Gorman [1997] IEHC 47 where on very different facts, Laffoy J. stated:-
“The requirement that [the borrower’s wife] should state that she obtained independent legal advice, in my view, merely evidences an abundance of caution, not an infirmity in the mortgage”.
29. Again, I would just note the different context in which that was stated. In ICC Bank v. Gorman the bank had sought possession of a family home on foot of a mortgage executed in favour of the bank by the husband. The husband sought to resist a possession order on the basis of certain alleged deficiencies, one of which was that his non-owning wife had not signed her consent to the mortgage prior to the execution of same by him as required by s. 3 of the Family Home Protection Act, 1976. What was stated by Laffoy J. above was stated in the context of a submission that there was no evidence that the wife had consented prior to the execution of the mortgage by the husband, and secondly that there was no evidence that prior to signing her consent she had received independent legal advice. By the time the case was heard the wife had left this country to reside in England. Laffoy J. found that the consent signed by the wife stated in its own terms that it was a prior consent, and also noted that her signature had been witnessed by a solicitor. She stated that there was no requirement under s. 3 of the Act of 1976 that the wife must have received independent legal advice before giving her consent, and that what was required was a fully informed consent, and that having regard to the fact that her signature was witnessed by a solicitor and “.in the absence of evidence to the contrary the Court was entitled to assume that [the wife] gave her consent voluntarily and on the basis of adequate knowledge of what she was doing” [emphasis added]. In the present case, quite apart from the very different context of ICC Bank plc v. Gorman, I would emphasise the words “in the absence of any evidence to the contrary”. The defendant in the present case has sworn that he did not receive advice as to the extent of the guarantee he was being asked to sign. It seems to me that ICC Bank v. Gorman does not provide any support to the bank’s argument in the instant case.
30. I am satisfied that the trial judge approached her task of deciding if a prima facie defence was made out in relation to the absence of legal advice in accordance with the correct legal principles. She referred to the leading cases in which these principles are set forth. That is not really in controversy, though I appreciate that the bank would say that in reaching her conclusion she misapplied those principles. Having referred to these cases, she stated:-
“Adopting the wording of Hardiman J. at p. 623 of Aer Rianta, the Court in the present case must ask itself … ‘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?”
31. In my view the trial judge was correct to conclude that the defendant had done enough to establish a prima facie defence in relation to legal advice to the required level. What is critical in this case, and central to the finding that such a prima facie defence had been made out, is the fact that it was the bank itself that specified that it was a requirement for drawdown that it receive a “letter from Guarantor Solicitor confirming Guarantor received independent legal advice prior to execution of Guarantee & Indemnity document”. The bank need not have imposed such a precondition to a drawdown of the loan. Had it not done so, the Court might very well have concluded that there was no obligation upon it to ensure that the guarantor received such advice prior to drawdown, even though on the guarantee document itself it urges the guarantor to get legal advice prior to executing same. That encouragement to seek legal advice may well be given out of an abundance of caution so as to avoid possible difficulties with enforcement down the road.
32. But where, as in this case, the bank itself decided that it required that confirmation, and subsequently waived its own requirement unilaterally in the light of what Mr. O’Connor stated in his letter dated 8th March 2008, that is arguably at least something which may at trial be found to provide the defendant with a defence to the bank’s claim on foot of the guarantee. The opposing arguments in this court focused in part on the question as to whether the condition imposed by the Bank was or was not for its benefit alone such that it might unilaterally waive same. The resolution of that issue depends upon an assessment of all the relevant evidence.
33. If I ask myself as suggested by Hardiman J. in his judgment in Aer Rianta v. Ryanair, whether it very clear that the defendant has no case or arguable defence to the plaintiff’s claim, I find myself answering it in the negative. That is not to indicate any probability as to the outcome of the case following a plenary hearing. The Court at that stage, unlike this Court or indeed the Court below, will have the benefit of hearing oral evidence from the parties and their witnesses before reaching a final determination. Nothing in my judgment should be taken as a concluded view or even a tentative view on the ultimate merits of the case being made by either party. But I consider the defendant’s case on this one issue to be at least an arguable issue on the evidence adduced on affidavit.
34. For these reasons I would dismiss the appeal.
35. However, I would vary the order made in the High Court, if necessary, so as to clarify that the defendant’s defence is confined to the defence found to be arguable by the trial judge, thus making it clear that the defence of undue influence is not in the case. The Court was informed that a statement of claim and a defence which did not include undue influence had already been delivered so it may not be necessary to amend the High Court order. The Court will hear the parties on this question.
36. However it is important to emphasise that on a motion for summary judgment, and where not all of the issues raised by way of defence on affidavit meet the required threshold, that the order adjourning the case to plenary hearing should clearly identify the issue(s) found to be arguable and limit the defence to be delivered to those issues which have been found to pass the threshold, as was done by Finlay Geoghegan J. in Bussolino Ltd v. Kelly [2011] IEHC 220, and by this Court in NAMA v. Kelleher [2015] IECA.
Allied Irish Banks Plc v Grove Oil (Roscrea) Ltd & ors
[2018] IEHC 793 (26 November 2018)
JUDGMENT of Mr. Justice MacGrath delivered on the 26th day of November, 2018.
1. This is the plaintiff’s application for summary judgment against the third named defendant. The plaintiff claims that certain sums are due on foot of two guarantees executed by the third named defendant in respect of the debts of the first named defendant company. It is pleaded that by letter of 10th May, 2011, the plaintiff made available to the first named defendant company a loan facility in the amount of €105,700 for the purpose of restructuring existing facilities. This was subject to certain terms and conditions including the requirement that the second and third named defendants execute letters of guarantee. These guarantees were executed on 11th May, 2011, by the second and third named defendants, and provided that the total amount recoverable from the second and third named defendants should not exceed €135,700 together with interest thereon. The guarantee was stated to be in addition to, and not in substitution for, any other guarantees or security for the obligations of the first named defendant given by the second and third named defendants. As of 15th December, 2014, the sum due on foot of the loan facility was €110,016.78.
2. A second guarantee was executed in respect of overdraft and other facilities provided by the plaintiff to the first named defendant on 31st July, 2012. The guarantee was executed on 30th August, 2012 by the second and third named defendants in consideration of the plaintiff agreeing to give time or make or continue advances, or otherwise give credit or afford banking facilities to the first defendant. This guarantee provided that the total amount recoverable from the third named defendant should not exceed €55,000 together with interest thereon and was stated to be in addition to, and not in substitution for, any other guarantee or security for the obligations of the first named defendant. A similar guarantee was executed by the second named defendant. As of 16th December, 2014 the total due on foot of this facility, inclusive of interest, was €52,869.54.
3. Letters of demand were served on 13th October, 2014 and 23rd June, 2015 on the first named defendant in respect of the principal sums due. Letters of demand dated 16th October, 2014 and 16th April, 2015, were served on the second and third named defendants in respect of their alleged liabilities on foot of the guarantees.
4. The plaintiff claims a total sum of €162,886.32 from the third named defendant. By notice of motion dated 8th May, 2017 the plaintiff has brought this application for liberty to enter final judgment against the third named defendant in that sum.
5. This application for summary judgment is grounded on the affidavit of Mr. Brian McGuinness, a manager employed by the plaintiff in its litigation management department. He avers to the facts outlined above.
6. Each of the guarantees state in a foreword, under the heading ” WARNING ” that ” [b]efore you sign this guarantee you should get independent legal advice “. The guarantee of 11th May, 2011 was signed by the third defendant and witnessed by a bank official. The guarantee of 30th August, 2012 had an identical warning and was witnessed by the same bank official, having been signed by the third defendant. There was a further guarantee executed by the third named defendant on 26th July, 2012 which is the subject of other proceedings which have been instituted in the Circuit Court. The guarantee was executed in the context of personal liabilities of Mr. O’Sullivan.
7. The letters of loan facilities were signed by the second defendant on behalf of the first defendant. A resolution of the first defendant company to accept the facilities was passed on 11th May, 2011 and signed by the second defendant and a Ms. Kavanagh who was described as chairperson of the company. The first defendant defaulted in its loan repayments. Demands were made of the first defendant; and then of the second and third defendants.
8. Counsel for the third named defendant, Mr. Hickey B.L. emphasises that the plaintiff does not seek judgment against the first or second named defendant. Counsel for the plaintiff, Mr. Walker B.L. submits that the liability of the third named defendant is a separate and independent liability and is not dependent upon the plaintiff proceeding against the first or second named defendant. Having considered the guarantees, for the purpose of this application and in the circumstances outlined, I accept Mr. Walker B.L.’s submissions on the facts as pleaded.
9. The third named defendant does not deny that she executed the guarantees but she submits that she is not liable thereon by reason of undue influence allegedly exerted on her by the second named defendant. She further alleges the plaintiff had, or should have had, constructive notice of this alleged undue influence.
10. Further, as security for the guarantee, the second and third named defendants executed a deed of mortgage on 11th May, 2011 in respect of property at Roscrea, Co. Tipperary. On 10th May, 2011, the plaintiff posted to both the second and third named defendants, at different addresses, a letter in the following terms:-
“Re: Grove Oil (Roscrea) Limited
Facility: Overdraft €30,000.
Loan €105,700
Dear Ms. Lynch
Our above named customer has nominated you as guarantor for the above facilities and I enclose a copy of the terms of the facilities to be guaranteed.
Your guarantee is to be secured by the following items of security:
Legal Charge over property on 7.8293 hectares at Knock, Roscrea, Co Tipperary
I also enclose two copies of the guarantee form, one for you to sign and return to AIB, and the other for you to keep. Your signature to this guarantee will need to be witnessed by either your solicitor or an AIB bank official. In either case, you should bring along personal identification, such as your driving licence or passport. You are advised to obtain independent legal advice before signing the guarantee. I would also suggest that you keep copies of the guarantee, this letter and the terms of the facilities for future reference.
Please return the guarantees, duly signed and witnessed, to me at the above address.”
The words ” You are advised to obtain independent legal advice before signing the guarantee ” were emboldened.
11. The third named defendant, Ms. Lynch had been in a relationship with the second named defendant. They have a son who was born in 2005. In a replying affidavit sworn on 23rd October, 2017, she avers that she worked as a shop assistant and as a factory worker/general operative. She has no special training or business acumen. Mr. O’Sullivan effectively ran the company. He ran a filling station and retail business together with a garage, car sales and repairs business. He also had an interest in farming and in property speculation. While Ms. Lynch was in a relationship with him, she states that she never participated in his business affairs. She is not now, nor was she ever a shareholder or a director of the first named defendant.
12. Ms. Lynch avers that following the birth of their child in 2005, she became a full time homemaker. In May, 2011 while she was still living with Mr. O’Sullivan, he informed her that money was required for the business of the first named defendant. He did not go into detail or elaborate on what he was doing. At that time their relationship was under stress and Ms. Lynch avers that she was totally dependent on him.
13. Ms. Lynch further states that on the morning of 11th May, 2011, before they attended at the branch office of the plaintiff, she was told by Mr. O’Sullivan: ” don’t ask questions, just sign the papers “. When they were asked by an official of the plaintiff if they had received legal advice, she states that Mr. O’Sullivan said that they had been with a solicitor in Roscrea the previous week. Ms. Lynch avers that that meeting related to signing a mortgage and had nothing to do with the loans or guarantees.
14. At para. 7 of her affidavit Ms. Lynch avers that she had never previously seen a letter of guarantee nor did she know what it was. She recalled the second defendant saying that he required €30,000 to stay afloat. She believed the loan was in respect of an overdraft on the garage. She queried the bank official as to why the figures stated on the guarantee were larger than the figures indicated to her by Mr. O’Sullivan and she states that ” this servant or agent left the room telling us to sort it out amongst ourselves “. She says that Mr. O’Sullivan assured her that it was ” just written that way ” and that his property portfolio would cover the loans and ” the paperwork would cover the shortfall “. The bank official then returned to the room and presented her with the guarantee which she signed without inquiry. She then left the room while the second defendant remained to discuss what she describes as other issues.
15. With regard to the second guarantee which was signed on 30th August, 2012, Ms. Lynch avers that Mr. O’Sullivan brought her to the plaintiff’s bank in Roscrea. He did all the talking. They met with the same official as they had met the previous year, when the final guarantee was signed. She avers that the same circumstances apply to each of the guarantees executed by her.
16. Ms. Lynch maintains that she received no legal advice as to the meaning and consequence of the guarantee. She was unaware that she would be personally liable for the loans taken out by the first and/or second named defendant and avers that she did not openly and freely agree to sign the guarantees. She states that she signed these guarantees due to the dominion and/or undue influence of the second named defendant. She maintains, in retrospect, that the plaintiff knew from her circumstances that she was a homemaker without income, was totally dependent on Mr. O’Sullivan and that he was a person in total dominance and in charge of all matters. It is her case that it was Mr. O’Sullivan who at all times dealt with the plaintiff and she was never asked by the plaintiff or Mr. O’Sullivan to participate in dealings with the plaintiff in respect of the advance of monies or the provision of any security it required.
17. The relationship between the second and third named defendant has broken down and she is now in receipt of social welfare allowances and a small income from supplying fire wood to local shops.
18. In an affidavit sworn on 13th December, 2017, Ms. Jackson, solicitor for the plaintiff, emphasises that no issue has been taken in relation to the amount of the guarantees or that they were signed by the third named defendant. He emphasises that the third named defendant (together with the second named defendant) attended with a solicitor prior to the execution of the guarantee in May, 2011.
19. While Ms. Jackson has averred that it was a condition of the loan facility that a mortgage be executed by the second and third named defendants, it appears that this mortgage was required as security for the guarantee. A charge was registered on 17th May, 2011. A judgment mortgage was also registered by a local credit union on foot of a judgment dated 21st November, 2011 against the interests of the second and third named defendant in that property. It is unclear whether this judgment was in respect of private family finances. There is no specific averment that it is in respect of company indebtedness. Ms. Jackson emphasises the contents of the letter of 10th May, 2011 which was sent to the parties. She further avers that similar letters in respect of the second guarantee were sent to the second and third named defendants on 3rd August, 2012. She also points to the fact that those letters indicated that the first defendant had nominated the second and third named defendant as guarantors and the guarantees were secured over the folio. In addition to the overdraft facility of €30,000, there were bank guarantees for two sums of €5,000 and €20,000 respectively which were given to two other companies, one of which provided for a counter indemnity. She also refers to the proceedings in the Circuit Court, which seem to relate to a guarantee provided in respect of Mr. O’Sullivan’s personal indebtedness and not that of the company. She contends that this highlights that the first named defendant had nominated them as guarantors and further that the guarantee continued to be secured over the folio in question. The plaintiff relies on these letters and the various documents executed by the third named defendant as evidence that she is incorrect when she states that she was never asked to participate in dealings with the first and second named defendant.
20. Ms. Lynch in a supplemental affidavit sworn on 19th February, 2018, denies that she had seen the loan offer or letter of restructuring. She states that she was neither party, nor privy, to any arrangement between the plaintiff and the first and second named defendants. She avers that the first time she saw the letter of loan offer dated 10th May, 2011 was when she was made aware of the contents of Mr. McGuinness’ affidavit sworn in these proceedings. She stresses that she signed these letters of guarantee when she was not a free agent and was under the control and influence of the second defendant. She was a homemaker at the time with a dependent child and no income and was totally dependent on him for her upkeep. She also believes that the second named defendant may have intercepted the letter of 3rd August, 2012. She states that the first defendant had the habit of collecting the post and she did not see the letter at that time. It was suggested in submissions that this could not be the case because the addresses on the letters were different although counsel for Ms. Lynch emphasised that the parties resided together at the address to which Ms. Lynch’s letter was sent, at that time.
21. Ms. Lynch contends that the plaintiff knew or ought to have been aware of her circumstances and that she had no involvement with the business. In so far as she attended at the office of a solicitor in Roscrea on 11th May, 2011, he was the second defendant’s solicitor. She was requested by the second defendant to sign the mortgage deed which she did without questioning. She reiterates that she was not aware that she was signing a mortgage deed as security for the guarantee for the loans being drawn down. She states that the second defendant informed her that he was receiving a loan of €30,000 from the plaintiff and that she was required to sign the papers in the solicitors’ office. She further avers that she received no legal advice as to the meaning and consequence of the guarantee. She was not aware that she would be personally liable for the loans taken out by the first and/or second named defendant and the terms and consequences of entering into a guarantee were never explained to her. She did not openly and freely agree to sign the guarantees but did so due to the dominion and/or influence of the second defendant.
22. Mr. Hickey B.L. submits that the third defendant should be given leave to defend and that the proceedings should be transferred to plenary hearing. He submits that his client has made out an arguable defence that she was unduly influenced by the second defendant and that the plaintiff knew or ought to have been aware of this and was therefore put on inquiry.
23. Before addressing the principles of law applicable where a defence such as this is raised, it is also important to recall that the court is here concerned with an application for summary judgment.
24. In Aer Rianta c.p.t. v. Ryanair Ltd. [2001] 4 IR 607, Hardiman J. observed that leave to defend should be granted unless it was very clear that the defendant had no defence, not even one which could be described as arguable. In Harrisrange Ltd. v. Duncan [2003] 4 IR 1 at p. 7, McKechnie J. observed:-
“(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 or issues of simplicity only or issues easily determinable, then this procedure is suitable for use;
(v) where however, there are issues of fact which, in themselves, are material to success or failure, then their resolution is unsuitable for this procedure;
(vi) where there are issues of law, this summary process may be appropriate but only so if it is clear that fuller argument and greater thought is evidently not required for a better determination of such issues;
(vii) the test to be applied, as now formulated is whether the defendant has satisfied the court that he has a fair or reasonable probability of having a real or bona fide defence; or as it is sometimes put, ‘is what the defendant says credible?’, 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 be not 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.”
25. Thus leave to defend ought to be granted unless it is very clear that there is no defence. Leave should not be granted where the only relevant averment is a mere assertion of a given situation which is stated to form the basis of the defence.
26. Mr. Hickey B.L. places emphasis on the averments of the third named defendant in her affidavit of 23rd October, 2017 that the second named defendant told her not to ask questions but just to sign papers. She queried the bank official as to why the figures stated in the guarantee were larger than the figures indicated to her by the second named defendant. She also avers that the response of the official was to leave the room and to tell the parties to ” sort it out amongst themselves “. These averments have not been controverted.
27. The averment of Ms. Lynch at para. 6 of her affidavit that Mr. O’Sullivan informed the bank official on 11th May, 2011 that the meeting with the solicitor in Roscrea had occurred the previous week, that it concerned the signing of a mortgage and had nothing to do with the loans and guarantees, is not very convincing. If Mr. O’Sullivan informed the bank official of this then it would appear to be incorrect. The mortgage deed was in fact executed on 11th May, 2011 and not the week prior to the transactions under consideration – as is apparent from the affidavit of Ms. Jackson sworn on 13th December, 2017. The letter of loan offer was dated 10th May, 2011, and not the previous week.
28. Nevertheless, while issues of credibility and/or reliability may arise in relation to certain aspects of the third named defendant’s averments, it seems to me that the issue which I have to determine is whether the case put forward by the third defendant, when viewed in totality and in context, is capable of giving rise to an arguable defence or whether it falls on the other side of the line and is no more than an assertion of a defence of undue influence; and an assertion that the bank should have been put on inquiry.
29. That a defence of undue influence might succeed in a case such as this has been established. In Ulster Bank (Ireland) Ltd. v. Roche and Buttimer [2012] 1 I.R. 765, the second defendant Ms. Buttimer, was a partner of the first named defendant, and although she was the director of a company, Roche Motors Limited, her involvement was very limited. She was a hairdresser on a modest salary. It was contended that she had executed a guarantee under duress, not duress occasioned by the bank, rather that which was exerted by her partner. Proceedings were commenced by way of summary summons. Judgment was obtained against Mr. Roche. The case against Ms. Buttimer was transferred to plenary hearing. Clarke J. was not, therefore, concerned with the principles applicable to summary judgment applications, rather, he was considering a substantive defence at full hearing.
30. The importance of this decision is that it established that a bank may be on constructive notice of undue influence exerted by a third party such that it is put on inquiry. Clarke J. emphasised a number of important features of the relationship between the defendants in that case. They included the following:-
(i) Although she was a director, Ms. Buttimer was not a shareholder. This would suggest at least a significant possibility of a non-commercial aspect to the situation.
(ii) The bank had some knowledge of the fact that Mr. Roche and Ms. Buttimer were in a personal relationship.
(iii) There was some evidence which suggested that the bank may have been aware that both Mr. Roche and Ms. Buttimer operated from the same address.
(iv) In the circumstances the court was satisfied that Mr. Roche and Ms. Buttimer were in a relationship before the discussions between the company and the bank took place. These were conducted by Mr. Roche – a fact which of itself would not, in Clarke J.’s view, be sufficient to place the bank on inquiry of whether others, who had been involved in the venture and were asked to provide security as a guarantee, may have been the subject of undue influence.
Nevertheless, at p. 780 Clarke J. observed:-
“However, in circumstances where a person who is required to offer security is not a shareholder and where there is no evidence to suggest that the bank was aware of any active involvement of that party in the business, then it seems to me that the personal relationship between the parties emerges as a much more significant factor.”
31. Where undue influence is alleged to have been exerted by a third party, the approach of the courts on an application for summary judgment was addressed by Irvine J. in Bank of Ireland v. Curran [2016] IECA 399. At para. 32 of her judgment, having referred to Bank of Scotland plc v. Hickey [2014] IEHC 202, she stated:-
“…it is clear that in order to establish a defence of undue influence at a plenary hearing Mrs. Curran would first have to satisfy the court that but for the undue influence exerted upon her by her son she would not have executed the guarantee and second that the bank, i.e. the creditor, had actual or constructive notice that the guarantee was procured by the undue influence. That being so, in order to resist summary judgment, Mrs. Curran had to satisfy the low threshold standard by establishing on affidavit that she might credibly argue in the course of a plenary hearing that she had executed the guarantee as a result of the undue influence. It is only relevant to consider whether it is arguable that the bank was obliged to make inquiries to ascertain whether, having regard to her connection with the company, she fully understood and was freely entering into the guarantee, if she could first establish a credible or arguable case on the facts that she executed the guarantee in circumstances of undue influence. In turn, that required her to set out on affidavit the type of facts, details and circumstances upon which she would rely at the trial to establish that her will was overborne by her son, Michael Curran, when she executed the guarantee.”
32. On the facts, the court was not satisfied that the defendant had placed before it sufficient evidence to meet the relatively low threshold required to have the case remitted to plenary hearing. There was an absence of evidence to demonstrate that undue influence was brought to bear upon her by her son. Mrs. Curran also failed to demonstrate on affidavit that the bank should have been on inquiry to satisfy itself that she understood the nature of the guarantee proposed and that she was executing it otherwise than under her son’s influence. While there were a number of matters raised as a potential defence to the proceedings (including evidence on affidavit that Mrs. Curran had been advised by the bank officials at the time she signed the guarantee that she did not require legal advice, whether Mrs. Curran had played an active role within the company and whether legal advice carried over from when she executed mortgages in respect of her joint borrowings with her son earlier in the year), Irvine J. stated that these did not fall to be considered in the absence of factual evidence to support the undue influence alleged.
33. In Bank of Scotland plc v. Hickey [2014] IEHC 202, Ryan J. granted summary judgment where the only evidence of undue influence advanced was an averment that the defendant ” executed the relevant documents at the behest and direction of Mr. Porter “. No further details were provided. Counsel had attempted to argue that this amounted to, and should be interpreted as, a claim of undue influence. This was not accepted by Ryan J. He also noted that the defendant was at all times represented by a solicitor. If there was any question of seeking separate advice, this was a matter for the defendant and not for the plaintiff ” unless there were some circumstances that brought into operation the principles established in Etridge (No. 2) “.
34. Another example of a case where the defence did not go beyond a mere assertion is Bank of Ireland v. Curran and Ors [2016] IECA 399 to which I have referred above.
35. In ACC Loan Management Ltd v. Connolly [2017] IECA 119 the court emphasised that it was necessary to establish a defence of undue influence, going beyond a mere assertion, before proceeding to consider whether the bank should have had been on constructive notice, or ought to have been put on inquiry thereof. There was no evidence before the court on which it could be concluded that an arguable defence of undue influence of a son on a father could be made out. In the absence of such an arguable defence being made out, there was no separate obligation on the bank in such circumstances. At para. 28, Finlay Geoghegan J. stated as follows:-
“My conclusion is by reason first of the absence of any evidence by or on behalf of the appellant that he executed the first guarantee by reason of the undue influence or any other wrongful act of his son, the principal debtor. There was no evidence before the High Court upon which it could be concluded that an arguable defence of undue influence or other wrong by the son was made out. Further, I am not satisfied that, in the absence of the father making out an arguable defence that he gave the guarantee under the undue influence of his son (or because of any other alleged wrong such as misrepresentation), there is any arguable defence available in Irish law to him that the bank was under an obligation by reason of the known fact that he, the proposed guarantor, was the father of the principal debtor to take steps to ensure that he received independent legal advice or otherwise ensure that the guarantee was freely entered into such that the failure of the bank to take such steps is an arguable defence to the enforcement of the guarantee against him.”
36. In ACC Bank plc v. Walsh [2017] IECA 166, Peart J. reaffirmed that a mere assertion by the appellant of undue influence will not suffice and observed that the court may consider all of the surrounding circumstances. At para. 29 he stated:-
“There must be other facts to which she can point which, if proved at trial, would likely support her assertion of undue influence. In considering the facts relied upon the court may consider all the surrounding circumstances.”
He was satisfied that the defendant had established by her own evidence and from the surrounding circumstances that she had at least an arguable case that she had been under her husband’s undue influence. In considering the second issue, Peart J. stated that while the bank was aware of the relationship between the husband and wife, although not that there was any difficulty in that relationship, it could be taken to have known that she had no direct involvement in the business, albeit that she was a nominal director. While there were certain inconsistencies in her defence, nevertheless the court felt that the case should be transferred to plenary hearing. He continued:-
“44. I am not to be taken for one moment as suggesting that the appellant’s case is a strong one, or even likely to succeed. That is not the test on a motion for summary judgment as I have already stated. I make no judgment in that regard. That is a matter to be determined only in the light of all the evidence heard at a full plenary hearing, which will be confined to that particular issue. The threshold of arguability on a motion for judgment which a defendant must surpass has already been referred to above by reference to what the trial judge stated, reflecting the principles in Harrisrange and in Aer Rianta v. Ryanair.
45. But it is in my view at least arguable (and that is all that the appellant must establish at this stage) that in the circumstances and on the facts of this case established thus far on affidavit, the appellant could have a defence to the claim being made by the bank in respect of the 2004 loan since it must be taken to have constructive notice of her husband’s undue influence, and was on inquiry in that regard, requiring it to take some reasonable steps such as to ensure that the appellant received independent legal advice, and failed to do so. That is at least arguable by way of a defence to the bank’s claim against her, notwithstanding that the cases to which I have referred addressed undue influence in the context of the enforcement of a spouse’s guarantee, and not the primary debt.”
37. It seems to me, therefore, that the task of the Court, in the first instance is to assess the evidence put forward by the third named defendant of how it is alleged that undue influence was brought to bear by Mr. O’Sullivan on her. Such evidence must amount to more than a mere assertion of such undue influence. If the Court is not satisfied that there is such evidence, then judgment should be entered. If the Court is satisfied that there is such evidence which goes beyond a mere assertion, then the next issue which the Court has to determine is whether there is evidence amounting to more than a mere assertion that the bank was on constructive notice such that it should have been put on inquiry to satisfy itself that the second defendant understood the nature of the guarantee proposed and that she was executing it otherwise than under her partner’s influence.
38. Applying the relevant principles and the manner of their application in the cases to which I have referred, it seems to me that there are certain aspects of the evidence on affidavit put forward by Ms. Lynch which are less than satisfactory. I have already referred to para. 6 of her affidavit, sworn on 23rd October, 2017, regarding the date of her meeting with the solicitor in relation to the mortgage. She does not in her affidavits seek to clarify or correct the date upon which this meeting took place. Thus, there may be contradictory evidence, but as Peart J. acknowledged in Walsh , this in and of itself, does not mean that the case should not be permitted to proceed to a full hearing.
39. A further unsatisfactory aspect of the affidavit evidence advanced is that in so far as other guarantees are concerned, Ms. Lynch essentially relies upon the same averments that she makes in respect of the 2011 guarantee and does not seek to introduce any fresh or other particular circumstances relevant to the 2012 guarantee. At para. 8 of her affidavit, she states that she was asked by the second defendant to sign the second guarantee the subject of these proceedings on 13th August, 2012, that the second defendant brought her into the plaintiff’s bank and that he did all the talking. She met the same agent of the bank that she had met in the previous year and she was ” in and out of the bank in a minute “. The plaintiff states that she received no legal advice as to the meaning or consequence of the guarantee and that she was not aware that she would be personally liable for the loans taken out by the first and/or second named defendant.
40. But while there are some unsatisfactory aspects of the evidence advanced by Ms. Lynch, the question which I must address is whether in all the circumstances, sufficient evidence has been adduced on affidavit such as to raise an arguable defence. It is a defence which may not succeed at hearing. But that is not the test.
41. There is no significant evidence that Ms. Lynch had any involvement in the day to day business of the first named defendant company. There is no evidence of her involvement when the original company loans were drawn down. She is neither director nor shareholder of the company. She is a housewife with very little independent income and was financially dependent on Mr. O’Sullivan. While she attended with a solicitor in relation to the execution of the mortgage, apart from such attendance, nothing has been put before this Court to suggest that the guarantee was discussed or advised upon. She has stated that she was reliant upon and under the dominion of the second named defendant. While on one view this might be viewed as an assertion, it has not been controverted by evidence adduced by or on behalf of those personally involved from the plaintiff’s perspective. There is an uncontroverted averment that the bank’s agent left the room and asked the second and third defendants to ” sort it out amongst themselves ” when an issue arose about the third named defendant’s understanding of what was going on. There is evidence of a lack of any further inquiry on the bank official’s return. There is also, in my view, evidence of what Clarke J. referred to as the ” non-commercial ” nature of her involvement with the first defendant. This must be viewed in context of the facts and circumstances surrounding the relationship between the second and third named defendant. In the circumstances I am satisfied that the evidence adduced on affidavit by the third named defendant goes beyond a mere assertion of undue influence and is such that I should proceed to consider whether the allegation that the bank ought to have been put in inquiry is itself a mere assertion.
42. There is no evidence to suggest that the plaintiff had any significant involvement with the company at any stage, and particularly before she executed the guarantee in 2011. Nothing which I have seen suggests or implies that she was ever aware of the state of the company’s finances. No evidence was adduced by the plaintiff on this application as to whether, and why, the bank official in question left the room when there was, what appears to have been, an expression by Ms. Lynch of at least a misunderstanding as to the amounts involved. The evidence adduced by the plaintiff is from deponents who had no personal involvement in the transactions. The third named defendant avers as to her dependent and fiscal situation. This too has gone uncontroverted by the plaintiff’s central participants. Given the totality of the circumstance, while I may have some doubts as to whether her defence will succeed, it seems to me that on the material before the Court, the third defendant’s response to the application for summary judgment falls on the arguability rather than the ” mere assertion ” side of the threshold line.
43. In coming to this conclusion, I have borne in mind dicta of McKechnie J. in Harrisrange that the overriding determinative factor, consistent with the constitutional rights of the parties to access to justice, is to attempt to achieve a just result.
44. Taking all matters into account, including not only what is averred to by Ms. Lynch, but also the surrounding circumstances, I conclude that the third named defendant has satisfied the threshold and that her affidavits go beyond that of mere assertion in relation to both the question of undue influence and the plaintiff’s potential constructive notice thereof. Nothing in this decision is to be taken as an indication of the potential strengths or weaknesses of the defence raised or the likely outcome. I must therefore refuse the plaintiff’s application, direct that the defendant be given leave to defend and that the matter be transferred to plenary hearing.
ACC Loan Management Ltd -v- Connolly & Anor
[2017] IECA 119
JUDGMENT delivered by Ms. Justice Finlay Geoghegan on the 4th day of April
2017
1. This appeal primarily concerns the question as to whether a guarantor who does not contend that he entered into a guarantee under the undue influence or by reason of some other wrong of the principal debtor, such as misrepresentation, nevertheless has an arguable defence against a claim made by the creditor pursuant to the guarantee upon the grounds that the creditor, being on notice of a family relationship between the guarantor and the principal debtor, was obliged to take steps to ensure that the guarantor understood the nature of the guarantee and/or freely consented to the giving of the guarantee.
2. The respondent raises a preliminary objection to the appeal upon the grounds that it was out of time and the appellant has brought a motion seeking, if necessary, an order extending the time within which to bring the appeal.
3. There is also a subsidiary question in relation to the execution of the guarantee purporting to have been “signed, sealed and delivered” but without evidence that a seal was affixed.
Background facts
4. The appellant is the father of the first named defendant (“the son”). By a facility letter dated the 28th October, 2005, the plaintiff (“the bank”) offered credit facilities in the sum of €680,000 to the son. The purpose of the loan was to fund the purchase of a 1.7 hectare site with outline planning permission for five properties at Fethard-on-Sea, Co. Wexford. The loan was accepted by the son.
5. By a second facility letter dated the 30th November, 2007, the bank offered further facilities in the sum of €613,000 to the son for the purpose of building the first of the five houses and associated costs. That loan was also accepted by the son.
6. The security to be given for each loan pursuant to the facility letters included a guarantee and indemnity from the appellant supported by a first legal mortgage in charge on the 35 hectares of agricultural lands in Co. Wexford.
7. The bank contends that the appellant granted to it a first guarantee and indemnity dated the 4th November, 2005 and a second guarantee and indemnity dated the 23rd November, 2008.
8. There was default in repayment of the loans, and letters of demand were sent to the son and the appellant. The bank issued a summons on the 24th May, 2013, seeking judgment against the son as principal debtor and the appellant as guarantor pursuant to the first and second guarantee.
9. The bank in due course issued a motion seeking liberty to enter final judgment against both defendants. Affidavits were exchanged to which I will refer further below, and following the hearing of the application for summary judgment in the High Court (Fullam J.), that court, for the reasons set out in a written judgment delivered on the 12th February, 2015, granted judgment against the appellant in favour of the plaintiff pursuant to the first guarantee dated the 4th November, 2005 and remitted to plenary hearing the issue of the appellant’s liability under the second guarantee. Judgment was also given against the son for the full amount claimed, from which there is no appeal.
10. Pursuant to that judgment an order was drawn by the High Court dated the 12th February, 2015, and perfected on the 4th June, 2015. It provided, insofar as the appellant is concerned, that “the plaintiff do recover against the defendants jointly and severally in the sum of €1,185,255.55 in respect of the first loan and guarantee” and remitted the claim against the appellant in respect of the second guarantee to plenary hearing.
11. No step was taken by the appellant within the ten day period permitted for an expedited appeal following the perfection of the said order.
12. It appears that the bank subsequently ascertained that the figure of €1,185,255.55 was incorrect and it made an ex parte application to the High Court under O. 28, r. 11 and the order was amended by a further order made on the 16th November, 2015, which in accordance with its terms insofar as relevant, ordered that the order of the 12th February, be amended by “the deletion of the figure €1,185,255.55 where same appears in the said order and replacing same with the figure €1,061,357.98”. That order was perfected on the 14th January, 2016. The appellant issued a notice of expedited appeal on the 22nd January, 2016, i.e. within ten days of the perfection of the second High Court order. The respondent, in its notice, took as a preliminary point the fact that the appeal was out of time. The appellant issued a motion seeking an extension of time grounded on an affidavit of the appellant sworn on the 28th June, and it was agreed that the motion be heard with the substantive appeal.
13. In his affidavit, the appellant has sworn that it was always his intention to appeal the order of the 12th February, 2015, insofar as it related to the summary judgment granted against him, but that as the order was not perfected until the 4th June, 2015, neither he nor his solicitor became aware of the order having been perfected until after the period of time for filing the notice of appeal. He seeks to contend that as his appeal is against both orders, the second of which was perfected on the 14th January, 2016, that his appeal was in time. In the alternative he seeks an extension of time.
14. I do not consider that the appeal against the order granting summary judgment was lodged in time. The substantive order is the order of the 12th February, 2015. The amendment properly sought and obtained on behalf of the bank was to the benefit of the appellant as it reduced the amount for which judgment was ordered against him. The second order provides for an amendment to the substantive order.
15. I recognise that where there is significant delay in the perfection of an order, it may give rise to its perfection being overlooked by a client or his solicitor.
16. In accordance with the well known principles in Eire Continental Trading Company Limited v. Clonmel Foods Limited [1955] I.R. 170, by reason of the averment of the appellant that he always intended to appeal the decision granting the summary judgment against him, it appears that the primary matter for consideration by the court is whether or not the appellant has arguable grounds of appeal. In circumstances where the full appeal has been argued before the court and raises an important point, it appears preferable in the interests of justice that the court enlarges the time for bringing the appeal up to the 22nd January, 2016 and determines the appeal.
17. The bank, by an amended respondent‘s notice, has sought to advance additional grounds upon which the judgment of the High Court should be upheld. It has not, however, cross appealed against the remittal of the claim on the second guarantee to plenary hearing.
Evidence relating to the first guarantee
18. Mr. Scanlon, the deponent for the bank in the High Court, exhibited a copy of what he described as “guarantee and indemnity dated 4 November 2005”. The copy exhibited is not dated on the first page where a date ought to have been inserted. The guarantee on p. 11 opposite the printed words “signed, sealed and delivered” appears to have been signed by the appellant.
19. The final page, however, of the copy document exhibited contains the following printed words:-
“I, Maurice Connolly, hereby confirm that I have been afforded an opportunity of obtaining independent legal advice as to giving my guarantee for a Loan Facility of €686,000 which has been sanctioned by ACC Bank plc to John Connolly, under the terms set out in the Letter of Sanction by ACC Bank plc dated the 28th October, 2005 and that I have declined to avail of this opportunity or have been afforded with such independent legal advise (sic).”
Below it is dated the 4th November, 2005, signed “Maurice Connolly” and then witnessed by Carol Sinnott of Cathal O’Neill and Co., Solicitors, 10 Church Avenue, Rathmines, Dublin 6.
20. The appellant did not make any affidavit in response to the plaintiff’s application for summary judgment in the High Court notwithstanding being given the opportunity to do so and being legally represented. His son, the first named defendant, swore one affidavit in which he draws attention to the fact that the first guarantee is not dated; that it was signed by the appellant and also refers to the fact that the appellant “has signed an endorsement dated the 4th November, 2005, stating that he has been afforded independent legal advice in relation to the Guarantee”. The son deposed that the advice was given by Cathal O’Neill and Co. Solicitors, who were the solicitors representing him in the transaction and that his father did not receive independent legal advice in respect of the guarantee and indemnity. The affidavit of John Connolly makes no reference to his having exerted any pressure or undue influence on his father to give the guarantees. The appellant swore no affidavit and did not adduce any evidence to ground any arguable defence that he entered into the guarantee by reason of pressure, undue influence or any other wrongful act by his son or adduced any evidence in relation to the circumstances in which he executed the first guarantee or received the legal advice referred to.
High Court submissions and judgment
21. The trial judge helpfully records the submissions relevant to the issues on appeal made on behalf of the appellant at para. 9 of his judgment to the effect that:-
“(a) The second defendant had no independent legal advice and that there was nothing before the court as to the circumstances of the signing of the documents, and
(b) The transaction was an improvident one for the second defendant who was a vulnerable person in his late sixties who had had a heart operation.”
22. He records the submission made on behalf of the bank relevant to this issue at para. 11.1:-
“Not having legal advice is not a defence in Irish Law. If there was evidence of undue influence exerted by the first defendant on the second defendant, and in this case there is no such evidence, it might afford a defence (Ulster Bank v. Roche and Buttimer [2012] IEHC 166 Clarke J). In this regard, the second defendant, having been given time by the court to swear a replying affidavit has failed to do so.”
23. The trial judge then identified the applicable principles on an application for summary judgment in accordance with the judgments in Air Rianta. v. Ryanair [2001] 4 IR 607 and Harrisgrange Limited v. Duncan [2003] 4 IR 1. He then considered the judgments of Clarke J. in the High Court in Ulster Bank v. Roche and Buttimer [2012] 1 I.R. 765, O’Donovan J. in the High Court in Ulster Bank (Ireland Limited) v. Fitzgerald and Williams [2001] IEHC 159, the House of Lords in Royal Bank of Scotland v. Etridge (No. 2) [2002] 2 AC 773 and Birmingham J. in the High Court in ACC Bank plc v. McEllin [2013] IEHC 454. Having done so he then set out his own analysis and conclusion on the issue at paras. 22 and 23:-
“22. While there is no specific allegation of undue influence, either by the first defendant on affidavit or the second defendant through his counsel’s submissions, the relationship between the first and second defendant does place the plaintiff on inquiry and, therefore under an obligation to take some reasonable steps to ensure that the guarantees have been freely entered into by the second defendant. In this regard the plaintiffs obtained a declaration from the second defendant that he had been afforded independent legal advice in respect of the first guarantee. The second defendant’s declaration dated 4th November, 2005 was witnessed by Mr. O’Neill, the solicitor, who is an officer of the court. If the second defendant wished to contradict the import of that declaration, he has had ample opportunity to do so by swearing a replying affidavit. He has chosen not to make such affidavit.
23. In the circumstances I am satisfied that the obtaining of the declaration was a sufficiently reasonable step on the part of the plaintiffs and the declaration has not been dislodged by the assertions of the first named plaintiff on affidavit or the submission of counsel for the second defendant.”
Appeal
24. On the principal issue, counsel on behalf of the appellant submitted that the trial judge was correct and followed the judgments in Ulster Bank v. Roche and Buttimer and the House of Lords in Etridge in determining that even in the absence of any claim of undue influence, those judgments provide that where a bank is on notice of a familial relationship, between the borrower and the guarantor, such as between the father and son herein, that the bank is under an obligation to take some steps to ensure that the guarantees are being freely entered into by the guarantor. Alternatively it is put that the bank is under an obligation to ensure that the guarantor is given independent legal advice prior to executing the guarantee. Counsel submitted that on the facts herein, by reason of the fact that the same solicitor was acting both for the son and the appellant, that the appellant had an arguable defence that the bank was in breach of its obligation to him and that such constitutes an arguable defence against the bank enforcing the guarantee against him.
25. The bank submitted, as it had done in the High Court, that the appellant had not adduced any evidence or otherwise sought to ground a defence that he had entered into the guarantee under the undue influence of his son. They submitted that the trial judge erred in law in determining that the relationship between the appellant and his son as principal debtor placed the bank on inquiry and under an obligation to take some reasonable steps to ensure that the guarantees were freely entered into by the appellant. Counsel for the bank submitted that this does not follow from the judgments in Ulster Bank v. Roche and Buttimer nor the decision of the House of Lords in Etridge.
26. Counsel for the appellant at the oral hearing sought to make two slightly different submissions. When asked what was the proposed arguable defence which he contended gave the appellant a right to have the bank’s claim on the first guarantee remitted to plenary, hearing he initially submitted that it was a defence of undue influence. By that I understood him to mean that the appellant contended that he entered into the guarantee under the undue influence of his son. However, on further questioning by members of the court he also submitted that the appellant was seeking to pursue a second defence, independent of any defence of undue influence, that by reason of the fact that the bank knew of the father/son relationship it was placed on inquiry and under an obligation to take steps to ensure that the appellant was given independent legal advice prior to entering into the guarantee. He submitted that it was an arguable defence to the enforcement of the guarantee against the appellant that the bank had failed on the facts to comply with that obligation. He made that second submission in reliance upon what he understood had been determined by Clarke J. in Ulster Bank v. Roche and Buttimer and the House of Lords in Etridge.
Discussion and Decision
27. I cannot accept the submission made on behalf of the appellant that on the evidence before the High Court at the hearing of the application for summary judgment an arguable defence, as that term is used in the Supreme Court decision in Aer Rianta v. Ryanair [2001] 4 IR 607, has been made out.
28. My conclusion is by reason first of the absence of any evidence by or on behalf of the appellant that he executed the first guarantee by reason of the undue influence or any other wrongful act of his son, the principal debtor. There was no evidence before the High Court upon which it could be concluded that an arguable defence of undue influence or other wrong by the son was made out. Further, I am not satisfied that, in the absence of the father making out an arguable defence that he gave the guarantee under the undue influence of his son (or because of any other alleged wrong such as misrepresentation), there is any arguable defence available in Irish law to him that the bank was under an obligation by reason of the known fact that he, the proposed guarantor, was the father of the principal debtor to take steps to ensure that he received independent legal advice or otherwise ensure that the guarantee was freely entered into such that the failure of the bank to take such steps is an arguable defence to the enforcement of the guarantee against him.
29. My reason for this latter conclusion is that I consider that the decision of the House of Lords in Etridge and the judgment of Clarke J. in Ulster Bank v. Roche and Buttimer are only concerned with the entitlement of a bank to enforce a guarantee where the guarantor has established, or in the case of an application for summary judgment has raised arguable grounds for contending, that the guarantee was entered into by reason of the undue influence or other wrongful act, in particular any misrepresentation, of the principal debtor. Those judgments are not in my view authority for an independent or distinct defence for a guarantor, albeit related to the principal debtor, seeking to vitiate a guarantee executed in favour of a bank by reason of a breach of an alleged duty owed by the bank to him to ensure that he has obtained independent legal advice or has taken some further steps to ensure that he fully understood the nature of the guarantee being given. Further, counsel has not referred to any other judgment as authority for such a proposition other than what I consider to be an obiter comment by Birmingham J. in the High Court in ACC Bank plc v. McEllin [2013] IEHC 454.
30. In Ulster Bank v. Roche and Buttimer, Ms. Buttimer was in a relationship with Mr. Roche and guaranteed his debt to Ulster Bank. Clarke J. at para. 16 of the judgment identified the issues arising in relation to the defence of undue influence raised by Ms. Buttimer in the following terms:-
“As pointed out earlier, there are both factual and legal aspects to the argument under this heading. The first factual question is as to whether Ms. Buttimer was actually under the undue influence of Mr. Roche. The legal question (which involves, at least in one view, some further questions of fact) is as to whether there are sufficient circumstances that allow Ms. Buttimer to have the guarantee set aside on the basis of the undue influence of Mr. Roche where Ulster Bank was not, itself, guilty of any undue influence. I propose dealing with the first of those issues straight away.”
31. On the first issue identified, Clarke J. concluded that Ms. Buttimer signed the guarantee in question while under the undue influence of Mr. Roche. He then concluded at para. 18 that the case came down to a question as to whether “that fact affords Ms. Buttimer a defence to Ulster Bank’s claim in this case”.
32. Clarke J. then identified the relevant question on that issue as being:-
“The extent to which a bank may find itself unable to rely on a banking contract (including in this context a guarantee for a bank debt) where it can be shown that the relevant contract was entered into as a result of the exercise of undue influence by a third party not directly connected with the bank.”
33. Next, Clarke J. considered the judgment of O’Donovan J. in the High Court in Ulster Bank Ireland Limited v. Fitzgerald [2001] IEHC 159, where O’Donovan J. having been satisfied on the facts that the bank in question had neither actual or constructive notice of any undue influence, concluded that there was no obligation on the bank in question to seek to ensure that the surety should obtain independent legal advice. On the facts of Ulster Bank v. Roche and Buttimer it was accepted that the bank was not in any way aware of undue influence and that Ms. Buttimer’s defence would have to fail if Clarke J. had followed Ulster Bank v. Fitzgerald.
34. However, Clarke J. then went on to consider the reliance placed by counsel for Ms. Buttimer on the Etridge judgment of the House of Lords where as stated by Clarke J. “the House of Lords clarified the law in respect of third party undue influence so far as the United Kingdom is concerned”. Clarke J. at paras. 24 and 25 of his judgment identified the issue that he was then concerned with was one of constructive knowledge, and stated at para. 25:-
“Constructive knowledge can often usefully be broken down into two separate questions. The first is as to what factors place a party on inquiry. The second is as to the nature of the inquiry or action that may then be required. If, in circumstances where a party is put on inquiry, that party does not carry out the inquiries necessary or take whatever other form of action may be mandated, then the party will be fixed with knowledge of matters which it would have discovered had it made the appropriate inquiries or, at least, may be faced with the situation where the court views the case on the basis that appropriate steps were not taken.”
35. Having considered portions of the opinion of Lord Nicholls in Etridge, Clarke J. the concluded at para. 32:-
“. . . While not necessarily accepting that the precise parameters, identified in Royal Bank of Scotland plc v. Etridge (No. 2) [2001] UKHL 44, [2002] 2 AC 773, are those which give rise to an obligation on the bank to inquire, and thus represent the law in this jurisdiction, I am satisfied that the general principle, which underlies Royal Bank of Scotland plc v. Etridge (No. 2) [2001] UKHL 44, is to the effect that a bank is placed on inquiry where it is aware of facts which suggest, or ought to suggest, that there may be a non-commercial element to a guarantee. That general principle, at a minimum, goes far enough to cover the facts of this case where the bank was, for reasons set out, aware of the personal relationship between Ms. Buttimer and Mr. Roche and was also aware that Ms. Buttimer had no direct interest in the company (other than being a director) and was, indeed, in those circumstances, in a less secure position than a spouse or, in the modern context, a civil partner who has at least certain potential legal rights in the assets or income of the other spouse or partner. The potential for undue influence against a partner, such as Ms. Buttimer, who has very limited legal rights indeed and who has no interest in the company whose debts it is sought that she should guarantee, seems to me to be well on the side of whatever threshold might ultimately be fixed for determining the point at which a bank is placed on inquiry.
33. In those circumstances I am satisfied that the bank was on inquiry on the facts of this case.
34. That leads to the second question which is as to what a bank must do when placed on inquiry. I have already cited the position in the United Kingdom as per Royal Bank of Scotland plc v. Etridge (No. 2) [2001] UKHL 44, [2002] 2 AC 773. Again, under this heading, nothing which I say should be taken as necessarily implying that the full rigours of the regime which applies in the United Kingdom represents the law in Ireland. However, I am satisfied that a bank which is placed on inquiry is obliged to take at least some measures to seek to ensure that the proposed surety is openly and freely agreeing to provide the requested security. As Ulster Bank, in this case, took no such steps it is, in my view, unnecessary to consider the precise level of steps which a bank must take.
35. In those circumstances it seems to me that Ms. Buttimer is entitled to rely on the undoubted undue influence which Mr. Roche exercised over her by virtue of the failure of Ulster Bank to take any steps to seek to ensure that she was acting freely in circumstances where, for the reasons which I have sought to analyse, Ulster Bank was, in my view, placed on inquiry.
36. For those reasons it seems to me that Ulster Bank’s claim must fail.
37. I leave it to another case to deal with any different set of circumstances either as to when a bank is put on inquiry or the steps which a bank must take when put on inquiry.”
36. As appears from para. 35 of the judgment of Clarke J. above, his ultimate conclusion was that Ms. Buttimer was entitled to rely on the undue influence which Mr. Roche exercised over her as a defence to the bank’s claim, in circumstances where the bank was placed on inquiry and failed to take any steps to seek to ensure that she was acting freely in the circumstances.
37. The judgment to Clarke J. in Ulster Bank v. Roche and Buttimer cannot in my view be considered as authority for a defence, independent of any allegation of undue influence or other wrong by the principal debtor, on the basis of a breach by a bank of a free standing obligation to take any measures to seek to ensure that a proposed surety is openly and freely agreeing to provide the requested guarantee or security. The entire analysis in Ulster Bank v. Roche and Buttimer is in the context of the prior finding of undue influence by Mr. Roche, and as identified by Clarke J. at para. 19 of his judgment set out above, the difficult question being whether a bank can rely on a contract where it can be shown by the defendant that the contract of guarantee or security was entered into as a result of the exercise of undue influence by a third party not directly connected with the bank. That was the issue being considered and decided in Ulster Bank v. Roche and Buttimer.
38. Similarly, in my view, in Etridge, the House of Lords speeches are given in a context where the appeals in question all concerned claims where the wife had raised a defence of undue influence by the husband in relation to the bank’s claim to enforce a security given by the wife. The leading opinion of Lord Nicholls commences with an explanation of the appeals in eight cases in the following terms:-
“Each case arises out of a transaction in which a wife charged her interest in her home in favour of a bank as security for her husband’s indebtedness or the indebtedness of a company through which he carried on business. The wife later asserted she signed the charge under the undue influence of her husband [emphasis added]. In Barclays Bank Plc v O’Brien [1994] 1 AC 180 your Lordships enunciated the principles applicable in this type of case. Since then, many cases have come before the courts, testing the implications of the O’Brien decision in a variety of different factual situations. Seven of the present appeals are of this character. In each case the bank sought to enforce the charge signed by the wife. The bank claimed an order for possession of the matrimonial home. The wife raised a defence that the bank was on notice that her concurrence in the transaction had been procured by her husband’s undue influence [emphasis added]. The eighth appeal concerns a claim by a wife for damages from a solicitor who advised her before she entered into a guarantee obligation of this character.”
39. Whilst the opinions of Lord Nicholls and Lord Scott, as put by Lord Bingham, “show some difference of expression and approach”, each makes clear that what was under consideration were the circumstances in which, where a wife asserts that she gave security to the bank for her husband’s debt by reason of his undue influence, the bank is considered to have constructive notice of the undue influence, or as alternatively stated, is put on inquiry. Further, in those circumstances, what steps a bank must take if it is to avoid being fixed with constructive notice of the undue influence or other wrongdoing such as misrepresentation by the husband such that it may not enforce the security against the wife or the wife may assert as a valid defence against the bank the fact that she gave the security under the undue influence of the third party husband. The speeches of the Law Lords are not in my view authority for a defence for a wife, independent of undue influence, simply by reason of her position as a wife and the bank’s knowledge of that fact based upon a free standing obligation on a bank to take steps to ensure that she obtained independent legal advice or otherwise that her consent to entering into the guarantee or security was freely given. It is clear there is no general presumption of undue influence between spouses.
40. The opinions in Etridge are primarily concerned with a consideration of the earlier decision of the House of Lords in O’Brien’s case. In that case there was a single opinion given by Lord Browne-Wilkinson which sets out well the legal position. He identified the question on that appeal as being “whether a bank is entitled to enforce against a wife an obligation to secure a debt owed by her husband to the bank where the wife has been induced to stand as surety for her husband’s debt by the undue influence or misrepresentation of the husband”. In that opinion Lord Browne-Wilkinson summarised his views as follows:-
“Where one co-habitee has entered into an obligation to stand as surety for the debts of the other co-habitee and the creditor is aware that they are co-habitees:-
(1) the surety obligation will be valid and enforceable by the creditor unless the suretyship was procured by the undue influence, misrepresentation or other legal wrong of the principal debtor;
(2) if there has been undue influence, misrepresentation or other legal wrong by the principal debtor, unless the creditor has taken reasonable steps to satisfy himself that the surety entered into the obligation freely and in knowledge of the true facts, the creditor will be unable to enforce the surety obligation because he will be fixed with constructive notice of the surety’s right to set aside the transaction;
(3) unless there are special exceptional circumstances, a creditor will have taken such reasonable steps to avoid being fixed with constructive notice if the creditor warns the surety (at a meeting not attended by the principal debtor) of the amount of her potential liability and of the risks involved and advises the surety to take independent legal advice.”
41. The reason for which there is a reference to co-habitees is that whilst Lord Browne-Wilkinson had considered the position of husband and wife he also took the view that the same principles apply to co-habitees and indeed that other relationships including those between a son and elderly parents could give rise to a similar result.
42. In Etridge, Lord Nicholls had some difficulty with the use of the term “constructive notice” and also the phrase that the bank is “put on inquiry”. As stated at para. 44 of his opinion in relation to the latter phrase he stated “Strictly this is a misnomer. As already noted a bank is not required to make inquiries. But it will be convenient to use the terminology which has now become accepted in this context”. At para. 50 of his opinion, he identifies that the principal area of controversy in the Etridge appeal concerns “the steps a bank should take when it has been put on inquiry”. All the subsequent views expressed by him are in the factual context of the defence raised by the wife that the security or charge was given by reason of the undue influence of the husband.
43. The approach of both Lord Nicholls and Lord Scott to the individual appeal of Mrs. Etridge appears to me to put beyond doubt that they were only considering the position of a bank where the wife successfully raises a defence of undue influence against her husband. At para. 90 of his opinion, Lord Nicholls agrees that the appeal of Mrs. Etridge should be dismissed. Lord Scott, who considered in some detail the facts relating to the appeal by Mrs. Etridge, concluded at para. 221 of his opinion, in relation to the defence of undue influence, “In my view, the judge’s conclusion that there had been no undue influence was well justified on the evidence. That conclusion should have been an end of the case”. However, he then continued to consider a submission made by counsel on her behalf before the House of Lords that there had been misrepresentation to Mrs. Etridge by her husband. On that issue at para. 223 he concluded “The misrepresentation contention is, in my opinion, for both these reasons a hopeless one”. He then stated at para. 224:-
“There was, therefore, nothing, no undue influence and no misrepresentation, to which constructive notice could attach.”
44. Notwithstanding that conclusion he did go on to consider, at paras. 225 to 227 inclusive, the question of constructive notice and advice given to Mrs. Etridge by solicitors. However that appears to me to have been obiter given his earlier conclusion.
45. I am aware that my colleague Hogan J. in the judgment he is about to deliver takes a different view of what was decided in Etridge. With the greatest of respect I cannot agree, for the reasons set out that Etridge is authority for an arguable defence by a guarantor who is a spouse or, as in this instance father, of the principal debtor independently of any allegation of undue influence or other wrongdoing by the principal debtor.
46. Accordingly I have concluded that in this case the trial judge was in error in considering that in the absence of any evidence which could form the basis of arguable grounds for contending that the appellant entered into the guarantee under the undue influence of the principal debtor, his son, it is arguable that the bank failed in any duty to ensure the appellant received independent legal advice or take other reasonable steps to ensure that the guarantees have been freely entered into by the appellant. No submission was made correctly that in a father/son relationship there is a presumption of undue influence of by the son over the father.
47. If, however, an arguable defence of undue influence had been made out it may well be arguable, upon the authority of Etridge, that the approach in Ulster Bank v. Roche and Buttimer should also apply to a relationship between a son and an elderly father with no commercial interest in the transaction, which might include the situation of the appellant. However, in the absence of any evidential basis for an arguable defence that the appellant entered into the guarantee under the undue influence of his son, there is on the facts herein no arguable defence available to the appellant against the enforcement of the guarantee by the bank by reason of any alleged obligation on the bank to ensure or procure that he obtained independent legal advice. In those circumstances the question as to whether the advice given by a solicitor in the firm of solicitors acting also for the principal debtor and acknowledged by the appellant in the document signed was or was not sufficient does not arise.
48. It is important to distinguish the position in this appeal from that in ACC Loan Management Ltd -v- Sheehan [2016] IECA 343 where the bank had made a condition of drawdown of the loan receipt of a “letter from Guarantor Solicitor confirming Guarantor received independent legal advice prior to execution of Guarantee & Indemnity document” and only a letter from the borrower’s solicitor was received. The defendant had sworn that he had not received independent advice nor been advised (by the borrower’s solicitor) of the effect of the guarantee in question. On those facts, this court upheld a decision to remit to plenary hearing as it considered the High Court was entitled to conclude that it was arguable that the bank was not entitled to unilaterally waive a condition it had imposed but which arguably was for the benefit of both parties. No such condition was included herein and no submission was made (correctly) in reliance on either the certificate or note on the guarantee advising to take independent advice.
49. The appellant’s unfortunate position is that as a person of full age he has signed a guarantee in favour of the bank. Whilst he was referred to in submission as a “vulnerable” person there was no evidence of any particular vulnerability. He has not put any evidence before the court upon which it could be argued that he did not freely enter into the commitments under the guarantee he signed and permitted to be delivered to the bank in connection with the loans being given to his son. In the absence of evidence which would support an arguable duty imposed on the bank and arguable breach thereof there is no arguable defence.
50. I have also considered the line of authority referred to in the judgment about to be delivered by Hogan J in relation to the equitable jurisdiction to set aside unconscionable bargains or improvident transactions. However, again, in the absence of any evidence from the appellant there is no factual basis for consideration of any arguable defence in reliance on what would, in effect, be a counterclaim to set aside the guarantee upon which the appellant is sued.
51. I am aware that since the hearing of this appeal two judgments have been delivered by this Court in which the majority take a similar view to the conclusion I have reached above: Bank of Ireland -v- Curran & Anor. [2016] IECA 399 and Ulster Bank (Ireland) Ltd -v- De Kretser & Anor. [2016] IECA 371. As I have independently reached a similar view I did not consider it necessary to reconvene the parties.
No seal on guarantee
52. The copy guarantee exhibited by the bank indicates that it is “Signed, Sealed and Delivered”. It is only signed by the appellant, and it does not appear to have had a seal affixed. The trial judge rejected any arguable defence by reason of the absence of the seal upon the basis that the obligation to have a guarantee by an individual executed under seal was abolished by s. 64 of the Land and Conveyancing Law Reform Act, 2009. Counsel for the appellant submits that this provision only came into operation on 1st December, 2009 and is not retrospective. The guarantees were signed in November, 2005 and January, 2008, respectively.
53. The bank does not dispute that the trial judge incorrectly decided this issue by reference to s. 64 of the 2009 Act. However, it submits that even prior to that Act there was no requirement that a guarantee be executed under seal to be valid. It refers to Anglo Irish Bank p.l.c. v. McKenna & Ors. [2014] IEHC 122 in which Birmingham J. found that the guarantee in question was not executed under seal, but held that there was no such requirement where the bank had provided consideration for the guarantee by way of loan and overdraft facilities to the principal debtor. It submits that there was on the facts herein consideration for the guarantee in the form of the loan facility advanced to the first named defendant.
54. Reliance was also placed upon the judgment of this Court in McDonnell v. Ring & Ors. [2016] IECA 16 where Mahon J. giving the judgment of the Court stated at para. 30:
“Even if there had been an absence of consideration, the guarantee was “Signed Sealed and Delivered” by the appellant. Where a contract is executed “under seal” it is not necessary to establish the existence of consideration. In this case, although the guarantee is said to be “under seal” there is no evidence that the document was in fact sealed. However, the absence of a seal is not necessarily fatal to the respondent’s claim. In Halsbury’s Laws of England (Vol. 32/2012) the following is stated:-
‘Where a person executes a deed by stating that it has been “Signed, Sealed and Delivered” but without in fact sealing it, and another person relies on the deed to his detriment, the person executing the deed is estopped from denying that it was sealed.’”
55. Whilst the trial judge rejected any arguable defence by reason of the absence of a seal for an incorrect reason, the decision reached was correct for the reasons advanced in the above submissions on behalf of the bank.
56. Accordingly the appeal must, in accordance with law on the evidence adduced, be dismissed.
JUDGMENT of Mr. Justice Gerard Hogan delivered on the 4th day of April 2017
I
1. Where a parent guarantees a substantial business loan for one of his or her children, is the lending bank obliged to take appropriate steps to ensure that the surety has received independent legal advice prior to the execution of the guarantee? That is essentially the question presented by this application for summary judgment on the part of the creditor bank, ACC Loan Management Ltd., who now sues on foot of the guarantee given by a father in respect of his son’s business debts following default on the part of the debtor.
2. I have had the opportunity of reading in draft the judgment of Ms. Justice Finlay Geoghegan and I gratefully adopt her summary of the facts. In her judgment Finlay Geoghegan J. has also helpfully set out the basis on which Fullam J. arrived at his conclusions in the High Court on 12th February 2015. In the light of that summary it is sufficient to say that Fullam J. found no arguable defence in respect of the first guarantee (which had been executed in 2005) because the surety, Mr. Maurice Connolly, had executed a document which had been prepared by the solicitors who were acting for his son, Mr. John Connolly, to the effect that he had waived his opportunity for independent legal advice. Mr. John Connolly was the borrower. So far as the second guarantee (which had been executed in 2009) was concerned, Fullam J. ruled that an arguable defence had been raised in the absence of any similar declaration regarding independent legal advice: see ACC Bank plc v. Connolly [2015] IEHC 188.
3. At the outset I should first observe that the second defendant, Mr. Maurice Connolly, has not sworn any affidavit in support of this defence. This omission has done his case few favours and has greatly complicated the task of both the High Court and this Court.
4. As a further preliminary, I should say that I entirely agree with the conclusions of Finlay Geoghegan J. that the Court should extend the time for the bringing of an appeal against the decision of the High Court. I also agree with her conclusions regarding the execution of the deed under seal. I accordingly propose first to proceed to a consideration of the question of whether a surety should be given an opportunity for independent legal advice both by reference to the authorities (Part II) and to the issue of principle (Part III). I will then consider in Part IV the impact of two very recent decisions of this Court, de Kretser v. Ulster Bank [2016] IECA 371 and Curran v. Bank of Ireland [2016] IECA 399 so far as the issues of stare decisis are concerned.
II
The decisions of the House of Lords in O’Brien and Etridge
5. The decisions of the House of Lords in Barclays Bank v. O’Brien [1994] 1 AC 180 and Royal Bank of Scotland v. Etridge (No.2) [2002] 2 A.C. 733 and that of Clarke J. in Ulster Bank Ltd. v. Roche [2012] IEHC 166, [2012] 1 I.R. 765 concerning the duties of banks vis-à-vis potentially vulnerable sureties who guarantee the business debts of their spouses or partners have all been discussed at length in the recent decisions of this Court in de Kretser and Curran and, indeed, in the judgment of Finlay Geoghegan J. in this case which she has just delivered.
6. I have already expressed in summary form my views on this topic in de Kretser and it is probably unnecessary to repeat them here. It is sufficient perhaps to observe that those comments were, of course, made in the context of the threshold for summary judgment and whether the wife (who was the surety for her husband’s business loans) had raised an arguable defence. It is true, of course, that the decisions in O’Brien and Etridge are all predicated upon a claim of undue influence on the part of surety vis-à-vis her husband. It is also the case that no such claim is made in express terms in this case.
7. It is, however, necessary, I think, to understand the context in which such a claim was made. The claims of undue influence advanced in the standard modern authorities – the special facts of Roche represent something of an exception to this trend – are not, however, directly comparable to what one might term the classic Allcard v. Skinner-style instances of undue influence where the contention is that the plaintiff has been the victim of deceitful or knavish trickery or otherwise overbearing conduct. In Allcard v. Skinner (1887) 36 Ch.D. 145 the English Court of Appeal found that the plaintiff – who had donated most of her assets to a convent – had been unduly influenced by reason of what Lindley L.J. described as “insidious forms of spiritual tyranny.”
8. With the exception of Roche (where Clarke J. found that the partner in question who had guaranteed the debt was in an abusive relationship), none of the recent cases involving a family member acting as surety for the business debts of a spouse, partner or off-spring have presented Allcard v. Skinner-type issues of undue influence. Rather, the classic example – illustrated by the facts of O’Brien and many of the individual eight cases heard by the House of Lords in the Etridge litigation – is that of the stay-at-home wife who is asked to provide a guarantee in respect of the family home as security for the husband’s business loan. When the surety is called upon to honour the guarantee, the response is to plead undue influence in the sense of reliance upon the husband of whose business dealings she had but imperfect knowledge.
9. It is in these circumstances that the bank is put on inquiry to ensure that appropriate steps are taken to ensure that the spouse in question is fully aware of the extent of her obligations qua surety. As the headnote to the report of Etridge puts the matter:
“Where a wife sought to impugn a transaction into which she had entered on the ground of her husband’s undue influence their relationship did not fall within a special category of case where an irrebuttable presumption of trust and confidence arose. If she was able on the facts of the particular case to establish that she had placed trust and confidence in her husband in the management of her financial affairs and that the impugned transaction was not explicable in the ordinary way, she could rely on a presumption which, as an evidential forensic tool, shifted the burden of proof to her opponent and could be rebutted on appropriate evidence by that party. Since the fortunes of husband and wife were ordinarily bound up together, a guarantee given by the wife with a charge on her interest in the matrimonial home to secure her husband’s debts was not plainly to her disadvantage so as to be explicable only on the basis that the transaction had been procured by his undue influence.
Whenever a wife offered to stand surety for the indebtedness of her husband or his business, or a company in which they both had some shareholding, the lender was put on inquiry and was obliged to take reasonable steps to satisfy itself that she had understood and freely entered into the transaction…” (emphasis supplied)
10. I consider that the words which I have taken the liberty of highlighting illustrate the potential application of Etridge to the circumstances of the present case. In this case, there is every reason to suppose that – and, this is, in any event, implicit in the affidavit sworn by John Connolly – Mr. Maurice Connolly reposed his trust in his son in the management of the latter’s business affairs. Nor is there anything to suggest that the father stood to gain personally by the giving of a guarantee for such large sums. Here is a case plain and simple where the father offered to stand surety for the indebtedness of his son for large sums of money and, on at least one view of Etridge, I find it difficult to see why the bank was not put on inquiry to ensure that the father had understood and freely entered into the transaction and to take appropriate steps accordingly. As Fullam J. pointed out in his judgment in the High Court, as it happens, in similar circumstances Birmingham J. suggested (while still a judge of the High Court) that parents who guaranteed an off-spring’s commercial debts might be in a position to raise an Etridge-style defence: see ACC Bank plc v. McEllin [2015] IEHC 454, para. 30. While these comments were admittedly obiter – since Birmingham J. had found on the facts of that case that the parents and the offspring had jointly come together to borrow the money for their commercial purposes – the decision in McEllin is nonetheless indicative of an interpretation of Etridge upon which Mr. Maurice Connolly can rely, at least for the purposes of demonstrating the existence of an arguable case.
11. I agree, of course, that, as I have already observed at the outset of this judgment, the fact that Mr. Maurice Connolly has not sworn any affidavit which formally sets out this defence of undue influence is a hugely complicating factor, despite the fact that he was given every opportunity to do so in the High Court. One may nevertheless reasonably infer from the available facts that the circumstances of this case are not altogether distant from that of an Etridge-style case, save that the guarantees here were given by the parent in support of the son’s business. Putting this another way, if the father had sworn an affidavit which formally deposed to the fact that he relied on his son and that the loans were for the son’s business and that based on this he claimed undue influence in the Etridge sense of that term, the case for permitting him to defend on these grounds would, I think, have been irresistible. And since we know from the other available evidence that these either are or might well be the facts, the prospect of injustice raised by granting summary judgment by reason simply of the absence of an affidavit from the father is, I fear, just too great. This is why, but for the considerations of stare decisis addressed in Part IV of this judgment, I would have held that the Etridge defence was, in principle, at least available to Mr. Maurice Connolly. This is not to say that had the matter gone to plenary hearing that Mr. Maurice Connolly would necessarily have succeeded. It is, however, to say that on that view of his defence he had, at least, raised an arguable defence so that the Bank was not entitled to summary judgment against him.
III
Application of equitable principles independently of O’Brien and Etridge
12. Quite independently of the authority of O’Brien, Etridge and Roche, I consider that, in any event, there is at least an arguable duty cast upon a bank by equitable principles to take steps to ensure that a potentially vulnerable surety is appropriately advised in a case of this kind. Of course, the context is everything and, for my own part, I would fight shy of prescribing ex ante rules unless the force of experience demonstrated that such was necessary. Nevertheless, that which might suffice in the case of a guarantee to cover an ordinary consumer loan (such as for a car or a domestic appliance) should not necessarily be regarded as sufficient where – as in the present case – the sums guaranteed by the two guarantees were, by any standards, very large. The loans in question amounted to sums which, if the surety were called upon to honour the full amount, could have life changing implications for him in terms of the security of his dwelling, his livelihood and any prospects he might otherwise have had in terms of living out his advancing years in any comfort or degree of financial security.
13. This is certainly true in the present case where the Bank now claims judgment as against the surety in the sums of over €2.37m. in respect of both loans and where it was awarded summary judgment against the surety in respect of the first guarantee in the sum of €1.185m. (As I have already noted, in the High Court Fullam J. adjourned the claim in respect of the second guarantee in the absence of any evidence that the surety had been independently advised). One might further observe that a requirement that a bank should ensure that such a surety is appropriately advised in such circumstances does not impose significant burdens or create unnecessary barriers to supply of credit.
14. It may be objected that a requirement of this kind involves the imposition of new rules or requirements for which there is no legislative sanction. One may readily concede that no modern court could justifiably invent or conjure up a new equitable principle by reference to the subjective notions of fairness and equity on the part of individual judges. If the law is considered to be unsatisfactory or inadequate, far-reaching change of this kind is reserved to the Oireachtas by Article 15.2.1 of the Constitution. Accordingly, as Lord Greene M.R. put it in Re Diplock [1948] Ch. 465, 481-482, if a claim “in equity exists, it must be shown to have an ancestry, founded in history and the practice and precedents of courts administering equity jurisdiction.”
15. To my mind, however, such a requirement as I have suggested represents simply the application in a modern context of standard principles of equity for which there is much historical precedent. From Allcard v. Skinner (1887) 36 Ch.D. 145 to Grealish v. Murphy [1946] I.R. 35 to Lloyds Bank v. Bundy [1974] EWCA Civ 8, [1975] QB 326, , equity has shown itself prepared to come to the aid of the vulnerable who were not independently legally advised where the transaction is fundamentally improvident. This is true even where “the deed…was in law a transaction for value”: see Grealish v. Murphy [1946] I.R. 35, 49 per Gavan Duffy J.. If there is no modern willingness to re-fashion and adapt these principles to modern conditions in the case of vulnerable sureties, it may simply be that we the judges who are required to tend to the gardens of equity by ensuring that their verdure remains fresh, vibrant and relevant to the modern world have allowed an ancient path of escape from the gravel paths of the common law to become disused and overgrown.
16. Yet if equity will not bring that moral element to the common law and ensure that in a modern setting the vulnerable are adequately protected, the principles of equity will in time come to be seen as just another set of rules, as desiccated, inflexible and arid as they were in the days of Lord Eldon in the early 19th century. That is why I believe that this Court should be astute to hold the plaintiff as the privileged holder of a banking licence to the highest standards. This is not in any way to question the bona fides of the bank, but rather to ensure – as much for the bank’s interest as anyone else – that it takes appropriate precautions in the case of potentially vulnerable and elderly sureties to ensure that the implications of such a guarantee are fully understood and appreciated.
17. In this regard I have not overlooked the fact that Mr. Maurice Connolly has not sworn any affidavit in support of this defence. As I have already had occasion to remark elsewhere in this judgment, this omission has done his case few favours, as many critical details relevant to our consideration of these issues are absent from our knowledge as a result. It is nonetheless not unrealistic to suppose that when Mr. Maurice Connolly first acted as surety for his son in 2005, he was at least in his 50s at the time the security was executed. While I would be the last to regard a person in his 50s as “elderly”, the key point here really is that Mr. Maurice Connolly put what must have been a considerable amount of personal capital at stake by way of two guarantees in support of the business venture of his son and in respect of which business venture he stood to receive no direct personal benefit. If matters went wrong, he stood to lose possibly all of that capital which, doubtless, had been accumulated after a lifetime of hard work and effort, not least his farm at Dunanore, Folksmills, Co. Wexford. It can therefore be argued that in these circumstances the transaction was fundamentally improvident so far as this guarantor was concerned, so that in the words of Lord Denning in Lloyds Bank v. Bundy, it is “not right that the strong should be allowed to push the weak to the wall.”
18. One may also fairly infer from the affidavit of his son, Mr. John Connolly, that Mr. Maurice Connolly had no involvement at all in the proposed development which was the subject of the business loan. As Mr. John Connolly explained, the loan was in respect of a development venture involving the purchase and licensing of certain lands. It would seem from that affidavit that he was the unfortunate victim of a fraud in relation to the title to those lands and that he is awaiting the outcome of an action for deceit against the alleged perpetrators of this fraud before he (i.e., Mr. John Connolly) will be in a position to repay the moneys. Independently of these civil proceedings, a criminal prosecution is still pending against the two individuals who are alleged to have fabricated the title documents, an earlier conviction for fraud having been set aside by reason of an irregularity in the documents which were made available to the jury.
19. In these circumstances, I believe that, but for the considerations of stare decisis which I will next address in Part IV, Mr. Maurice Connolly has established at least an arguable case that, based on the equitable principles I have already described, the bank was under a duty to ensure that he was independently advised prior to the execution of these two guarantees. It is true that, as I have already noted, Mr. John Connolly’s solicitors provided a declaration that Mr. Maurice Connolly had been offered an opportunity of independent legal advice in respect of the first guarantee in 2005 and that this declaration was then executed by Mr. Maurice Connolly himself. But since these solicitors also acted for the borrower, Mr. John Connolly, they cannot be regarded as having provided the opportunity of independent legal advice to Mr. Maurice Connolly: see, e.g., the comments to this effect of Irvine J. in Darby v. Shanley [2009] IEHC 459. As McGovern J. stated in Danske Bank v. Madden [2009] IEHC 319, the usual meaning to be attributed to the term “independent legal advice”:
“is that it is advice obtained by the party himself from a lawyer retained by him and not advice coming from the legal advisor of a third party with whom he is entering into a legal relationship.”
20. Accordingly, were the issue res integra and not covered by recent authority (which I will deal with in Part IV), I would have gone further than Fullam J. did in respect of the first guarantee in that I would have permitted Mr. Maurice Connolly to defend the claims in respect of both guarantees and not just simply the second guarantee. In these circumstances I would accordingly have adjourned the entirety of the Bank’s claim to plenary hearing.
IV
The impact of recent authorities and the doctrine of stare decisis
21. I have thus far proceeded on the basis that the matters at issue are res integra and that the issue is not determined by recent authority. It is, however, clear that this is not so, at least so far as this Court is concerned, since within the last few weeks this Court has twice rejected arguments along the lines I have just canvassed.
22. In a judgment delivered on 7th December 2016 in de Kretser, I was the dissentient who argued that a surety had raised an arguable defence to the effect that the Bank was under an affirmative duty to see that she was independently advised. This argument was rejected by Birmingham J. who delivered the judgment of the majority and with whom Peart J. agreed.
23. A similar view to that of the majority in de Kretser was taken by Irvine J. (and with whom Ryan P. and Hanna J. concurred) when she delivered the judgment of this Court in Curran on 21st December 2016. The decision in Curran was a case where a mother executed a guarantee for some €1m. in respect of her son’s company with whom she had had a minor involvement and where she was not advised as to the necessity of securing independent legal advice. As Irvine J. stated in her judgment:
“It is only relevant to consider whether it is arguable that the bank was obliged to make inquiries to ascertain whether, having regard to her connection with the company, she fully understood and was freely entering into the guarantee, if she could first establish a credible or arguable case on the facts that she executed the guarantee in circumstances of undue influence. In turn, that required her to set out on affidavit the type of facts, details and circumstances upon which she would rely at the trial to establish that her will was overborne by her son, Michael Curran, when she executed the guarantee.”
24. It is clear from this judgment that the bank would be placed on inquiry only where Allcard v. Skinner-type undue influence – or, at least, something approaching this – had been established by the surety, even in the case of parent/offspring guarantees for large sums from which the surety stood to gain no personal benefit.
25. In these circumstances, it is plain that the settled view of this Court is to the effect that, at least absent an express claim of undue influence or a claim of misrepresentation, a bank is under no such affirmative duty to ensure that a surety receives independent legal advice. Although this Court has not yet since its establishment in October 2014 been required to formulate its own rules regarding stare decisis, I think that by analogy with the doctrine of precedent applicable in the case of prior decisions of a co-ordinate court (see, e.g., the comments of Parke J. in Irish Trust Bank v. Central Bank of Ireland [1976-1977] I.L.R.M. 50, 53 where the practice of one High Court judge following an earlier decision of another High Court judge was discussed), then absent special circumstances, an individual member of this Court should normally yield to the prevailing consensus as reflected in prior decisions of this Court which are clearly on point and which, in the words of Finlay C.J. in Finucane v. McMahon [1990] 1 I.R. 165, 207, represent decisions “reached after the most comprehensive and detailed consideration of all relevant factors.”
26. The decision in Finucane had concerned the proper interpretation of the political offence exception in s. 50 of the Extradition Act 1965 in respect of which there had been a range of divergent judicial views expressed by various Supreme Court judges in the case-law leading up to Finucane. Even though Finlay C.J. evidently disagreed with the majority view which ultimately emerged from that case-law and in Finucane itself, he stated that he was henceforth willing to accept the majority view and adopt it as his own by reason of stare decisis. By analogy, therefore, with the approach adopted by Finlay C.J. in Finucane, I consider that it would be appropriate that I should accept and adopt this majority view as reflected in de Kretser and Curran “so that the basic principles underlying it may clearly represent the decision of this Court”: see [1990] 1 I.R. 165, 207.
Conclusions
27. In summary, therefore, while I still respectfully adhere to the views which I have expressed on this topic of the duty of banks regarding the giving of guarantee by potentially vulnerable sureties in both my dissent in de Kretser and elsewhere in this judgment, it is important that in a collegiate court such as the Court of Appeal an individual member should ultimately submit to the settled views of the majority of that Court as reflected by stare decisis. As I consider that this issue has now effectively been determined by the majority decision in de Kretser and by the unanimous decision in Curran, it is, accordingly, therefore, simply for reasons of stare decisis that I agree with the decision of Finlay Geoghegan J. that Mr. Maurice Connolly has not raised any arguable defence in respect of the first guarantee.
28. In these circumstances, it follows that his appeal should accordingly be dismissed.