Limited Recourse
Cases
National Asset Loan Management DAC v Stapleton
(Approved) [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.
Zurich Bank -v- Mc Connon
[2011] IEHC 75 (4 March 2011)
Judgment of Mr. Justice Birmingham delivered the 4th day of March 2011
In this case the plaintiff, Zurich Bank (“the bank”) seeks summary judgment in the sum of €31,883,565.56, together with continuing interest.
The bank claims to be entitled to judgment on the basis that money was lent by it to the defendant on foot of a Facility Letter dated 15th June, 2007, which was accepted by the defendant on 18th June, 2007, which remains outstanding.
By that Facility Letter, the bank had offered to advance to the defendant the sum of €32,522,613 subject to the terms and conditions set out in the letter. The letter identified the final repayment date as twelve months from the date of initial disbursement.
It is not in dispute that the defendant availed of the facility and drew down the available funds and that the loan has not been repaid. However, the defendant says that there are a number of defences available to him which will enable him to defeat the bank’s claim. Moreover, he says that in respect of the defences on which he relies, that while there may not be sufficient information available at present so that the Court would be satisfied that the defences will ultimately succeed, that certainly it is the case that the various defences relied on are of sufficient substance that it is clearly appropriate that he should be permitted to defend the case and that the matter should go for trial and the application for summary judgment should be refused.
Legal principles
There was broad agreement between the parties on the legal principles that apply to applications for summary judgment. Those principles have been the subject of discussion in a number of Supreme Court cases. In First National Commercial Bank Plc v. Anglin, [1996] 1 IR 75, Murphy J. dealt with the issue in these terms on pp. 78-79:-
“For the court to grant summary judgment to a plaintiff and to refuse leave to defend it is not sufficient that the court should have reason to doubt the bone fides of the defendant or to doubt whether the defendant has a genuine cause of action… In my view the test to be applied is that laid down in Banque de Paris v. de Naray [1984] 1 Lloyd’s Law Report 21, which was referred to in the judgment of the President of the High Court and reaffirmed in National Westminster Bank Plc v. Daniel [1993] 1 W.L.R. 1453. The principle laid down in the Banque de Paris case is summarised in the headnote thereto in the following terms:-
‘The mere assertion in an affidavit of a given situation which was to be the basis of a defence did not of itself provide leave to defend; the Court had to look at the whole situation to see whether the defendant had satisfied the Court that there was a fair or reasonable probability of the defendants having a real or bone fide defence.’
In the National Westminster Bank case, Glidewell L.J. identified two questions to be posed in determining whether leave to defend should be given. He expressed the matters as follows:-
‘I think it right to ask, using the words of Ackner L.J. in the Banque de Paris case at p. 23,
‘Is there a fair or reasonable probability of the defendants having a real or bona fide defence?’ The test posed by Lloyd L.J. in the Standard Chartered Bank case … “Is what the defendant says credible?” amounts to much the same thing as I see it. If it is not credible, then there is no fair or reasonable probability of the defendant having a defence’.
The matter was again considered by the Supreme Court in the well known case of Aer Rianta CPT v. Ryanair Limited, [2001] 4 IR 607 wherein, the test laid down in First National Commercial Bank v. Anglin was endorsed by McGuinness J. on p. 615. She commented:-
“Thus it is for this court to decide whether in the instant case the defence set out in the affidavits of Mr. O’Leary, together with the documents exhibited therewith, is credible, or in other words, whether there is a fair or reasonable probability of the defendant having a real or bona fide defence… The Court does not ask whether Mr. O’Leary’s account of events is probable, or likely to be true; nor does it ask whether Mr. Byrne’s account of events is more likely. The question is rather whether the proposed defence is so far fetched or so self-contradictory as not to be credible”.
The issue is also the subject of a judgment from Hardiman J. in the same case. In the course of his judgment he observed, on pp. 621-622:-
“… I believe that the test for obtaining summary judgment has not changed since the early days of the procedure in the late nineteenth and early twentieth centuries. The formulation used in First National Commercial Bank Plc v. Anglin [1996] 1 IR 75 and the cases cited in that judgment are useful and enlightening expressions of the test, but I do not believe that this formulation expresses an altered criterion which is more favourable to a plaintiff than that derived from the other cases cited. 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”. Later, Hardiman J. went to on to say, at p. 623:-
“In my view, the fundamental questions to be posed, on an application such as this remains; 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?”
The issue was again under consideration by the Supreme Court in the case of Danske Bank a/s trading as National Irish Bank v. Durkan New Homes and Others IESC 22 (Unreported, Supreme Court, 22nd April, 2010). That was a case where the plaintiff bank had made loans to the appellants. The loan agreements contained limited recourse terms. The essential issue between the parties was whether the limited recourse terms of the agreement availed the borrowers in providing a defence to the claim or whether the bank could recover the moneys lent. In the High Court the trial judge had commented, as set out on p. 8 of the Supreme Court judgment:-
“If the addition of evidence can assist in any material way in the construction of a document, then, I agree, the matter should be put for plenary hearing. If, on the other hand, the question of law arising on affidavit evidence can be as well considered on a motion for summary judgment as at a plenary hearing, then I feel it is the obligation of the court to resolve it on hearing that motion.”
Dealing with this passage Denham J. with whom the other members of the Supreme Court agreed commented on p. 9:-
“The learned High Court judge appeared to find that if a question of law arose, it was the obligation of the trial court to resolve the matter on the hearing of the motion… While a court may resolve questions of law there is no obligation to do so. The test, as stated previously, is whether the appellants have established an arguable defence.”
The Supreme Court members were satisfied that the appellants had an arguable defence on the construction of the agreement documentation.
The role of the Court in determining questions of law was discussed by Clarke J. in McGrath v. O’Driscoll [2007] 1 ILRM 203. At p. 210 he commented:-
“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.”
I take these cases to which I have referred, as indicating that while the jurisdiction to refuse leave to defend and proceed to summary judgment undoubtedly exists, it is a jurisdiction to be exercised very sparingly indeed.
The background to the proceedings
In order to give some context to the defences that have been advanced it is helpful to give some context to the relationship between the plaintiff and defendant. This background summary draws heavily on the narrative set out by the defendant in his affidavits.
The defendant has in recent times owned and operated a supermarket and hardware shop at Caseleblayney, Co. Monaghan. He had purchased the business in 1996. Unfortunately the supermarket/grocery was damaged by fire in 1998. Following the fire, the defendant rebuilt and thereafter operated the supermarket business; the Supervalu business on the ground floor and a hardware franchise on the first floor.
In late 2003, the plaintiff considered purchasing a site known as “Coogan’s site” which was situated behind his shop. This was a site in which there were some derelict buildings. He purchased the site for approximately €3.2m in 2004, with Allied Irish Banks advancing the entire purchase price. It seems that initially, his interest centred on the provision of car parking there. Thereafter, the defendant consulted and engaged a number of professionals including an architect, and a firm of project management consultants/engineers. At this stage the question of extending retail space had moved centre stage. As the project began to take shape, it became clear that building a shopping centre would cover the entire site available and that there would be no space for a car park. In those circumstances, an approach was made to the owner of another site that was close by, known as “Tavey’s site”, and this was purchased in late 2005 for the sum of €3.3m and again this purchase was financed by Allied Irish Banks.
Groundwork commenced and indeed approximately €1.6m was spent on these works. The defendant was informed by his advisers that the entire project would cost approximately €32million. In late 2006, AIB appeared to have decided that the project was not a viable one and indicated that they would not be providing any further funding. At that stage the defendant owed AIB approximately €10million, which he had spent on the project.
The defendant’s response to the withdrawal of funding by AIB was to engage a firm of accountants to put together a proposal for the development and, as part of that exercise it was decided to engage the services of CBRE Richard Ellis.
Armed with this proposal, the plaintiff seems to have approached a number of financial institutions, seeking to interest them in the project, but up until April, 2007, only one institution was willing to consider becoming involved and then only on terms which the defendant felt made the process unaffordable and uneconomic.
In April, 2007, the defendant received an unsolicited phone call from an official of the plaintiff bank. On the following day, two officials of the bank travelled to Castleblayney and met with the defendant. While there would seem to be some disagreement as to what precisely was said at the Castleblayney meeting, the only direct account that has been given is that which is offered by the defendant and it is this, which must be accepted at this stage. He indicates in his affidavit that he showed the officials the plan that had been prepared, and it was stated in argument that the defendant was speaking here about the architect’s plan for the development, and the officials inquired about his financing needs. According to the defendant he told them that he had received an offer of funding from another institution, but did not show them, nor was he asked to show them, any documentation in relation to that other offer. The defendant says that he did discuss with them the terms of the loan required. According to the defendant, at the end of the meeting, the officials told him that he would have a Term Sheet from the bank within 24 hours and this was forthcoming.
Approximately two months later on the 15th June, 2007, the loan offer issued and was accepted by the defendant on the 18th June.
There is an amount of disagreement between the parties as to the significance of certain provisions of the facility letter and I will return to this when discussing the defences that have been indicated.
Thereafter, the defendant proceeded to draw down the available funds in various instalments between December, 2007 and the end of March, 2009. In passing it may be noted that on the 5th January, 2009, the loan agreement was amended which saw the term extended by some five months and the facility was increased by €580,000 to a total of €33,102,613.
As the economy stalled the project encountered major difficulties. In the course of his affidavit, the defendant comments “in late 2009 it became clear to us all that the monies expended on the development of this centre in Castleblayney were never going to be recovered. This was a harsh economic fact and is and was at that time unassailable”. The enormity of the difficulties that the project encountered may be seen from the fact that the defendant has averred that the current value of the Castleblayney centre is in the region of €1m to €2million.
As the scale of the difficulties emerged, the situation was discussed between the bank and the defendant. On the 23rd November, 2009, the bank offered a “standstill period” of three months and that period was subsequently extended. Certain proposals were put by the defendant but these were rejected by the bank and on the 30th November, 2010, a summary summons was issued.
The defences
Four possible defences have been identified on behalf of the defendant and it is said that each of these, at a minimum, provides a basis for refusing summary judgment and allowing the matter go to a trial. In summary, these might be described as
• The condition of contract point;
• Estoppel;
• Frustration;
• Code of conduct point.
Condition of Contract
The defendant contends that as a condition of the loan contract, the plaintiff agreed to satisfy itself as to the form and content of an independent valuation which they had required to be carried out on both the “Coogan’s site” and the Tavey’s site. It is contended that this was a condition that the defendant was entitled to rely upon and did in fact rely upon. It is said that the condition is described as a condition precedent of the agreement and the defendant submits that the plaintiff failed to conduct any or any adequate investigation or analysis in relation to the valuations it received and that in so failing, the plaintiff breached an essential term of the agreement. The defendant says that the valuations obtained by the bank from CBRE Richard Ellis “were so off the mark as to be derisory”. The key factors set out in the reports are, he says, “wholly nonsensical”
The background to this issue is that, as I have already referred to, the defendant had approached a firm of accountants to put together a proposal when Allied Irish Banks had withdrawn from further involvement, and as part of that exercise had sought and obtained reports from CBRE Richard Ellis. At one level the reports obtained by the defendant gave the appearance of being quite detailed and elaborate. The reports, it should be noted, had placed a value of €15,500,000 on the main street property, the Coogan’s site, and €14,500,000 on the New Street site, the Tavey’s site.
Clause 18 of the facility letter accepted by the defendant on the 15th June, 2007, was, so far as material in these terms:-
“18. Conditions precedent
18.1 The Borrower may not request an Advance under the Facility until the Bank has received in form and content satisfactory to it:
(e) an independent valuation on the shopping centre site at Main Street, Castleblayney, Co. Monaghan, of not less than €14,500,000 addressed to the Bank.
(f) an independent valuation on the Tavey’s site at New Street, Castleblayney, Co. Monaghan, of not less than €15,500,000 addressed to the Bank.
18.2 The Bank has the right to waive any and all of the conditions precedent”.
The plaintiff points out that the condition in question is not described as a condition precedent of the agreement rather, clause 18 deals with matters that are condition precedent to the borrower requesting an advance under the facility. It is said that whether the bank is satisfied in relation to the various matters listed in clause 18, is a matter for it and it alone. The defendant is constrained from requesting an advance until the bank has received listed documentation “in form and content satisfactory” to it.
For my part I can see no basis whatever for the suggestion that clause 18.1 is one on which the borrower can rely. If there was ever any doubt about that and I do not believe there was, any such doubt would be entirely removed by clause 18.2 which says “the Bank has the right to waive any and all of the conditions precedent”. I regard the suggestion that the defendant is entitled to rely on an alleged failure on the part of the bank to subject the valuations to scrutiny as fanciful. It must be appreciated that it was the defendant who first caused CBRE to become involved. It was the defendant and his advisors who prepared a proposal document that was grounded on the valuations that he had sought and obtained. In those circumstances, it seems strange to find the defendant asserting that even a perfunctory analysis of the valuations by the plaintiff would have revealed that the valuations were not based on any discernible fact or objective basis, but rather that they were based on untruths and conjecture.
The threshold to be overcome if the defendant is to be given liberty to defend is a very low one, but, on this issue, low as it is, has not been made out. In my view, the question which Hardiman J. says is to be posed, namely, whether it is very clear that the defendant has no case admits of only one answer – so far as this suggested defence is concerned, the defendant has no case.
The estoppel point
This point arises out of the defendant’s agreement to a standstill period. Central to this issue are the terms of the letter of 23rd November, 2009, offering the standstill period. It is appropriate to set out the terms of that letter:
“Many thanks to both you and John for taking the time to meet with Colm and I on Thursday last. We found the meeting very useful and look forward to building a strong working relationship with you and your team.
I thought it would be helpful for all of us if I set out below my understanding of what was agreed on Thursday in terms of how we should best progress. Where specific dates have not already been agreed, I have made some suggestions which are in parentheses.
You agree to:
1. Sign an Engagement letter with ACT within the next five days.
2. Undertake to have KMR provide ACT with the management accounts and projections required to complete their feasibility study by (latest) Friday 11th of December, 2009. Whilst we originally had discussed setting Monday 14th December as the deadline, on reflection, it would make more sense to set Friday 11th as the deadline instead, as it would give ACT the weekend to review the numbers prior to commencing meetings with you the week of Monday, 14th of December.
3. Ask your accountants to perform a detailed VAT reconciliation to be provided to ACT by Friday 11th of December, 2009.
4. Ensure that you and your team (including KMR) will be available to meet and work with ACT as required the week of 14th of December.
5. Work with KMR, ACT and Zurich Bank to produce a business plan and financial model which we are all comfortable with by [January 15th, 2010];
6. Keep us updated as to any potential problems or issues which you foresee might result in agreed deadlines not being met.
In return, the Zurich Bank will agree to grant a Standstill Period of three months from the date of this letter [i.e. 23rd February, 2010] in order to enable you, KMR and ACT to complete the business plan and feasibility study outlined above and to enable Zurich Bank to devise revised repayment schedules and Loan Offer letters for your two loans based on the finding of the study. During the standstill period, Zurich Bank undertakes to take no action in relation to the enforcement of your loans.
Please confirm by return of post that you are in agreement with the proposal outlined above and with the proposed timeline”. (Emphasis as in original letter).
The letter was signed by the Head of Portfolio Asset Management of Zurich Bank. The reference to ACT was to a company recommended by Zurich which was seen by the bank as expert in the field of financial due diligence and restructuring. KMR is a reference to the firm of accountants that were advising the defendant and this was the same firm that had prepared the proposal document to which reference has been made.
Counsel on behalf of the defendant has referred to the case of Central London Property Trust Ltd. v. Hightrees House Ltd. [1947] 1 K.B. 130, a case very familiar to every law student of a particular generation and has referred to the discussion of the topic of Promissory Estoppel in McDermott’s Contract Law (Dublin: Butterworths, 2001). At paragraph 2.104, the author of that text commented:-
“The key elements of a claim of promissory estoppel are as follows.
(i) A pre-existing legal relationship between the parties.
(ii) An unambiguous representation.
(iii) Reliance by the representee (and possible detriment).
(iv) Some element of unfairness or unconscionability.
(v) The estoppel is being used not as a cause of action, but as a defence or as a rule of evidence to stop the other party raising a defence.
(vi) The remedy is a matter for the court.”
The legal argument raised is an interesting one. However the defendant has failed to ground the interesting legal issue, and in this context of this case, largely uncontroversial legal issue in the facts of this case. As Dr. McDermott has pointed out, Cheshire and Fifoot, have suggested of promissory estoppel that:
“Few doctrines are at once so potentially fruitful and so practically unsatisfying. It is more often cited than applied, and more often applied than understood.”
In this case, the bank offered a standstill and honoured that offer during both the original and extended standstill period. The defendant places particular emphasis on this phrase that appears in the penultimate sentence of the operative part of the letter of 23rd November, 2009:
“… and to enable Zurich Bank to devise revised repayment schedules and Loan Offer letters for your two loans based on the findings of the study.”
The defendant says that the bank has not met its obligations, whereas he says that in all material respects, he has fully honoured his side of that agreement.
This was a standstill agreement, no more and no less. A standstill was effective until 30th June, 2010. A report with suggestions as to how matters might be progressed was put forward by the defendant but was rejected by the bank by letter dated 20th July, 2010. The bank was not obliged to offer a standstill, but did so. Having done so, the bank was obliged to honour its promise and did so. I can see no basis for suggesting that there was, even arguably, any greater obligation on the part of the bank. It seems to me that the defendant’s arguments fundamentally misunderstand the nature of the relationship between the bank and the defendant. The relationship was not that of partners with a common interest, sharing a risk, rather, the relationship was that of lender and borrower.
At the heart of the doctrine of estoppel is the requirement that there would be an element of unfairness or unconsionability in permitting the promissor to welch on what he has offered. Leaving aside that what the bank offered was limited to offering a standstill period, I can find nothing unfair or inequitable or unconscionable in a party that has lent money seeking to be repaid.
I can see no arguable basis for suggesting that an equitable remedy would involve extinguishing the right of a bank that has lent a very large sum of money for a commercial development to be repaid.
Again, I am satisfied that the defendant has failed to make out even an arguable defence based on the invocation of the doctrine of estoppel.
The doctrine of frustration
The written submissions on behalf of the defendant which have referred to this defence, have singularly failed to relate the defence to the facts of the present case. Indeed, there was a certain vagueness as to what the radical and cataclysmic change of circumstances giving rise to the doctrine was supposed to be. It has now been clarified that the allegation is that the agreement has been frustrated by the dramatic collapse in property values. The defendant submits that the true intention of the parties to the loan agreement was the development of a shopping centre and the leasing out of the centre at rental levels indicated by CBRE. However, again, it seems to me that is to misunderstand the nature of the relationship between the parties. The bank’s interest in this was in loaning money with the expectation that the loan would be repaid and that the bank would make a profit from the loan. Undoubtedly, the defendant’s purpose in seeking funding from the plaintiff bank, and indeed, from the other banks that were approached, was so that he could proceed with the project on which he had already expended some €10 million. However, there is no basis whatever for suggesting that the parties had agreed to enter into a risk sharing partnership. Such a proposition is unstateable.
The defence of frustration was raised in the case of Ringsend Property Ltd. v. Donatex Ltd. and Bernard McNamara IEHC 568 (Unreported, High Court, Kelly J., 18th December, 2009), a case arising out of the purchase of the Irish Glass Bottle (IGB) site. The basis for invoking the doctrine there was that it was contended that as a result of various factors that had occurred, neither the Dublin Dockland Authority nor Dublin City Council were in a position to authorise the proposed development. Kelly J. commented that the defence of frustration is one of limited application and narrowness. He referred to a number of earlier decisions to demonstrate the narrow scope for the doctrine and quoted with approval, from p. 15, from Chitty on Contracts (Sweet & Maxwell, 30th Ed.), para. 23-003, where it is stated:
“The courts do not wish to allow a party to appeal to the doctrine of frustration in an effort to escape from what has proved to be a bad bargain: frustration is ‘not lightly to be invoked to relieve contracting parties of the normal consequences of imprudent commercial bargains’.”
In my view, it is just that which the defendant is seeking to do. The defendant first became involved with this project as far back as 2004, some three years before the plaintiff bank was on the scene. Thereafter it appears the plaintiff was assiduous in pursuing sources of funding. Like every development project, it contains within it the possibility of success and of failure. Certainly, with the benefit of hindsight, the project on which the defendant embarked was an overly ambitious one, but I can discern no basis whatever as to how invoking the doctrine of frustration could provide an arguable defence.
The “Code of Conduct” point
In addition, the defendant relies on the terms of the Financial Regulator’s Consumer Protection Code (“the code”), issued by the Regulator in August, 2006. It is accepted that the plaintiff bank is a body that is subject to the Code. However, there are formidable and indeed, in my view, insurmountable difficulties preventing the defendant from relying on the Code by way of defence. First of all, the defendant is not a “consumer” within the meaning of the Code. The Code so far as material defines consumer as “a natural person acting outside their business, trade or profession”.
The question of who is a consumer was considered in the case of Allied Irish Banks v. Brian Higgins and Others I.E.H.C. 219, (Unreported, High Court, Kelly J., 3rd June, 2010) though in the context of the provisions of the Consumer Credit Act 1995, rather than of the Code. Kelly J., on p. 26, referred to the decision of the European Court of Justice in the case of Benincasa v. Dentalkit (Case C-269/95) [1997] ECR 1-3767 and observed that the European Court of Justice clearly envisaged that the concept of consumer was confined to a person acting in a private capacity and not engaged in trade or professional activities, and went on to observe that the self-same person can be regarded as a consumer in relation to certain transactions and as an economic operator in relation to others and that only contracts concluded for the purpose of satisfying an individual’s needs in terms of private consumption are protected by the Directive (Council Directive 87/102/EEC as amended by Council Directive 90/80/EEC of the 22nd February, 1990).
It seems to me even harder to take seriously the suggestion that the defendant in the present case was a consumer given that he operated a supermarket and hardware franchise in Castleblayney for a number of years and what was involved here arose out of that and represented merely an extension, albeit on a dramatic scale of what he was already involved in.
Moreover, even if the defendant were a consumer and in my view he emphatically is not, the Code did not come into force until the 1st July, 2007, some two weeks after the defendant signed the acceptance of the Bank’s offer on the 18th June, 2007.
It is true that the general principles referred to in Chap. 1 of the Code were in force on the 18th June, 2007, and the defendant places reliance on these. The defendant contends that the Code was breached by the plaintiff in the following respects:
• Failing to investigate or analyse the CBRE valuations;
• Failing to inform the defendant that it was not intending to scrutinise or otherwise consider the valuations;
• Misinforming or otherwise misleading its own decision making process.
• Informing its credit committee that another bank (AIB) had sanctioned loan approval when it had not;
• Misleading its internal process as to the net worth of the defendant.
• Failing to avoid or disclose conflicts of interest;
The defendant contends that the terms of the Code formed an implied term of the contract between the parties, a breach of which created rights for the defendant. Alternatively, it is submitted that the defendant was entitled to expect and did in fact expect that the terms of the Code would be fully complied with.
Assuming, without deciding, in favour of the defendant for the purpose of this stage of the proceedings that the bank breached the Code as alleged, it does not seem to me that of itself assists the defendant. At p. 2 of the document it is stated: “The Financial Regulator has the power to administer sanctions for a contravention of this Code, under Part IIIC of the Central Bank Act 1942”. Entirely lacking is any suggestion that a breach of the Code renders the contract null and void or otherwise exempts a borrower from the liability to repay. The questions of sanctions is referred to in s.33AQ of the Central Bank Act 1942, as amended by s. 10(1) of the Central Bank and Financial Services Authority of Ireland Act 2004. This contains provisions for matters such as caution or reprimand, the payment of a monetary penalty to the financial regulatory authority, disqualification provisions and the like, but again there is no suggestion that a lender is prohibited from seeking repayment from its borrower. The contrast between the approach taken in the Code and the approach of the Consumer Credit Act 1995, is striking. Section 30 of the Act contains mandatory provisions concerning a credit agreement or contract of guarantee entered into by a consumer. Matters such as a requirement for the agreement to be in writing and for a cooling off period are dealt with. Section 38 of the Act deals with the consequences of failing to comply with the requirements of the section and provides that a creditor will not be entitled to enforce a credit agreement or contract of guarantee and that any security given shall not be enforceable. There are no comparable provisions whatever in the Code.
The defendant has argued that the Code forms an implied term of the contract. There are a number of fundamental difficulties with this argument. First of all the question arises by what method is it suggested that a term has been implied. It is not the case that any terms have been implied by statute. There is also the question of what term would be implied if a mechanism for doing so was found. The only implied term that would assist the defendant would be a term that the Bank was obliged to comply in all respects with the Code and that the consequence of non compliance was that the borrower was exempted from the liability to repay the loan. If one introduces the traditional officious bystander into the equation then it would be seen that such a suggestion has little reality. The notion that a bystander asking whether such a term formed part of the agreement would be hushed by the parties jointly and impatiently snapping “of course” seems more than improbable. In summary I can see no basis for suggesting that any alleged breach of the Code exempts the borrower from repaying his loan.
If I could just conclude with this general observation, viewed from the perspective of February 2011, the decision to advance funds in the amount involved seems extraordinary, indeed bordering on the bizarre. The speed with which the decision was taken to offer the loan seems quite remarkable. However that said, it must be stressed that this was not a question of a bank forcing funds on a reluctant, but gullible, borrower. Ever before the plaintiff bank ever entered on the scene, the defendant had embarked on the project and had expended €10m. The fact that the bank with which he had a long term relationship was not prepared to be involved and that it would appear that a number of other banks that were approached were likewise disinterested must have indicated to all concerned that this was not a project free of risk. The defendant decided to proceed and borrowed the money and I can see no arguable basis whatever for suggesting that he can be absolved from liability to repay. Accordingly, I am satisfied that this is one of the rare cases where a plaintiff is entitled to summary judgment.
Ennis Property Finance DAC -v- Murphy
[2017] IEHC 573 (10 October 2017)
JUDGMENT of Mr Justice Max Barrett delivered on 10th October, 2017.
I. Background
1. These are summary proceedings for debt.
2. In or about December, 2004, Bank of Scotland (Ireland) (‘BOSI’), the predecessor in interest to Ennis Property and Mr Murphy entered into an agreement, pursuant to which BOSI agreed to provide Mr Murphy with a loan facility in the amount of €855k (the ‘First Agreement’). The terms of the First Agreement were contained in a facility letter dated 17th December, 2004, executed by Mr Murphy on or about 20th December, 2004, and subject, inter alia, to BOSI’s general terms and conditions. The terms of the said facility were amended by the parties by facility letters dated 15th May, 2008, and 19th July, 2010. The purpose of the loan facility was to fund the purchase of certain properties respectively in County Wicklow and the United Kingdom, and to fund related legal and professional fees arising.
3. The terms of the First Agreement provided, inter alia, that BOSI was entitled (1) to interest at a rate provided for in the First Agreement, (2) without the consent of Mr Murphy, to assign any of its rights and benefits under the First Agreement to any third party, (3) upon an event of default, to call for the immediate repayment of all monies payable and due plus accrued interest thereon.
4. In or about April 2006, BOSI and Mr Murphy entered into another agreement, pursuant to which BOSI agreed to provide Mr Murphy with a loan facility in the amount of UK £630k (the ‘Second Agreement’). The terms of the Second Agreement were contained in a facility letter dated 25th April, 2006, executed by Mr Murphy on or about 5th May 2006, and subject, inter alia, to BOSI’s general terms and conditions. The terms of the said facility were amended by the parties by a facility letter dated 19th July, 2010. The purpose of the loan facility was to fund the purchase of a property in the United Kingdom, and to fund related arrangement and legal fees arising.
5. The terms of the Second Agreement provided, inter alia, that BOSI was entitled (1) to interest at a rate provided for in the Second Agreement, (2) without the consent of Mr Murphy, to assign any of its rights and benefits under the Second Agreement to any third party, (3) upon an event of default, (a) to call for the immediate repayment of all monies payable and due plus accrued interest thereon, (b) at its sole discretion, pending receipt of all monies due (including accrued interest), to convert all or part of the outstanding loan balance to a euro denominated amount.
6. In breach of the First Agreement and the Second Agreement, the loan periods under which expired on 31st December, 2010, Mr Murphy failed to make required quarterly interest payments and has failed to repay the principal sum owing. As a consequence of the failures aforesaid, letters of demand issued to Mr Murphy on 3rd June, 2016. A receiver was appointed over certain assets of Mr Murphy on 17th June, 2016. Following the appointment of the receiver, the defendant engaged in ‘without prejudice’ correspondence with Mr Murphy. However, no agreement could be reached and fresh letters of demand issued on 23rd November, 2016. Despite the said demands, the amounts demanded have not been repaid and the defendant therefore commenced the within proceedings on 7th December, 2016.
II. Some General Legal Principles
7. Mr Murphy contends that in all the circumstances arising, adjudication on his debt ought to follow a plenary hearing. The hurdle that he must cross to succeed in having matters sent to plenary hearing is notably low. As Hardiman J. stated in the Supreme Court in Aer Rianta c.p.t. v. Ryanair Limited [2001] 4 IR 607, 623:
“In my view, the fundamental questions to be posed on an application such as this remain: is it ‘very clear’ that the defendant has no case? Is there either no issue to be tried or only issues which are simple and easily determined? Do the defendant’s affidavits fail to disclose even an arguable defence?”
8. In Harrisrange Ltd. v. Duncan [2003] 4 IR 1, 7, McKechnie J. summarised as follows the relevant principles to be brought to bear when a court approaches the issue of whether to grant summary judgment or leave to defend:
“(i) the power to grant summary judgment should be exercised with discernible caution;
(ii) in deciding upon this issue the court should look at the entirety of the situation and consider the particular facts of each individual case…
(iii) in so doing the court should assess not only the defendant’s response, but also in the context of that response, the cogency of the evidence adduced on behalf of the plaintiff…
(iv) where truly there are no issues or issues of simplicity only or issues easily determinable, then this procedure is suitable for use;
(v) where, however, there are issues of fact which, in themselves, are material to success or failure, then their resolution is unsuitable for this procedure;
(vi) where there are issues of law, this summary process may be appropriate but only so if it is clear that fuller argument and greater thought is evidently not required for a better determination of such issues;
(vii) the test to be applied, as now formulated is whether the defendant has satisfied the court that he has a fair or reasonable probability of having a real or bona fide defence; or as it is sometimes put, ‘is what the defendant says credible?’…
(viii) this test is not the same as and should not be elevated into a threshold of a defendant having to prove that his defence will probably succeed or that success is not improbable, it being sufficient if there is an arguable defence;
(ix) leave to defend should be granted unless it is very clear that there is no defence;
(x) leave to defend should not be refused only because the court has reason to doubt the bona fides of the defendant or has reason to doubt whether he has a genuine cause of action;
(xi) leave should not be granted where the only relevant averment is the totality of the evidence, is a mere assertion of a given situation which is to form the basis of a defence and finally;
(xii) the overriding determinative factor, bearing in mind the constitutional basis of a person’s right of access to justice either to assert or respond to litigation, is the achievement of a just result whether that be liberty to enter judgment or leave to defend, as the case may be.”
9. Worth mentioning also in this regard, in light of the various contentions averred to, and referred to in submission, by Mr Murphy, is the nature of the assertions that a defendant must bring to bear in order that a matter will be sent to plenary hearing. As Charleton J. noted in National Asset Loan Management Ltd v. Barden [2013] IEHC 32, “The mere assertion on affidavit of a defence is insufficient. A defence must, if the matter is to be remitted to plenary hearing, have some reasonable foundation.” As Clarke J., as he then was, observed when speaking for the Supreme Court in Irish Bank Resolution Corporation (in special liquidation) v. McCaughey [2014] IESC 44, observed, para. 5.5, “The sort of factual assertions, which may not provide an arguable defence, are facts which amount to a mere assertion unsupported either by evidence or by any realistic assertion that evidence might be available, or, facts which are in themselves contradictory and inconsistent with uncontested documentation or other similar circumstances…”. So it does not suffice simply to raise an abundance of allegations unsupported by evidence or any realistic assertion that evidence might be available and to expect that a plenary hearing will follow. Yet that, with every respect, is all that Mr Murphy has done.
III. Some Contentions Made by the Defendant
(i) The Alleged Agreement as to Residual Debt.
10. Mr Murphy contends that the actions of BOSI from February, 2012 led him to believe that BOSI had accepted a proposal whereby, following the sale of the assets that were the subject of the loan agreement, he would not be liable for the residual balance. However, his affidavit evidence, with respect, does not support this contention. When it comes to a critical meeting of 6th February, 2012, all that Mr Murphy can aver to is what seems to be a polite observation on the part of the relevant bank official who “informed me [Mr Murphy] that he believe[d]…the Bank to be reasonable and fair and that this [the non-availability of other assets to meet Mr Murphy’s liabilities] would be taken into full consideration and with my full co-operation a mutually beneficial outcome would be achieved.”
11. This expression by a bank official of his personal belief as to the likely treatment of Mr Murphy by his employer, if given as Mr Murphy avers, contains no representation as to any waiver of debt. And even if BOSI or its successor in title were slow in coming to demand their full contractual entitlements (and the court does not see that either was), cl.25.4 of BOSI’s general terms and conditions (of which there is no evidence between the court that it has been altered as between the parties to the within application) provides that “No failure to exercise and no delay in exercising on the part of the Bank any right, power or privilege…shall operate as a waiver thereof, nor shall any single or partial exercise of any right, power or privilege, preclude any other or further exercise thereof…”. Nor does the court, relying in this regard on the judgment of Clarke J. in ACC Bank plc v. Kelly [2011] IEHC 7, para. 7.9, see that any concluded arrangement (even if short of a contract) came to exist between the parties to the within proceedings such as would have grounded a case in promissory estoppel.
12. The court, with respect, also does not see how Mr Murphy can argue on the one hand that there was an agreement of the type contended for dating from February, 2012, yet aver on the other (as he does) that BOSI asked him to, and he did, come up with fresh (and rejected) proposals in 2014. It does not appear in any event that the actions which Mr Murphy suggests that he took on the basis of the perceived understanding between him and BOSI went beyond his existing obligations in respect of the secured debt.
13. As to the suggestion that the contra proferentem rule ought now to be applied by the court in such a way as to read against BOSI its failure (as Mr Murphy perceives matters) to refer expressly in its dealings with Mr Murphy to its non-acceptance of the purported residual debt arrangement, that would be for the court to stray into error. The contra proferentem rule is concerned with the interpretation of ambiguous contractual clauses. It is not an interpretative tool capable of being used to construe the acts or omissions of a particular party in a manner more favourable to one litigant over another. (See further Allied Irish Banks plc v. Pollock and ors [2016] IEHC 581, para. 54).
(ii) Non-Receipt of Statements.
14. Mr Murphy maintains that he did not receive any bank statements after April, 2015. This may or may not be so. (The court has in the evidence before it one statement which does appear to have issued after that date). While the court does not wish to diminish the importance of a financial institution providing regular statements to an accountholder, even (perhaps especially) a borrower-accountholder in default, there is no indication that any (if any) non-receipt by Mr Murphy of certain statements has impacted in any way as regards the repayment of the debt presenting or his ability to meet same. In fact it is not even clear that Mr Murphy beyond pointing to the alleged non-receipt of statements as an error, contends for any such impact.
(iii) Alleged Deficiencies in Appointment and Actions of the Receiver.
15. Mr Murphy points to deficiencies in the appointment and actions of the receiver, whom he avers did not account to him for sales proceeds and, in truth, acted as the agent of Ennis Property and not as his agent. There is nothing in the evidence, beyond Mr Murphy’s bare averment, to suggest that the receiver acted as the agent of the plaintiff. As to the validity of the receiver’s appointment, it is striking that Mr Murphy did not seek to challenge the appointment of the receiver while the receivership was extant. The court does not see that such a challenge would now serve much practical purpose given that the receivership has concluded and the funds raised by the receiver through the disposal of secured assets have been applied against Mr Murphy’s liabilities to Ennis Property. But such a challenge, even if it were to proceed, could not amount to a defence to Ennis Property’s present claim for judgment in respect of loan facilities which Mr Murphy has expressly accepted in his affidavit evidence that he obtained. (See Allied Irish Banks plc v. Killoran [2015] IEHC 850, para. 49, and ACC Loan Management Ltd v. Dolan and ors [2016] IEHC 69, para. 42).
16. As to Mr Murphy’s mooted claim against the receiver for allegedly not obtaining the best price for the secured properties, that is a line of potential action that exists between Mr Murphy and the receiver; it is not a defence to the within summary application that Mr Murphy might be entitled to an indemnity from a non-party were that non-party to be joined to the within proceedings if the within application was to be referred to plenary hearing.
(iv) Data Protection Acts.
17. It is a surprisingly regular feature of proceedings involving financial institutions and like bodies that a defendant debtor makes complaint that a data access request under the Data Protection Acts has not been complied with swiftly or at all, which is, to put matters at their mildest, a disappointing state of affairs, if in fact it pertains. However, to the extent that there has been a failure to satisfy a data access request in conformity with those Acts, a complaint may be made to the Data Protection Commissioner. At this time, that complaint runs on a separate track to any default-debt recovery train of proceedings that arrive in court.
18. Mr Murphy complains that he made data access requests but that the cheques for the administrative fees were returned to him without explanation. If this is so, the court would respectfully urge Ennis Property to ensure that it or its agents, when returning such a cheque, explain why it is being returned. Regardless of this, it does not appear from the affidavit evidence that Ennis Property has acted otherwise than in accordance with the Data Protection Acts, and even if it had that does not affect the recoverability of the debt now sought and owing at law.
19. Mr Murphy contends that such information that will be or has been disclosed to him may relate to the validity of the appointment of the receiver. It may, but so far as the validity of that appointment does not afford a defence to the instant application, the court respectfully refers the parties to the previous section of the within judgment.
(v) Default/Penalty Interest.
20. Mr Murphy claims that he has been charged default/penalty interest. This, with respect, is not so: interest has been applied at the agreed interest loan rate. And, on a related note, the court does not accept that expert banking evidence requires to be tendered to calculate the true amount now outstanding. The calculations required are straightforward and represent but the ‘bread and butter’ of basic banking.
(vi) Counterclaim.
21. Though the possibility of a counterclaim for damages arising from stress, inconvenience and financial loss occasioned by BOSI’s actions, is tentatively touched upon in Mr Murphy’s evidence and submissions, the mooted counterclaim, as articulated by Mr Murphy, regrettably lacks any arguable substance.
22. Even if Mr Murphy could point to a specific vouched loss and substantiate a claim against Ennis Property in this regard, he would face the additional hurdle, in the context of seeking leave to defend on the strength of such counterclaim, that he would need to establish an entitlement to equitable set-off against the judgment debt in relation to any award which might be made in his favour.
23. The principles to be applied on an application for summary judgment when the defence advanced is one to set off a counterclaim or cross-claim were identified by Clarke J. in Moohan v. S&R Motors (Donegal) Ltd [2008] 3 IR 650, 656 (and recently approved by the Court of Appeal in NAMA v. Kelleher [2016] IECA 118), Finlay Geoghegan J. observing as follows in her judgment in Kelleher, para. 31:
“[W]hen as in these proceedings a defendant contends for a bona fide defence which is to set off a counterclaim or cross claim there are two separate questions which the court must address in considering whether the defence meets theAer Rianta threshold. A court must consider both whether the connection between the plaintiff’s claim and the counterclaim or cross-claim of the defendant is such as to establish aprima facie entitlement of the defendant to set off in equity the amount recoverable on the counterclaim and also whether or not the substance of the counterclaim itself reaches the arguable orbona fide threshold. Both questions must be answered in favour of the defendant to establish a bona fide defence. Unless the counterclaim or cross-claim itself meets the Aer Rianta threshold irrespective of the position in relation to set off it cannot constitute a prima facie defence.”
24. Neither limb of the test as identified in Kelleher can be said to have been met by Mr Murphy in circumstances where it is not clear that his asserted losses give rise to any stateable claim against Ennis Property and the tentatively mooted counterclaim does not reach the applicable arguable or bona fide threshold.
IV. Conclusion
25. Mr Murphy represented himself at the hearing of the within application. He is, if the court might respectfully observe, a well-spoken and softly-spoken gentleman who sought in the past, through what doubtless seemed to him to be savvy financial investments, to improve his financial standing and so better to provide for his family. There is nothing wrong, and much to be applauded, in that. Unfortunately, it seems that the market went against Mr Murphy and that, in consequence, he now finds himself heavily indebted to Ennis Property. Yet, whatever the motivations for his indebtedness and the cause of his inability to pay, he is indebted and the monies sought do fall to be repaid. Conscious of the low threshold identified by the Supreme Court in Aer Rianta for sending a matter to plenary hearing, and mindful also of that “discernible caution” which the court, recalling the observations of McKechnie J. in Harrisrange, must bring to its decision-making in summary applications, the court considers itself nonetheless to be coerced as a matter of law, and for the reasons aforesaid, into: (a) declining to send the within application to plenary hearing; and (b) granting the summary judgment now sought.
Irish Bank Resolution Corporation v McCaughey
[2014] IESC 44 (11 July 2014)
Court: Supreme Court
Composition of Court: Clarke J., Laffoy J., Dunne J.
Judgment by: Clarke J.
Status of Judgment: Approved
THE SUPREME COURT
[Appeal No: 70/2014]
Clarke J.
Laffoy J.
Dunne J.
Between/
Irish Bank Resolution Corporation (in special liquidation)
Plaintiff/Respondent
and
Gerard McCaughey
Defendant/Appellant
Judgment of Mr. Justice Clarke delivered the 11th July, 2014.
1. Introduction
1.1 This case raises yet again questions about the exercise of the summary judgment jurisdiction of the High Court in bank debt cases. Given the large amount of applications for summary judgment in such cases which have come before the High Court, not least in recent years, and given the not insignificant number of appeals to this Court, it can I think, be said that the general principles for the exercise of the Court’s jurisdiction are well settled. I will turn to those principles in early course for they were not a matter of any significant controversy between the parties on this appeal. I do, however, propose to make a number of minor observations for the purposes of seeking to bring some additional clarity to the proper approach.
1.2 The plaintiff/respondent is, of course, now in special liquidation. As the events which give rise to the issues on this appeal occurred before its name change, I will, in this judgment, refer to the plaintiff/respondent as “Anglo”. There is no dispute but that Anglo lent significant sums of money to the defendant/appellant (“Mr. McCaughey”). Neither is there any dispute that the relevant sums have not been repaid and that interest also falls to be charged in respect of the accounts concerned.
1.3 However, when Anglo sued for the sums said to be due and, an appearance having been entered, brought a motion for summary judgment in accordance with the rules, Mr. McCaughey suggested that he had an arguable defence based, in very general terms, on two propositions. Some of the relevant monies had been advanced for the purposes of investments made by Mr. McCaughey in various projects which had been put together and promoted by Anglo. The relevant loan agreements provided that the sums advanced were to be repayable on demand and in any event by, at the very latest, March 2008, a date which had long since passed before any demand was made or any proceedings issued. On that basis, Anglo asserted that the monies were due. Mr. McCaughey’s case on the summary judgment motion suggested that there was a collateral agreement entered into between him and Anglo at the time of the advance of each of the relevant loans, which was to the effect that the monies would not be repayable until the investment project for which the relevant monies were advanced came to an end, or, until the relevant funds into which the monies were placed were liquidated. Other legal defences were proposed based on the same facts as were said to give rise to such collateral contracts. In addition, Mr. McCaughey asserted that he had a counter claim arising essentially out of an allegation of the mis-selling of the various investment projects.
1.4 In a detailed judgment (Irish Bank Resolution Corporation Limited v. McCaughey, [2014] IEHC 230) Kelly J. held that Mr. McCaughey had established an arguable defence in relation to some but not all of the loans. Insofar as the claims referable to those loans were concerned, the proceedings were remitted to plenary hearing. This Court was told that the pleadings in that regard have now closed and discovery is under consideration. However, Kelly J. was not satisfied, for reasons which it will be necessary to address in due course, that an arguable case had been made out in respect of the remaining loans. In respect of those parts of the claim final judgment was granted. As will appear later it is against certain aspects only of the order of Kelly J. that Mr. McCaughey has appealed to this Court. In order to understand the precise issues which fell for this Court to decide on this appeal it is necessary to start by considering the background facts and, thereafter, the ruling made in the High Court.
2. Background Facts and Issues
2.1 A series of credit agreements and facility letters between Mr. McCaughey and Anglo were executed between the 1st September, 2006 and 28th March, 2007. Kelly J. helpfully described the various facilities at paras.5, 6 and 7 of his judgment as follows:-
“5. The first facility letter is dated 1st September, 2006 and was granted to part fund the defendant’s investment in the AIAC Woolgate Exchanged Geared Property Fund. The second facility was dated 10th October, 2006 and had as its purpose the part funding of the defendant’s equity investment in an entity called Peninsula Real Estate Fund which has been given the nomenclature for the purpose of these proceedings of the New York Hotel Fund. That is how I will refer to it.
6. The third facility was dated 17th November, 2006, and was broken down into three different elements. They were described as Facility A, B and C. Facility A was to increase the defendant’s investment in the Woolgate Exchange Geared Property Fund. Facility B was to part fund the defendant’s investment in the AIAC European Geared Property Fund (E.G.P.F.). Facility C was to fully fund the defendant’s investment in Riverdeep. The fourth facility was dated 2nd January, 2007 and was used to provide the defendant with a €5m investment line of which €1,737,000 was drawn down.
7. The fifth facility was dated 28th March, 2007 and was to part fund the purchase of two units at the Rockefeller Plaza in New York.”
2.2 Thereafter Kelly J. identified a number of common features of each of the facilities in the following terms:
“First, each had a letter of facility setting out specific terms to which I will turn in a moment. Each of them was executed by the defendant. Each of them expressly provided that the facility granted was to be repayable on demand and that that demand might be served at any time by the Bank at its sole discretion without stating any reason for such demand. Without prejudice to the demand nature of each of the facilities they were all expressly stated to be repayable on or before a specified date, the latest of which was March 2008. Each of the facilities was also granted subject to the Bank’s general conditions governing personal loans. All provided that if there was any conflict between the terms of the facility letter and the general conditions, the terms of the facility should prevail. As is clear, the backstop date for the payment of the facilities has long since expired.”
2.3 By the time the matter came before the High Court there had been significant developments in respect of many of the loans. In particular, of relevance to the issues which arise on this appeal, it should be noted that the investments in respect of the Woolgate Exchange Geared Property Fund (which was the subject of the first facility and Facility A of the third facility) had run into significant difficulties. Likewise, the investment in certain New York hotels, which were the subject of the second facility, were suffering similar difficulties. It will be necessary to explain the position in respect of both of those investments in more detail, in due course, for the purposes of assessing the applicability to those loans of the defence put forward on behalf of Mr. McCaughey which suggested that, on various legal bases, Anglo had committed itself not to call in each of the relevant facilities until such time as the investments in question had come to an end.
2.4 As already noted it was also asserted on behalf of Mr. McCaughey that, in substance, various of the facilities were mis-sold in the sense that statements were made concerning the investments to which the facilities related which were incorrect. A number of different legal bases for suggesting that Mr. McCaughey was entitled to defend these proceedings by asserting a cross claim in that regard were put forward. As against that background it is next necessary to turn to the approach of the trial judge.
3. The High Court Judgment
3.1 Having set out the nature of the application and the sums claimed, Kelly J. addressed the test to be applied in such applications. No dispute was raised on this appeal as to the relevant test. Having detailed the various agreements and facilities involved, Kelly J. went on to assess whether Mr. McCaughey had an arguable defence, in accordance with that jurisprudence. First, the trial judge considered the “collateral contract” defence and addressed the law regarding such contracts. In finding that “it is clear the courts have over the years on occasions accepted that in appropriate circumstances the terms of a written agreement may be affected by the existence of a collateral contract or warranty made between the parties” (para.22), Kelly J. concluded that a triable issue had been raised in that regard, given the low threshold of proof required at this stage of the proceedings.
3.2 Having concluded that there was a triable issue on the collateral contract argument, Kelly J. went on to consider the consequences of that conclusion. It should be noted that the collateral contract defence only applied to those loan agreements which were for the purpose of investing in funds offered by Anglo as was accepted by Mr. McCaughey in his replying affidavit of 26th November, 2013. It was, therefore, accepted that the collateral contract argument only applied to the first facility, the second facility, the third facility, (facility A and facility B) and what was referred to as the M & A part of the fourth facility.
3.3 In any event the term of the alleged collateral contract was said to preclude those loans to which it was said to apply from being called in, “for the duration of the funds” or “the duration of the investment”. Taking this into consideration, Kelly J. came to the conclusion that it was clear that the duration of some of the relevant funds and investments had come to an end, and thus, even on the terms of the alleged collateral contract, Mr. McCaughey was found not to have raised arguable grounds of defence in respect of those loans so far as a defence was suggested on the basis of the alleged collateral agreement.
3.4 Next, the trial judge considered the second argument of Mr. McCaughey, which took the form of a counterclaim. Mr. McCaughey asserted negligence, misrepresentation, negligent misstatement, breach of duty and breach of contract against Anglo. Kelly J. concluded that any such claims were statute barred, but nonetheless, considered their merits. The trial judge concluded that Mr. McCaughey “had not demonstrated, even on the low threshold of proof required, the basis for a counterclaim in respect of the various complaints” (para.50). Kelly J. found no evidence pointing to the assertions made and in some respects noted that the issues had been dealt with comprehensively in previous litigation. It will be necessary to refer to that litigation in due course.
3.5 Kelly J. determined the effect of these findings was that judgment should be given on facility C of the third agreement and the Riverdeep part of the fourth agreement and the fifth agreement in full (being those aspects of the facilities to which the collateral agreement did not, even on the basis of Mr. McCaughey’s case, apply).
3.6 Due to fact that the collateral contract defence could not apply once the duration of any relevant investment has expired, Kelly J. determined that judgment should be given in respect of the first agreement and facility A of the third agreement (“the Woolgate loan” and where relevant the “Woolgate Fund”) and on the second facility (“the New York Hotels loan” and where relevant “the New York Hotels Fund”) and also in respect of the M & A part of the fourth agreement. He also determined that the balance of Mr McCaughey’s defence should go to plenary hearing.
3.7 Having delivered his judgment, Kelly J. adjourned the matter to the following day, 30th January, 2014 when he made the order which is the subject of this appeal. In the order, having recited the judgment delivered on 29th January, 2014 and that the Court had indicated that it was prepared to grant judgment in favour of Anglo against Mr. McCaughey in the sum of €5,205,175.90 and that on 30th January, 2014 the Court was told the parties had agreed that the judgment sum should be reduced to €2,516,590.45 and had agreed terms for the discharge of the balance, namely, €2,723,612.93, with liberty to Anglo to apply in the event of that agreement not being complied with by Mr. McCaughey for the purpose of obtaining judgment in the event of such default, it was ordered that:-
(a) Anglo recover against Mr. McCaughey the sum of €2,516,590.45; and
(b) the balance of Mr. McCaughey’s claim be adjourned to plenary hearing.
The judgment was, on that basis, in respect of the Woolgate Fund and the New York Hotel Fund only.
4. The Appeal
4.1 Mr. McCaughey challenged the finding of the trial judge that the duration of the Woolgate Fund had come to an end because a Receiver had been appointed and the relevant properties sold. Mr. McCaughey also contended that the trial judge erred in finding that the New York Hotels Fund had closed and that it was, from an economical and practical point of view, also at an end. The finding that the counter-claim was statute barred was also appealed as was the finding that no arguable basis had been put forward in support of the respective cross claims relating to both relevant loans.
4.2 It follows that the two loans with which this appeal is concerned are those described by the High Court, and in this judgment, as the Woolgate loan and the New York Hotels loan. It is also of some importance to mention that the matter first came before this Court on an application for a stay. In all the circumstances of the case, it appeared to the formation of the Court which was dealing with the stay application that it would be both in the interests of the parties and in the interests of the allocation of scarce court time if the substantive appeal could be readied for hearing as a matter of urgency. In substance the Court would have been required to consider, at least to some material extent, the merits of the appeal itself in order to apply the well established jurisprudence in respect of the grant or refusal of a stay. For that reason, in the circumstances of this case, it seemed unlikely that the hearing of the appeal itself would take much longer than the hearing of the stay application. It will be necessary to make reference in due course to some additional facts which had been placed before the Court, on affidavit, in the context of the stay application.
4.3 Before going on to analyse the grounds of the appeal in respect of the Woolgate and New York Hotels loans it is, as I indicated earlier, appropriate to say just a little about the proper approach of the courts in summary judgment applications.
5. Summary Judgment Applications
5.1 The underlying test is as set out in the judgment of Hardiman J., speaking for this Court, in Aer Rianta c.p.t. v. Ryanair Limited [2001] 4 IR 607. As Hardiman J. pointed out, at p.623:-
“… the fundamental question to be posed on an application such as this remains: 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?”
5.2 It is also important, as Finlay Geoghegan J. pointed out in Bank of Ireland v. Walsh [2009] IEHC 220, to keep clearly in mind that the use of the term “credible” in relation to a defence has, for the reasons also addressed by Hardiman J. in Aer Rianta v. Ryanair, a very narrow meaning. The issues of credibility, which had formed the basis of a conclusion that a defendant had not put forward an arguable defence, in cases such as National Westminster Bank v. Daniel [1993] 1WLR 1453, Banque de Paris v. de Naray [1984] 1 Lloyds Rep. 21 and First National Commercial Bank v. Anglin [1996] 1 IR 75, arose, as Hardiman J. put it, “rather starkly”. In Daniel, the defence affidavits were mutually contradictory. In de Naray, there was clear evidence, not challenged, from a private detective, which flatly contradicted the plaintiff’s case. In Anglin, the chronology asserted was entirely inconsistent with commercial documentation which was not, in itself, disputed.
5.3 Denham J., speaking for this Court in Danske Bank v. Durkan New Homes [2010] IESC 22, also approved a passage from a judgment which I delivered in the High Court in McGrath v. O’Driscoll [2007] I.L.R.M. 203, where, at p. 210, I said the following:-
“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.”
Hardiman J. had expressed a similar view in his judgment in Aer Rianta, in the passage already cited, where he made reference to issues which were simple and easily determined.
5.4 It is important, therefore, to reemphasise what is meant by the credibility of a defence. A defence is not incredible simply because the judge is not inclined to believe the defendant. It must, as Hardiman J. pointed out in Aer Rianta, be clear that the defendant has no defence. If issues of law or construction are put forward as providing an arguable defence, then the Court can assess those issues to determine whether the propositions advanced are stateable as a matter of law and that it is arguable that, if determined in favour of the defendant, they would provide for a defence. In that context, and subject to the inherent limitations on the summary judgment jurisdiction identified in McGrath, the Court may come to a final resolution of such issues. That the Court is not obliged to resolve such issues is also clear from Danske Bank v. Durkan New Homes.
5.5 Insofar as facts are put forward, then, subject to a very narrow limitation, the Court will be required, for the purposes of the summary judgment application, to accept that facts of which the defendant gives evidence, or facts in respect of which the defendant puts forward a credible basis for believing that evidence may be forthcoming, are as the defendant asserts them to be. The sort of factual assertions, which may not provide an arguable defence, are facts which amount to a mere assertion unsupported either by evidence or by any realistic suggestion that evidence might be available, or, facts which are in themselves contradictory and inconsistent with uncontested documentation or other similar circumstances such as those analysed by Hardiman J. in Aer Rianta. It needs to be emphasised again that it is no function of the Court on a summary judgment motion to form any general view as to the credibility of the evidence put forward by the defendant.
5.6 Finally, I should touch on one matter which turned out to be of some specific relevance in the circumstances of this case. As was pointed out by this Court in Lopes v. Minister for Justice, Equality and Law Reform [2014] IESC 21, in the context of an application to dismiss as being bound to fail under the inherent power of the Court first identified in Barry v. Buckley [1981] 1 I.R. 306, the courts, in hearing such applications, must be mindful of the fact that a party may, by a successful application, be shut out from having their claim determined at full trial, be required to be more flexible in relation to the consideration of arguments or materials brought forward on appeal (see para 9.1 of the judgment). It seems to me that like considerations potentially arise in the context of a summary judgment motion for precisely the same reason in that, if successful, the defendant will be shut out from having a full trial of the issues raised by his defence. While it remains important that a defendant put forward his full case on the summary judgment motion, and while it follows, therefore, that the courts will be reluctant to allow a different or additional case (backed up by evidence) to be run on appeal, nonetheless, some proportionality between the consequences of granting summary judgment and the rigour with which the rules applicable to new evidence on appeal ought be enforced, needs to be achieved. Counsel for Anglo quite properly accepted in that context that it was appropriate for this Court, in reaching its overall conclusions on this appeal, to have regard to additional affidavit evidence which had been filed by the parties in the context of a motion which had been brought before this Court on behalf of Mr. McCaughey seeking a stay.
5.7. Against the background of that jurisprudence, I propose to deal separately with the case made in relation to, respectively, the Woolgate and the New York Hotels loans. I will deal first with the issues concerning the New York Hotels loan.
6. The New York Hotels
6.1 While I earlier mentioned two separate grounds of defence put forward on behalf of Mr. McCaughey in respect of each of the loans, it is, strictly speaking, necessary to subdivide the first such set of grounds. As already noted, part of the case made on behalf of Mr. McCaughey, both before the High Court and this Court, concerned statements allegedly made to him by Anglo to the effect that, it was said, the relevant loans would not become repayable until the respective investments had come to an end. It was said that clear statements to that effect were made in the context of the first such loan, which was the Woolgate loan. It is also said that, in respect of each of the other (and subsequent) relevant loans, statements were made that the same terms and conditions applied as had been applied to Woolgate. On that basis it was argued that there existed a collateral contract in respect of each of the loans in question, which was to the effect that, notwithstanding the “on demand” nature of the written loan contract in each case, Anglo would not call in the loan until the investment fund, to which each respective relevant loan related, had come to an end. It is important to recall that Kelly J. concluded that there was an arguable case to the effect that such collateral contracts existed. The reason why Kelly J. remitted the issues arising in respect of some loans to plenary hearing but did not adopt the same course of action in respect of the New York Hotels loan and the Woolgate loan, stemmed from an assessment of whether there was an arguable basis for suggesting that those latter loans were in respect of funds which were not yet at an end. Clearly, if there was no arguable basis for suggesting that the respective funds were not at an end, then the existence of a collateral contract to the effect that the relevant loans would not be called in until the funds were at an end, could not provide an arguable defence.
6.2 Therefore, one of the issues which arises both in respect of the New York Hotels loan and the Woolgate loan is as to whether Kelly J. was correct to conclude that there was no arguable basis for suggesting that the respective loans were not at an end. I will return to that question shortly in the context of the New York Hotels loan.
6.3 However, for completeness it is necessary to add that, in respect of both loans, additional arguments were put forward on behalf of Mr. McCaughey based on misrepresentation and estoppel. However, the factual basis for those assertions in each case was the same as the factual basis which had been put forward for the alleged collateral contract. On that basis counsel for Mr. McCaughey accepted, in the course of argument, that such additional potential defences did not, in the circumstances of this case, add anything to the collateral contract argument. If, in all the circumstances, the asserted collateral contract could not avail Mr. McCaughey of an arguable defence because the relevant fund must be said to be at an end, then equally any defence based on misrepresentation (or indeed any other variation of such a claim based on, for example, promissory estoppel) could not succeed on exactly the same basis. However advanced as a matter of law, the net effect of the contention argued on behalf of Mr. McCaughey under this heading was that there was a legal obligation on Anglo, which prevented the relevant loans from being called in until such time as the corresponding fund was at an end. That was so whether the legal obligation was couched as arising from a collateral contract, as a result of a misrepresentation, or, as a result of an estoppel. If there was no arguable basis for suggesting that either or both of the relevant loans were not at an end, then, however the matter was argued on the law, the factual basis for the defence could not be sustained. On that basis, it does not seem to me to be necessary to give separate consideration to the differing legal bases on which it was suggested that the statements attributed to Anglo might convert into a legal obligation on the part of Anglo not to enforce the loan until the relevant funds had come to an end.
6.4 The key question under this heading, to which I will shortly turn, is, therefore, as to whether Mr. McCaughey has established an arguable case that the New York Hotels Fund has not come to an end. If he has, then it follows that it is arguable that Anglo is not entitled to call in that loan on one or other of the legal bases put forward. It follows that the question of any liability of Mr. McCaughey in respect of the New York Hotels loan would, in those circumstances, have to be remitted to plenary hearing.
6.5 However, before going on to consider that aspect of the potential defence in relation to the New York Hotels loan, I propose to deal briefly with the alternative defence sought to be put forward in respect of those loans, which amounts to a counterclaim arising out of what was said to be a mis-selling of the New York Hotels loan and the project which underlay it. In that context, it is important to point out that Mr. McCaughey mounted previous proceedings in which he claimed relief in respect of the New York Hotels loan arising, in substance, out of an allegation of mis-selling. It is of some importance to note that these proceedings related only to the New York Hotels loan. Those proceedings were dismissed after a full trial by Birmingham J. (Gerard McCaughey v. Anglo Irish Bank Corporation Limited and Mainland Ventures Corp [2011] IEHC 546). An appeal to this Court was also dismissed (McCaughey v. Irish Bank Resolution Corp Ltd & Anor [2013] IESC 17). It, therefore, follows that allegations of mis-selling the New York Hotels investment to Mr. McCaughey have already been dismissed after a full hearing before the courts. In addition, as was accepted by counsel, any refinement of the argument or the evidence, which might now be sought to be put forward, would almost certainly amount to an abuse of process in the sense in which that term is used deriving from the jurisprudence following on from Henderson v. Henderson 3 Hare 100. No factual or legal basis was put forward as providing an arguable ground for suggesting that it would not be an abuse of process to seek to recast the mis-selling claim (which had failed in the previous proceedings) as a defence or counterclaim in respect of the New York Hotels loan aspect of these proceedings. In those circumstances it does not seem to me that, so far as the New York Hotels loan aspect of the claim is concerned, the counterclaim could provide either a defence or cross-claim which might properly be taken into account by the Court in deciding what to do with the substantive claim. On that basis, the question of whether the New York Hotels loan aspect of this case should be remitted to plenary hearing turns solely on the question of whether it can be said that the underlying fund is at an end. If it is at an end then the collateral contract, representation, or promise (even it be established) could not afford any defence. If it is arguable that it is not at an end, then, in the light of the finding by Kelly J. that there was an arguable basis for the proposition that Anglo’s entitlement to call in the loan is postponed until after the fund is at an end, there is clearly an arguable case to defend the New York Hotel loan aspect of this claim.
6.6 It is in that context that the additional evidence put before the Court on the stay application (which updated the position in respect of the New York Hotels loan) is of potential relevance.
6.7 In order to understand the factual position, it is necessary to start by noting that the New York Hotels Fund invested, in substance, in two hotels. The investors (including Mr. McCaughey) became partners in a U.S. limited partnership called Peninsula Real Estate Fund LP (“Peninsula”). Peninsula in turn owned 100% of two further U.S. limited partnerships, which respectively directly owned the two hotels in question, being the Beekman Hotel and the Eastgate Hotel. Each of those later limited partnerships had significant borrowings from Anglo. As part of a larger sale of Anglo’s loan book in the United States, Anglo’s interest in those respective loans was sold to Lone Star. An agreement was reached between the specific partnership which owned the Beekman Hotel and Lone Star whereby, in 2012, the hotel was handed over to Lone Star in settlement of its liabilities. In substance, a significant balance (being the excess of the loan then owed to Lone Star over the value of the hotel at the relevant time) was written off. This would appear to have been of some relevance to Peninsula for there were cross guarantees between the loan owed in respect of the Beekman Hotel and that owed in respect of the Eastgate Hotel. As a result of that transaction the two hotels effectively became decoupled, with the Beekman Hotel disappearing out of the fund and the Eastgate Hotel remaining in the fund, burdened only with its own debt.
6.8 As a result of arrangements entered into in July 2012, a new venture was formed involving Peninsula and certain third parties with a view to converting the Eastgate Hotel into a residential property. The specific limited partnership which owned the Eastgate Hotel was then placed in bankruptcy and the hotel itself transferred to the new venture. It would appear that Peninsula, as one of the members of that new venture, has some possibility of achieving a return depending on the performance of the venture.
6.9 It is important to note that much of this information was not before Kelly J. It is true that the original structure of the New York Hotels investment is no longer in place. Both of the limited partnerships which owned the respective hotels are out of the picture. One of the hotels has been sold. However, it remains the case that Peninsula (which is, after all, the vehicle into which Mr. McCaughey placed his funds), still has a form of interest in the Eastgate Hotel through the new venture to which reference has been made. It appears that this venture carries with it the possibility of some return.
6.10 On that basis, it is argued on behalf of Mr. McCaughey that the New York Hotels Fund is not at an end. It seems to me that there is an arguable basis for that proposition based on the new information which is now available to this Court. It is important to emphasise that the case made on behalf of Mr. McCaughey is not to the effect that there is a real possibility that sufficient funds will be forthcoming from the new venture to clear his liabilities. Given the limited interest which Peninsula has in the new venture that would seem highly improbable. The point made, however, is different. It is argued that the legal consequences of what was said by Anglo at the relevant time is such that the loan in respect of the New York Hotels Fund does not become payable at all until the fund itself comes to an end. On that basis it is argued that it is really a question of timing. Once there remains some prospect that the fund will have some return (however minor) the fund cannot be said to be at an end, and therefore, the argument goes, whether as a matter of collateral contract or misrepresentation or promissory estoppel, Anglo is not yet entitled to call in the loan.
6.11 It seems to me that an arguable case has been put forward on behalf of Mr. McCaughey for that proposition. On the basis of the additional evidence now available I am not satisfied that it can be concluded that there are no arguable grounds for the proposition that the New York Hotels Fund is not at an end. It follows that, in my view, Mr. McCaughey should have leave to defend the claim in respect of the New York Hotels aspect of the loan on that basis, and that that matter should, therefore, be remitted to plenary hearing. I should emphasise that, for the reasons already analysed, I do not believe that it is legitimate for Mr. McCaughey to seek to defend or counterclaim in respect of the New York Hotels loan on the basis of mis-selling, for to do so would be an abuse of process in the light of the previous failed proceedings. So far as the New York Hotels loan are concerned, the matters which should, in my view, be remitted to plenary hearing are those concerning the question of whether the loan is now properly due in the light of the alleged statements made by Anglo and in the light of the argument as to whether it can properly be said that the New York Hotels Fund is at an end. As separate considerations apply in relation to the Woolgate loans I now turn to those questions.
7. The Woolgate Loans
7.1 As with the New York Hotels loan the first question is as to whether there is an arguable case that it can be said that the relevant fund is not at an end. There was some debate at the hearing before this Court as to what might precisely be meant by the fund being “at an end”. Reference was made to the contents of certain internal banking documents, which made reference to “liquidation”. However, those banking documents do not appear to have ever been made available, at any material time, to Mr. McCaughey. Those documents do not, therefore, form part of any potential collateral contract between Mr. McCaughey and Anglo or form the basis of any representation or promise made to him. Those documents may, indeed, be relevant at trial for the purposes of assessing the evidence as to what may actually have been said to Mr. McCaughey. But they do not, in and of themselves, amount to contractual documents. Insofar as it may be open to Mr. McCaughey to place reliance on collateral contracts, representations or promises then it is what was said to him by relevant Anglo officials that matters. The content of internal Anglo documentation will only be relevant insofar as same might be said to corroborate evidence of what was actually said.
7.2 On the other hand, it is important to emphasise that some care should be taken, in the context of a summary judgment motion, in over-analysing the precise wording used in affidavits and in ensuring that affidavits are not treated as if they were contractual documents which required to be very finely analysed. Experience has shown that the precise state of the evidence at the end of a plenary trial often shows at least some nuanced differences from the evidence put forward on affidavit. That is hardly surprising. Affidavits are drafted by lawyers on the basis of instructions and at an early stage of the proceedings. While it is, of course, essential that the true basis of any defence sought to be put forward is accurately reflected in any affidavits filed for the purposes of opposing a summary judgment motion, nonetheless it is not, in my view, appropriate to engage in an excessive parsing and analysing of the contents of affidavits at that stage. Rather, the issue is as to whether, in substance, facts have been deposed to which might arguably provide a defence. If it is possible that a clearer view of the precise and detailed facts may emerge at a plenary trial, then the Court, on a summary judgment motion, should, as it were, give the benefit of the doubt to the defendant. Different considerations would, of course, clearly apply where the legal rights and obligations of relevant parties are defined by documents which have been placed before the Court. In such circumstances the Court can, provided that to do so would not run the risk of injustice, interpret the documents, which task may well involve a careful analysis of the precise wording.
7.3 Against that background it should be emphasised that, in the event that a court of trial is ultimately satisfied that there was either a collateral contract or an operative representation or promise made affecting Anglo’s entitlement to call in its loans from Mr. McCaughey, it will be for the Court, in the light of all the evidence, to come to a conclusion as to the precise event or events which would trigger such entitlement. Against that background, it seems to me that this Court needs to consider whether there is any realistic basis for asserting that, in the light of any possible conclusion as to the events that would trigger the entitlement of Anglo to call in the loan, the Woolgate Fund could be said not to be at an end.
7.4 The facts in respect of Woolgate seem clear. The investment structure was complex in that investors, such as Mr. McCaughey, took out unit linked policies with an Anglo associated assurance company. That company in turn subscribed for shares in a Luxembourg company called Woolgate Exchange SA, which in turn subscribed equity to a German limited partnership which owned the property in question. The uncontested evidence was that a liquidator had been appointed to the Luxembourg company which was insolvent and that there was no prospect of any monies being paid by that Luxembourg company into the unit linked fund. On that basis, I am not satisfied that any arguable grounds have been made out for the suggestion that the Woolgate Fund is not at an end however that term might ultimately be defined or considered in the light of whatever evidence might be tendered at trial. Investors hold unit linked policies in an assurance company where the value of the policy is dependent on the value of the insurance company’s investment in a company which has now been liquidated without any prospect of any monies being available to the fund. On any, even generous, interpretation of the relevant criteria for treating the fund as being at an end, the Woolgate Fund meets that requirement.
7.5 On that basis I am satisfied that Kelly J. was correct to conclude that the Woolgate Fund was clearly at an end and that, even if a collateral contract, representation or promise existed or was made, which would have precluded Anglo from calling its loans until the fund was at an end, same would not avail Mr. McCaughey so far as the Woolgate Fund is concerned, for that point in time has undoubtedly already been reached.
7.6 In relation to Woolgate loan, it remains to consider whether the mis-selling argument put forward could give rise either to a defence in the sense of providing a claim which would amount to a set off in equity, or alternatively to a counterclaim in the shape of a cross claim, which would require the Court to consider the proper course of action to adopt in the light of the principles identified by this Court in Prendergast v. Biddle (Unreported, Supreme Court, 31st July 1957).
7.7 There was some debate between counsel at the hearing of this appeal as to the proper application of the principles, building on Prendergast v. Biddle, which I identified in Moohan v. S. & R. Motors (Donegal) Ltd. [2008] 3 IR 650. I see no reason to depart from those principles. However, in order for those issues to have any application it would be necessary that an arguable case had been made out for a claim of mis-selling in the first place. In that context, it is necessary to identify the allegation of mis-selling which was first put forward by Mr. McCaughey in his replying affidavit to the summary judgment motion.
7.8 In the written submissions filed on behalf of Mr. McCaughey before this Court, two allegations of mis-selling concerning the Woolgate fund are referred to. The first, which is referred to at para. 22 of Mr. McCaughey’s replying affidavit, concerns a suggestion that, as a result of a mis-statement of the recourse element of the relevant loan, the debt level associated with the property was actually 87.5% instead of 83.6%, as said to have been represented at the time of the investment. The loan covenants specified a loan to value ratio of 84% so that the lenders were entitled to call in the loan if the loan to value ratio exceeded that percentage and if remedial action to reduce it to that percentage were not taken. A second allegation is made to the effect that the senior financiers to the fund, Credit Suisse, provided funding of approximately five years, where the fund was described to be for a term of between five and seven years.
7.9 What is particularly striking about Mr. McCaughey’s replying affidavit is that there is no statement made by him at all as to what the consequences would have been had, accepting his case on mis-selling, the true position been pointed out. This is of particular importance in the context of this case. If it were asserted that Mr. McCaughey would not have entered into the investment at all in the absence of those representations, then one would have thought that he would have said so. Doubtless, if such an assertion were made and the matter went to plenary hearing, then the same issues of reliance which arose in the context of the proceedings brought by Mr. McCaughey in respect of the New York Hotels Fund would have arisen again, not least because of the highly marginal extent to which it is said that the true position deviated from that represented. But Mr. McCaughey has made no such contention in his affidavits.
7.10 Insofar as it might be contended that Mr. McCaughey would have gone ahead with the investment but has now suffered loss because the true position was less advantageous than was represented, the truly disastrous performance of the investment makes it clear that the loans would have been called in in any event, whichever loan to value ratio was initially specified and however long the loan from Credit Suisse was provided for. In other circumstances, if the investment did not perform disastrously but nonetheless did not perform as well as expected, then the differences between a loan to value ratio of 87% and 83% and senior finance of 5, as opposed to 5 to 7, years might conceivably have made a difference. In the circumstances of this case they could have made no conceivable difference. There is, therefore, just no factual basis put forward for asserting that the performance of the investment, in the events that happened, was in any way, let alone a significant way, affected by the issues raised. The only basis on which a defence or counterclaim could be mounted in those circumstances was if there was an assertion that, despite the highly marginal nature of what are said to be inaccurate representations, Mr. McCaughey would just not have invested at all. As noted earlier, no such contention is made in the affidavits.
7.11 In those circumstances, I am satisfied that Kelly J. was correct in determining that no arguable basis had been put forward for a claim of mis-selling in respect of the Woolgate at all. It follows that the question of whether such a claim could properly be characterised as a defence or a counterclaim does not arise. Likewise, it is unnecessary to consider the issues relating to the statute of limitations which were addressed in the High Court judgment.
7.12 For those reasons, it seems to me that Kelly J. was correct to permit judgment to be entered in respect of that aspect of the claim which related to the Woolgate loans.
8. Conclusions
8.1 For the reasons which I have sought to analyse, I am satisfied that, in the light of the additional information now available to this Court, the appeal should be allowed in part, insofar as it relates to the New York Hotels loan. The claim in that regard should be remitted to plenary hearing but on the clear basis that Mr. McCaughey is confined to making a case that the loan is not yet due because of a collateral contract, representation or promise made to the effect that the loan would not become due until the relevant investment was at an end. For the avoidance of doubt it should be made clear that Mr. McCaughey is not entitled to defend or raise a counterclaim in respect of the New York Hotels loan on the basis of any allegation of mis-selling.
8.2 So far as the Woolgate loan is concerned the appeal will be dismissed.
8.3 The Court proposes to hear counsel further on the precise form of order which should follow in the light of those findings.