Undue Influence
Cases
Allcard v Skinner
(1887) 36 Ch D 145 Lindley LJ
“ What then is the principle? Is it that it is right and expedient to save persons from the consequences of their own folly? or is it that it is right and expedient to save them from being victimised by other people? In my opinion the doctrine of undue influence is founded upon the second of these two principles. Courts of Equity have never set aside gifts on the ground of the folly, imprudence, or want of foresight on the part of donors. The Courts have always repudiated any such jurisdiction. Huguenin v Baseley 14 Ves 273 is itself a clear authority to this effect. It would obviously be to encourage folly, recklessness, extravagance and vice if persons could get back property which they foolishly made away with, whether by giving it to charitable institutions or by bestowing it on less worthy objects. On the other hand, to protect people from being forced, tricked or misled in any way by others into parting with their property is one of the most legitimate objects of all laws; and the equitable doctrine of undue influence has grown out of and been developed by the necessity of grappling with insidious forms of spiritual tyranny and with the infinite varieties of fraud.”
Cotton LJ
“ First where the court has been satisfied that the gift was the result of influence expressly used by the donee for the purpose; second, where the relations between the donor and donee have at or shortly before the execution of the gift been such as to raise a presumption that the donee had influence over the donor. ”
Barclays Bank v O’Brien
[1993] UKHL 6 [1994] AC 180, [1993] 4 All ER 417, [1994] 1 AC 180, [1993] UKHL
Lord Browne Wilkinson
Undue influence
A person who has been induced to enter into a transaction by the undue influence of another (the wrongdoer) is entitled to set that transaction aside as against the wrongdoer. Such undue influence is either actual or presumed. In Bank of Credit and Commerce International SA v Aboody (1988) [1992] 4 All ER 955 at 964, [1990] 1 QB 923 at 953 the Court of Appeal helpfully adopted the following classification.
Class 1: actual undue influence. In these cases it is necessary for the claimant to prove affirmatively that the wrongdoer exerted undue influence on the complainant to enter into the particular transaction which is impugned.
Class 2: presumed undue influence. In these cases the complainant only has to show, in the first instance, that there was a relationship of trust and confidence between the complainant and the wrongdoer of such a nature that it is fair to presume that the wrongdoer abused that relationship in procuring the complainant to enter into the impugned transaction. In class 2 cases therefore there is no need to produce evidence that actual undue influence was exerted in relation to the particular transaction impugned: once a confidential relationship has been proved, the burden then shifts to the wrongdoer to prove that the complainant entered into the impugned transaction freely, for example by showing that the complainant had independent advice. Such a confidential relationship can be established in two ways, viz:
Class 2A. Certain relationships (for example solicitor and client, medical advisor and patient) as a matter of law raise the presumption that undue influence has been exercised.
Class 2B. Even if there is no relationship falling within class 2A, if the complainant proves the de facto existence of a relationship under which the complainant generally reposed trust and confidence in the wrongdoer, the existence of such relationship raises the presumption of undue influence. In a class 2B case therefore, in the absence of evidence disproving undue influence, the complainant will succeed in setting aside the impugned transaction merely by proof that the complainant reposed trust and confidence in the wrongdoer without having to prove that the wrongdoer exerted actual undue influence or otherwise abused such trust and confidence in relation to the particular transaction impugned.
As to dispositions by a wife in favour of her husband, the law for long remained in an unsettled state. In the nineteenth century some judges took the view that the relationship was such that it fell into class 2A, ie as a matter of law undue influence by the husband over the wife was presumed. It was not until the decisions in Howes v Bishop [1909] 2 KB 390 and Bank of Montreal v Stuart [1911] AC 120 that it was finally determined that the relationship of husband and wife did not as a matter of law raise a presumption of undue influence within class 2A. It is to be noted therefore that when Turnbull v Duval was decided in 1902 the question whether there was a class 2A presumption of undue influence as between husband and wife was still unresolved.
An invalidating tendency?
Although there is no class 2A presumption of undue influence as between husband and wife, it should be emphasised that in any particular case a wife may well be able to demonstrate that de facto she did leave decisions on financial affairs to her husband thereby bringing herself within class 2B, ie that the relationship between husband and wife in the particular case was such that the wife reposed confidence and trust in her husband in relation to their financial affairs and therefore undue influence is to be presumed. Thus, in those cases which still occur where the wife relies in all financial matters on her husband and simply does what he suggests, a presumption of undue influence within class 2B can be established solely from the proof of such trust and confidence without proof of actual undue influence.
In the appeal in CIBC Mortgages plc v Pitt [1993] 4 All ER 433 (judgment in which is to be given immediately after that in the present appeal) Mr Price QC for the wife argued that in the case of transactions between husband and wife there was an ‘invalidating tendency’, ie although there was no class 2A presumption of undue influence, the courts were more ready to find that a husband had exercised undue influence over his wife than in other cases. Scott LJ in the present case also referred to the law treating married women ‘more tenderly’ than others. This approach is based on dicta in early authorities. In Grigby v Cox (1750) 1 Ves Sen 517, 27 ER 1178 Lord Hardwicke LC, whilst rejecting any presumption of undue influence, said that a court of equity ‘will have more jealousy’ over dispositions by a wife to a husband. In Yerkey v Jones (1939) 63 CLR 649 at 675 Dixon J refers to this ‘invalidating tendency’. He also refers (at 677) to the court recognising ‘the opportunities which a wife’s confidence in her husband gives him of unfairly or improperly procuring her to become surety’.
In my judgment this special tenderness of treatment afforded to wives by the courts is properly attributable to two factors. First, many cases may well fall into the class 2B category of undue influence because the wife demonstrates that she placed trust and confidence in her husband in relation to her financial affairs and therefore raises a presumption of undue influence. Second, the sexual and emotional ties between the parties provide a ready weapon for undue influence: a wife’s true wishes can easily be overborne because of her fear of destroying or damaging the wider relationship between her and her husband if she opposes his wishes.
For myself, I accept that the risk of undue influence affecting a voluntary disposition by a wife in favour of a husband is greater than in the ordinary run of cases where no sexual or emotional ties affect the free exercise of the individual’s will.
Undue influence, misrepresentation and third parties
Up to this point I have been considering the right of a claimant wife to set aside a transaction as against the wrongdoing husband when the transaction has been procured by his undue influence. But in surety cases the decisive question is whether the claimant wife can set aside the transaction, not against the wrongdoing husband, but against the creditor bank. Of course, if the wrongdoing husband is acting as agent for the creditor bank in obtaining the surety from the wife, the creditor will be fixed with the wrongdoing of its own agent and the surety contract can be set aside as against the creditor. Apart from this, if the creditor bank has notice, actual or constructive, of the undue influence exercised by the husband (and consequentially of the wife’s equity to set aside the transaction) the creditor will take subject to that equity and the wife can set aside the transaction against the creditor (albeit a purchaser for value) as well as against the husband: see Bainbrigge v Browne (1881) 18 Ch D 188 and BCCI v Aboody [1992] 4 All ER 955 at 980, [1990] 1 QB 923 at 973. Similarly, in cases such as the present where the wife has been induced to enter into the transaction by the husband’s misrepresentation, her equity to set aside the transaction will be enforceable against the creditor if either the husband was acting as the creditor’s agent or the creditor had actual or constructive notice.
Turnbull v Duval
This case provides the foundation of the modern law: the basis on which it was decided is, to say the least, obscure. Mr Duval owed three separate sums to a firm, Turnbull & Co, including £1,000 owed to the Jamaican branch for beer. Turnbulls’ manager and agent in Jamaica was a Mr Campbell. Mr Campbell was also an executor and trustee of a will under which Mrs Duval had a beneficial interest. Mr Campbell threatened to stop supplying beer to Mr Duval unless security was given for the debts owed and, with Mr Campbell’s knowledge, a document was prepared under which Mrs Duval charged her beneficial interest under the will to secure the payment of all debts owed by Mr Duval to Turnbull, ie not only the money owed for beer but all the debts. Mr Duval put pressure on Mrs Duval to sign the document. She was under the impression that the document was to secure the beer debt only. The trial judge and the Court of Appeal in Jamaica held that the security document should be set aside as against Turnbulls on the sole ground that Mr Campbell, as executor of the will, was in a fiduciary capacity vis-à-vis his beneficiary, Mrs Duval, and his employers could not uphold the security document unless they could show that Mrs Duval was fully aware of what she was doing when she entered into it and did it freely. The Privy Council dismissed Turnbulls’ appeal, Lord Lindley expressing the ratio in these terms ([1902] AC 429 at 434-435):
‘In the face of such evidence, their Lordships are of opinion that it is quite impossible to uphold the security given by Mrs. Duval. It is open to the double objection of having been obtained by a trustee from his cestui que trust by pressure through her husband and without independent advice, and of having been obtained by a husband from his wife by pressure and concealment of material facts. Whether the security could be upheld if the only ground for impeaching it was that Mrs. Duval had no independent advice has not really to be determined. Their Lordships are not prepared to say it could not. But there is an additional and even stronger ground for impeaching it. It is, in their Lordships’ opinion, quite clear that Mrs. Duval was pressed by her husband to sign, and did sign, the document, which was very different from what she supposed it to be, and a document of the true nature of which she had no conception. It is impossible to hold that Campbell or Turnbull & Co. are unaffected by such pressure and ignorance. They left everything to Duval, and must abide the consequences.’
The first ground mentioned by Lord Lindley (ie Campbell’s breach of fiduciary duties) raises no problems. It is the second ground which has spawned the whole line of cases with which your Lordships are concerned. It raises two problems. The passage appears to suggest that Mr Duval had acted in some way wrongfully vis-à-vis his wife, and that Turnbulls who ‘had left everything to Duval’ were held liable for Duval’s wrong. What was the wrongful act of Duval vis-à-vis his wife? Second, why did the fact that Turnbulls ‘left everything to Duval’ render them unable to enforce their security?
Turnbull v Duval: was the husband in breach of duty to his wife?
Thanks to the industry of counsel, we have seen the case lodged on the appeal to the Privy Council. The pleadings contain no allegation of undue influence or misrepresentation by Mr Duval. Mrs Duval did not in evidence allege actual or presumptive undue influence. The sole ground of decision in the courts below was Campbell’s fiduciary position. There is no finding of undue influence against Mr Duval. No one appeared for Mrs Duval before the Privy Council. Therefore the second ground of decision sprang wholly from the Board and Lord Lindley’s speech gives little insight into their reasoning.
For myself I can only assume that, if the Board considered that Mr Duval had committed a wrongful act vis-à-vis his wife, it proceeded on a mistaken basis. It will be remembered that in 1902 it had not been finally established that a presumption of undue influence within class 2A did not apply as between husband and wife. The Board may therefore have been proceeding on the basis that the presumption of undue influence applied as between Mr and Mrs Duval. This was certainly one contemporary understanding of the ratio decidendi: see Bishoff’s Trustee v Frank (1903) 89 LT 188. Alternatively, the Board may have been mistakenly applying the heresy propounded by Lord Romilly to the effect that when a person has made a large voluntary disposition the burden is thrown on the party benefiting to show that the disposition was made fairly and honestly and in full understanding of the nature and consequences of the transaction: see Hoghton v Hoghton (1852) 15 Beav 278, 51 ER 545. Although this heresy has never been formally overruled, it has rightly been regarded as bad law for a very long time: see the account given by Dixon J in Yerkey v Jones (1939) 63 CLR 649 at 678 et seq. It is impossible to find a sound basis for holding that Mrs Duval was entitled to set aside the transaction as against her husband. How then could she set it aside as against Turnbulls?
Turnbull v Duval: was the creditor under a direct duty to the wife? It is the lack of any sound basis for holding that Mr Duval was guilty of a legal wrong for which Turnbulls were indirectly held liable which has led to the theory that the creditor, Turnbulls, were themselves in breach of some duty owed by them as creditors directly to the surety, Mrs Duval. No one has ever suggested that in the ordinary case of principal and surety the creditor owes any duty of care to the surety: in the normal case it is for the surety to satisfy himself as to the nature and extent of the obligations he is assuming. Therefore, it is said, there must be some special feature of the case where a wife stands surety for her husband’s debt which gives rise to some special duty. This is the explanation of the decision of Turnbull v Duval given by Dixon J in Yerkey v Jones (1939) 63 CLR 649 at 675, which, in turn, is the basis on which the Court of Appeal in the present case adopted the view that the law imposed on the creditor itself a duty to take steps to ensure not only that the husband had not used undue influence or made a misrepresentation but also that the wife had ‘an adequate understanding of the nature and effect’ of what she was doing. If this interpretation of Turnbull v Duval is correct, the law not only imposes on the creditor a duty vis-à-vis a particular class of surety (where ordinarily there would be none) but the extent of that duty is greater than that which, under the ordinary law, a husband would owe to his wife: a transaction between husband and wife cannot, in the absence of undue influence or misrepresentation, be set aside simply on the ground that the wife did not fully understand the transaction.
Turnbull v Duval: ‘They left everything to Duval and must abide the consequences’ These words provide the only guidance as to the circumstances which led the Board to set aside the surety agreement as against Turnbulls. In later cases the words have often been treated as indicating that Mr Duval (but not Turnbulls themselves) acted in breach of duty to Mrs Duval, that Mr Duval was Turnbulls’ agent and that Turnbulls could not be in a better position than its agent. Quite apart from the difficulty of identifying what was the breach of duty committed by Mr Duval, the concept of Mr Duval having acted as agent for Turnbulls to procure his wife to become surety for the debt was artificial in Turnbull v Duval itself and in some of the later cases becomes even more artificial. As the Court of Appeal in this case point out, in the majority of cases the reality of the relationship is that, the creditor having required of the principal debtor that there must be a surety, the principal debtor on his own account in order to raise the necessary finance seeks to procure the support of the surety. In so doing he is acting for himself not for the creditor.
The subsequent authorities
The authorities in which the principle derived from Turnbull v Duval has been applied are fully analysed in the judgment of Scott LJ and it is unnecessary to review them fully again.
Scott LJ analyses the cases as indicating that down to 1985 there was no decision which indicated that the agency theory, rather than the special equity theory, was the basis of the decision in Turnbull v Duval. I agree. But that is attributable more to the application of the Turnbull v Duval principle than to any analysis of its jurisprudential basis. The only attempts to analyse the basis of the decision in Turnbull v Duval were the Australian decisions in Bank of Victoria Ltd v Mueller (1914) [1925] VLR 642 and the judgment of Dixon J in Yerkey v Jones (1939) 63 CLR 649. The former decision was reached by applying the Romilly heresy which, as I have already said, is bad law. The judgment of Dixon J undoubtedly supports the special equity theory.
From 1985 down to the decision of the Court of Appeal in the present case the decisions have all been based on the agency theory, ie that the principal debtor has acted in breach of duty to his wife, the surety, and that, if the principal debtor was acting as the creditor’s agent but not otherwise, the creditor cannot be in any better position than its agent, the husband. In all the cases since 1985 the principal debtor has procured the agreement of the surety by a legal wrong (undue influence or misrepresentation). In all the cases emphasis was placed on the question whether the creditor was infected by the debtor’s wrongdoing because the debtor was acting as the agent of the creditor in procuring the wife’s agreement to stand as surety. I am unable to agree with Scott LJ that the decision in Kingsnorth Trust Ltd v Bell [1986] 1 All ER 423, [1986] 1 WLR 119 was not based on the agency theory: Dillon LJ expressly makes it a necessary condition that the creditor has entrusted to the husband the task of obtaining his wife’s signature (see [1986] 1 All ER 423 at 427, [1986] 1 WLR 119 at 123).
However, in four of the cases since 1985 attention has been drawn to the fact that, even in the absence of agency, if the debtor has been guilty of undue influence or misrepresentation the creditor may not be able to enforce the surety contract if the creditor had notice, actual or constructive, of the debtor’s conduct: see Avon Finance Co Ltd v Bridger (1979) [1985] 2 All ER 281 at 287 per Brandon LJ, Coldunell Ltd v Gallon [1986] 1 All ER 429 at 439, [1986] QB 1184 at 1199, Midland Bank plc v Shephard [1988] 3 All ER 17 at 23 and BCCI v Aboody [1992] 4 All ER 955 at 980, [1990] 1 QB 923 at 973. As will appear, in my view it is the proper application of the doctrine of notice which provides the key to finding a principled basis for the law.
Accordingly, the present law is built on the unsure foundations of Turnbull v Duval. Like most law founded on obscure and possibly mistaken foundations it has developed in an artificial way, giving rise to artificial distinctions and conflicting decisions. In my judgment your Lordships should seek to restate the law in a form which is principled, reflects the current requirements of society and provides as much certainty as possible.
Conclusions
(a) Wives
My starting point is to clarify the basis of the law. Should wives (and perhaps others) be accorded special rights in relation to surety transactions by the recognition of a special equity applicable only to such persons engaged in such transactions? Or should they enjoy only the same protection as they would enjoy in relation to their other dealings? In my judgment, the special equity theory should be rejected. First, I can find no basis in principle for affording special protection to a limited class in relation to one type of transaction only. Second, to require the creditor to prove knowledge and understanding by the wife in all cases is to reintroduce by the back door either a presumption of undue influence of class 2A (which has been decisively rejected) or the Romilly heresy (which has long been treated as bad law). Third, although Scott LJ found that there were two lines of cases one of which supported the special equity theory, on analysis although many decisions are not inconsistent with that theory the only two cases which support it are Yerkey v Jones and the decision of the Court of Appeal in the present case. Finally, it is not necessary to have recourse to a special equity theory for the proper protection of the legitimate interests of wives as I will seek to show.
In my judgment, if the doctrine of notice is properly applied, there is no need for the introduction of a special equity in these types of cases. A wife who has been induced to stand as a surety for her husband’s debts by his undue influence, misrepresentation or some other legal wrong has an equity as against him to set aside that transaction. Under the ordinary principles of equity, her right to set aside that transaction will be enforceable against third parties (eg against a creditor) if either the husband was acting as the third party’s agent or the third party had actual or constructive notice of the facts giving rise to her equity. Although there may be cases where, without artificiality, it can properly be held that the husband was acting as the agent of the creditor in procuring the wife to stand as surety, such cases will be of very rare occurrence. The key to the problem is to identify the circumstances in which the creditor will be taken to have had notice of the wife’s equity to set aside the transaction.
The doctrine of notice lies at the heart of equity. Given that there are two innocent parties, each enjoying rights, the earlier right prevails against the later right if the acquirer of the later right knows of the earlier right (actual notice) or would have discovered it had he taken proper steps (constructive notice). In particular, if the party asserting that he takes free of the earlier rights of another knows of certain facts which put him on inquiry as to the possible existence of the rights of that other and he fails to make such inquiry or take such other steps as are reasonable to verify whether such earlier right does or does not exist, he will have constructive notice of the earlier right and take subject to it. Therefore where a wife has agreed to stand surety for her husband’s debts as a result of undue influence or misrepresentation, the creditor will take subject to the wife’s equity to set aside the transaction if the circumstances are such as to put the creditor on inquiry as to the circumstances in which she agreed to stand surety.
It is at this stage that, in my view, the ‘invalidating tendency’ or the law’s ‘tender treatment’ of married women, becomes relevant. As I have said above in dealing with undue influence, this tenderness of the law towards married women is due to the fact that, even today, many wives repose confidence and trust in their husbands in relation to their financial affairs. This tenderness of the law is reflected by the fact that voluntary dispositions by the wife in favour of her husband are more likely to be set aside than other dispositions by her: a wife is more likely to establish presumed undue influence of class 2B by her husband than by others because, in practice, many wives do repose in their husbands trust and confidence in relation to their financial affairs. Moreover the informality of business dealings between spouses raises a substantial risk that the husband has not accurately stated to the wife the nature of the liability she is undertaking, ie he has misrepresented the position, albeit negligently.
Therefore, in my judgment a creditor is put on inquiry when a wife offers to stand surety for her husband’s debts by the combination of two factors: (a) the transaction is on its face not to the financial advantage of the wife; and (b) there is a substantial risk in transactions of that kind that, in procuring the wife to act as surety, the husband has committed a legal or equitable wrong that entitles the wife to set aside the transaction.
It follows that, unless the creditor who is put on inquiry takes reasonable steps to satisfy himself that the wife’s agreement to stand surety has been properly obtained, the creditor will have constructive notice of the wife’s rights.
What, then are the reasonable steps which the creditor should take to ensure that it does not have constructive notice of the wife’s rights, if any? Normally the reasonable steps necessary to avoid being fixed with constructive notice consist of making inquiry of the person who may have the earlier right (ie the wife) to see if whether such right is asserted. It is plainly impossible to require of banks and other financial institutions that they should inquire of one spouse whether he or she has been unduly influenced or misled by the other. But in my judgment the creditor, in order to avoid being fixed with constructive notice, can reasonably be expected to take steps to bring home to the wife the risk she is running by standing as surety and to advise her to take independent advice. As to past transactions, it will depend on the facts of each case whether the steps taken by the creditor satisfy this test. However for the future in my judgment a creditor will have satisfied these requirements if it insists that the wife attend a private meeting (in the absence of the husband) with a representative of the creditor at which she is told of the extent of her liability as surety, warned of the risk she is running and urged to take independent legal advice. If these steps are taken in my judgment the creditor will have taken such reasonable steps as are necessary to preclude a subsequent claim that it had constructive notice of the wife’s rights. I should make it clear that I have been considering the ordinary case where the creditor knows only that the wife is to stand surety for her husband’s debts. I would not exclude exceptional cases where a creditor has knowledge of further facts which render the presence of undue influence not only possible but probable. In such cases, the creditor to be safe will have to insist that the wife is separately advised.
I am conscious that in treating the creditor as having constructive notice because of the risk of class 2B undue influence or misrepresentation by the husband I may be extending the law as stated by Fry J in Bainbrigge v Browne (1881) 18 Ch D 188 at 197 and the Court of Appeal in BCCI v Aboody [1992] 4 All ER 955 at 980, [1990] 1 QB 923 at 973. Those cases suggest that for a third party to be affected by constructive notice of presumed undue influence the third party must actually know of the circumstances which give rise to a presumption of undue influence. In contrast, my view is that the risk of class 2B undue influence or misrepresentation is sufficient to put the creditor on inquiry. But my statement accords with the principles of notice: if the known facts are such as to indicate the possibility of an adverse claim that is sufficient to put a third party on inquiry. If the law is established as I have suggested, it will hold the balance fairly between on the one hand the vulnerability of the wife who relies implicitly on her husband and, on the other hand, the practical problems of financial institutions asked to accept a secured or unsecured surety obligation from the wife for her husband’s debts. In the context of suretyship, the wife will not have any right to disown her obligations just because subsequently she proves that she did not fully understand the transaction: she will, as in all other areas of her affairs, be bound by her obligations unless her husband has, by misrepresentation, undue influence or other wrong, committed an actionable wrong against her. In the normal case, a financial institution will be able to lend with confidence in reliance on the wife’s surety obligation provided that it warns her (in the absence of the husband) of the amount of her potential liability and of the risk of standing surety and advises her to take independent advice.
Mr Jarvis QC for the bank urged that this is to impose too heavy a burden on financial institutions. I am not impressed by this submission. The report by Professor Jack’s Review Committee on Banking Services: Law and Practice (1989), (Cmnd 622) recommended that prospective guarantors should be adequately warned of the legal effects and possible consequences of their guarantee and of the importance of receiving independent advice. Pursuant to this recommendation, the Code of Banking Practice (adopted by banks and building societies in March 1992) provides in para 12.1 as follows:
‘Banks and building societies will advise private individuals proposing to give them a guarantee or other security for another person’s liabilities that: (i) by giving the guarantee or third party security he or she might become liable instead of or as well as that other person; (ii) he or she should seek independent legal advice before entering into the guarantee or third party security. Guarantees and other third party security forms will contain a clear and prominent notice to the above effect.’
Thus good banking practice (which applies to all guarantees, not only those given by a wife) largely accords with what I consider the law should require when a wife is offered as surety. The only further substantial step required by law beyond that good practice is that the position should be explained by the bank to the wife in a personal interview. I regard this as being essential because a number of the decided cases show that written warnings are often not read and are sometimes intercepted by the husband. It does not seem to me that the requirement of a personal interview imposes such an additional administrative burden as to render the bank’s position unworkable.
(b) Other persons
I have hitherto dealt only with the position where a wife stands surety for her husband’s debts. But in my judgment the same principles are applicable to all other cases where there is an emotional relationship between cohabitees. The ‘tenderness’ shown by the law to married women is not based on the marriage ceremony but reflects the underlying risk of one cohabitee exploiting the emotional involvement and trust of the other. Now that unmarried cohabitation, whether heterosexual or homosexual, is widespread in our society, the law should recognise this. Legal wives are not the only group which are now exposed to the emotional pressure of cohabitation. Therefore if, but only if, the creditor is aware that the surety is cohabiting with the principal debtor, in my judgment the same principles should apply to them as apply to husband and wife.
In addition to the cases of cohabitees, the decision of the Court of Appeal in Avon Finance Co Ltd v Bridger [1985] 2 All ER 281 shows (rightly in my view) that other relationships can give rise to a similar result. In that case a son, by means of misrepresentation, persuaded his elderly parents to stand surety for his debts. The surety obligation was held to be unenforceable by the creditor inter alia because to the bank’s knowledge the parents trusted the son in their financial dealings. In my judgment that case was rightly decided: in a case where the creditor is aware that the surety reposes trust and confidence in the principal debtor in relation to his financial affairs, the creditor is put on inquiry in just the same way as it is in relation to husband and wife.
Summary
I can therefore summarise my views as follows. Where one cohabitee has entered into an obligation to stand as surety for the debts of the other cohabitee and the creditor is aware that they are cohabitees: (1) the surety obligation will be valid and enforceable by the creditor unless the suretyship was procured by the undue influence, misrepresentation or other legal wrong of the principal debtor; (2) if there has been undue influence, misrepresentation or other legal wrong by the principal debtor, unless the creditor has taken reasonable steps to satisfy himself that the surety entered into the obligation freely and in knowledge of the true facts, the creditor will be unable to enforce the surety obligation because he will be fixed with constructive notice of the surety’s right to set aside the transaction; (3) unless there are special exceptional circumstances, a creditor will have taken such reasonable steps to avoid being fixed with constructive notice if the creditor warns the surety (at a meeting not attended by the principal debtor) of the amount of her potential liability and of the risks involved and advises the surety to take independent legal advice.
I should make it clear that in referring to the husband’s debts I include the debts of a company in which the husband (but not the wife) has a direct financial interest.
CIBC Mortgages plc v Pitt
[1993] UKHL 7 [1994] 1 AC 200, [1994] AC 200, [1993] 4 All ER 433, [
Lord Browne Wilkinson
Applying the decision of this House in O ‘Brien,Mrs. Pitt h
as established actual undue influence by Mr. Pitt.
The plaintiff will not however be affected by such undue influence unless Mr. Pitt was, in
a real sense, acting as agent of the plaintiff in procuring Mrs. Pitt’s agreement
or the plaintiff had actual or constructive notice of the undue influence. The
judge has correctly held that Mr. Pitt was not acting as agent for the plaintiff.
The plaintiff had no actual notice of the undue influence. What, then, was
known to the plaintiff that could put it on inquiry so as to fix it with
constructive notice?
So far as the plaintiff was aware, the transaction consisted of a joint
loan to husband and wife to finance the discharge of an existing mortgage on
26 Alexander Avenue, and as to the balance to be applied in buying a holiday
home. The loan was advanced to both husband and wife jointly. There was
nothing to indicate to the plaintiff that this was anything other than a normal
advance to husband and wife for their joint benefit.
Mr. Price, for Mrs. Pitt, argued that the invalidating tendency which
reflects the risk of there being Class 2(B) undue influence was, in itself,
sufficient to put the plaintiff on inquiry. I reject this submission without
hesitation. It accords neither with justice nor with practical common sense.
If third parties were to be fixed with constructive notice of undue influence in
relation to every transaction between husband and wife, such transactions
would become almost impossible. On every purchase of a home in the joint
names, the building society or bank financing the purchase would have to
insist on meeting the wife separately from her husband, advise her as to the
nature of the transaction and recommend her to take legal advice separate
from that of her husband. If that were not done, the financial institution
would have to run the risk of a subsequent attempt by the wife to avoid her
liabilities under the mortgage on the grounds of undue influence or
misrepresentation. To establish the law in that sense would not benefit the
average married couple and would discourage financial institutions from
making the advance.
What distinguishes the case of the joint advance from the surety case
is that, in the latter, there is not only the possibility of undue influence having
been exercised but also the increased risk of it having in fact been exercised
because, at least on its face, the guarantee by a wife of her husband’s debts
is not for her financial benefit. It is the combination of these two factors that
puts the creditor on inquiry.
Royal Bank of Scotland plc v Etridge (No 2)
[2001] UKHL 44
Lord Clyde
“123. Turning to the individual appeals, the cases fall into 3 different categories. There are three cases – Harris, Wallace and Moore – which have not got beyond the interlocutory stage, the wives’ pleadings having been struck out as disclosing no defence to the banks’ claims for possession. There are four cases – Etridge, Gill, Coleman and Bennett – which have proceeded to trial and in which, at trial and/or on appeal, the wife has been unsuccessful. Finally there is a single case – Kenyon-Brown – in which the wife was suing her solicitor for damages for breach of duty. Your Lordships are in favour of allowing the appeals in Kenyon-Brown, Harris, Wallace, Moore and Bennett: I agree. I also agree that the appeals in Etridge, Gill and Coleman should be dismissed. There is an important distinction to be drawn between cases which have been tried where the parties have been able to test the opposing case and the trial judge was able to make findings of fact having seen the critical witnesses and evaluated the evidence. By contrast, in those cases where the lender is applying for an immediate possession order without a trial or to have the defence struck out, the court is being asked to hold that, even if the wife’s allegations of fact be accepted, the wife’s case is hopeless and bound to fail and that there is no reason why the case should go to trial. This conclusion is not to be arrived at lightly nor should such an order be made simply on the basis that the lender is more likely to succeed. Once it is accepted that the wife has raised an arguable case that she was in fact the victim of undue influence and that the bank had been put on enquiry, it will have to be a very clear case before one can say that the bank should not have to justify its conduct at a trial.
Kenyon-Brown: 124. I take this case first because it falls into a different category to the others. The wife was claiming damages against a firm of solicitors on the basis that, under the undue influence of her husband, she had entered into an adverse suretyship transaction for the benefit of her husband, which also involved charging a cottage which they jointly owned, and that the solicitors had failed to give her appropriate advice to prevent this happening. The guarantee was unlimited. The wife was unable to give specific or reliable evidence in support of her case against the solicitors but relied upon the fact that the transaction was manifestly disadvantageous to her and upon the duty of the solicitor, as stated by the Court of Appeal in Etridge No2 [1998] 4 All ER 705 at para 19, to satisfy himself that she was free from improper influence. The certificate which the solicitor gave to the lender was that he had given her legal advice. In Kenyon-Brown, the majority of the Court of Appeal, in disagreement with the trial judge, considered that this led inexorably to the conclusion that the solicitor must have been negligent. I agree with your Lordships that the conclusion of the Court of Appeal was not justified upon the evidence adduced at the trial. The burden of proof was upon the wife to establish that the solicitor had been negligent. She could not say that she had not been given comprehensive advice which included a full warning of the consequences of her entering into the transaction. She could not contradict that he had told her specifically that the mortgage would only benefit her husband and was without limit. He was her solicitor and advised her as his client. The judge was right: she failed to make out her case against the solicitor on the facts. If she had been able to give reliable evidence and be clearer about what she said had happened and had been in a position to challenge the solicitor’s attendance note, she might have succeeded. The solicitor’s duty towards her was as stated by my noble and learned friend Lord Nicholls. It seems that it was substantially observed and in so far as the solicitor might be criticised, no causative relevance was established.
Wallace: 125. This was an interlocutory case. The bank claimed the possession of a flat in Priory Road, Hampstead, which was jointly owned by Mr and Mrs Wallace. The bank claimed possession on the basis of an all monies legal charge signed by the husband and the wife against which the bank had advanced money to the husband. It was accepted that she had an arguable case that she had been unduly influenced to sign by her husband. The bank did not at any stage communicate with the wife or anyone acting for her. It sent the charge to its own solicitor with instructions to attend to the necessary formalities in the signing of the charge. The husband and wife went together to the bank’s solicitor’s office. The wife’s case was that she was there 3 or 4 minutes at most; she signed as directed by the solicitor; there was no other discussion; her impression was that the solicitor had been instructed by the bank merely to take and witness her signature. On this case the bank had no basis for rebutting the risk that her signature had not been properly obtained. It had no basis for any belief that she had been separately advised by a solicitor who was acting for her. The only solicitor of which the bank knew was a solicitor acting for itself alone which had in a side letter to the bank, of which the wife knew nothing, told the bank no more than that the documents had been explained. The wife clearly had an arguable case for defending the possession action. The reasoning of the Court of Appeal in arriving at the contrary conclusion was that the bank was (or, perhaps, would have been) entitled to assume that the solicitor had been acting as the wife’s solicitor and had discharged his duty to her as her solicitor. As stated, this assumption would have been without foundation. I agree that this appeal should be allowed.
Harris: 126. This was also an interlocutory case. The judge struck out her defence and counterclaim as disclosing no arguable defence to the bank’s action for the possession of the house owned jointly by the husband and wife where they lived. The husband had, through the medium of two companies, two businesses one of which had effectively failed leaving him with a heavy personal liability. He consulted solicitors, Wragge & Co, to find a way of carrying on his other business. They advised him to negotiate a new facility with the bank with new security. The outcome was an offer from the bank of new finance for the second company secured by unlimited guarantees from both the husband and wife and a legal charge on their house. The bank was clearly put on enquiry. It was accepted that for striking out purposes the wife had an arguable case on undue influence. The relevant question was therefore whether the bank took reasonable steps to satisfy itself that the wife’s agreement had not been improperly obtained. Wragge & Co were only known to the bank as the husband’s solicitors. The bank took no steps to communicate with the wife who was allowed to remain in ignorance of what precisely was the position between her husband and the bank. The wife was never told that she would be required to be separately advised nor that she should instruct a solicitor to certify to the bank that she had been so advised. In her pleading the wife had pleaded that the solicitors were acting for the bank, her husband and herself. However before the judge the affidavit sworn by her solicitor in the action (Mr Holt of Evans Derry Binnion) in response to the bank’s striking out application deposed (para 6) –
“It is important to note that insofar as my client is concerned Wragge & Co were not her solicitors. Wragge & Co were solicitors who had been instructed by Mr Harris personally previously and he had a personal connection with one of the partners at that [firm].”
126. The wife therefore has an arguable case that Wragge & Co were never her solicitors and that the case is in this respect the same as the Wallace case. There is however a further feature of this case. The bank wrote to Wragge & Co, knowing them only as the husband’s solicitors, asking them, among other things, “to explain the nature of the document to both parties and confirm to us that independent legal advice has been given”. The letter in reply from Wragge & Co did not give the bank that confirmation, a fact which the bank did not pick up until about nine months later. The bank then wrote to Wragge & Co pointing this out and asking for confirmation that independent legal advice had nevertheless been given. On receiving this further letter, the partner at Wragge & Co commented: “I do not think that independent legal advice was given.” On this, it would appear that the bank appreciated that it needed confirmation that the wife had been independently advised. Patently it did not get it. The bank realised that it had not got it and that she may well never have been independently advised. This was clearly a case where the judge should have allowed the case to go to trial. The wife had an arguable defence on more than one ground. The Court of Appeal dismissed the wife’s appeal giving only brief reasons – “The solicitors were acting for Mrs Harris and the bank were entitled to assume that they had given appropriate advice and were entitled to accept the solicitors’ letter as confirmation that this had been done.” These reasons fly in the face of the evidence and cannot be supported. This appeal should be allowed.
Moore: 127. This is the third of the interlocutory cases. It is less clear cut than the other two. But it is not a case in which it should be said, in my judgment, that no trial is justified and that, on the basis of her pleaded case, the wife is bound to fail in her defence of the possession action. It is accepted for present purposes that she has an arguable case of undue influence and misrepresentation by her husband. Her case is that she had in fact instructed no solicitors to act for her and received no advice whatsoever. The charge was unlimited in amount. The loan transaction was not wholly straightforward in that, whilst it included the refinancing of indebtedness which was already secured on the matrimonial home in Pangbourne, it was as to 3/5ths composed of a substantial additional advance to the company run by the husband which was already in financial trouble (and was to fail within two years). In this connection, the company and the husband used an independent insurance broker, Mr Zerfahs and his brother (a credit broker), as a go-between with the lender. The lender had no direct communication with the wife, nor did Mr Zerfahs communicate with her. Were it not for one fact, this would be a case which fell into the same category as Wallace. The potential saving fact for the lender was that the husband had started his deception by persuading his wife to sign the mortgage application form in blank. One of the boxes in the form was “solicitor’s details”. The husband, who was the primary applicant, filled this in with the name of the solicitors who had been instructed by Mr Zerfahs without informing the wife or obtaining her authority: “Quiney & Harris (Nigel Whittaker)” and their address in Wootton Bassett near Swindon. As a result, on the face of the form sent to the lender there was a single solicitor who was to act on behalf of both applicants. The wife says that the husband had not obtained her authority to fill in the form in this way; it is agreed that the husband undoubtedly filled in other parts of the form fraudulently. Having received instructions from Mr Zerfahs, the solicitors, without obtaining confirmation from the wife, referred to her and her husband in correspondence as “our clients”. The lender did not obtain any assurance that the wife had received independent advice before signing. It is the wife’s case that she received no advice at all. This is a disturbing case. It may turn out (if there is a trial) that the wife is an unreliable witness and that her case cannot be accepted. But, for present purposes, the lender’s case has to depend wholly upon an estoppel arising from her having signed the application form in blank and, it is argued, an inference that she had been separately advised as an independent client by the solicitor. I do not believe that this is a sound basis for disposing of this case without a trial. The true facts need to be known. She was the victim of misrepresentation; the solicitors purported to act on her behalf without any authority to do so; the only document which the lender saw did not suggest anything other than a joint retainer; the lender never checked the position with the wife or sought any confirmation that she was being separately advised. Discovery of documents and a morning in the County Court would have sorted the matter out more expeditiously and cheaply. I agree that this appeal should be allowed.
Royal Bank of Scotland v Etridge: 128. This is a case which, after some delay and contested interlocutory proceedings, went to a trial before Judge Behrens. The wife gave evidence. The judge found that, on the evidence, she had not been the victim of any actual undue influence. However he went on to deal with the case on the basis of presumed undue influence. On appeal, the Court of Appeal upheld the Judge’s finding of no actual undue influence; nor did she at either level obtain a finding in her favour that she had been induced to sign by any misrepresentation. Accordingly, on the correct view of the law, her case failed in limine and none of the other points arose. Judgment was rightly entered for the bank. On this ground, I agree that this appeal should be dismissed. This case provides an object lesson in the dangers of attempting a summary resolution of issues of mixed law and fact without having ascertained the facts.
Gill: 129. This too is a case which went to trial. The evidence discloses what might have been a case of misrepresentation which possibly could have led to the wife succeeding. The transaction was presented in a fashion which may have led the wife and the solicitors mistakenly to believe that only an advance of £36,000 was involved, not a probable £100,000. However, be that as it may, the case advanced by the wife at the trial was that she had been the victim of actual undue influence. This case was rejected by the Judge and, in any event, there was evidence that the extended scope of the transaction is something which she would in fact have supported and was not causative. Therefore this case is, in the critical respect, similar to the Etridge case. She failed to prove the allegation necessary to found her case. I agree that this appeal should be dismissed.
Coleman: 130. In this case there was a trial which was not confined to a simple claim by the bank against the wife; it involved also her husband (who in addition counterclaimed against the bank) and third parties joined by the wife. With some reluctance I agree that the wife’s appeal should be dismissed. This is not because of any inherent lack of merit in her case; she has been appallingly badly served. It is because to set aside the judgments entered against her below would be contrary to the grounds upon which her case was conducted at the trial and in the Court of Appeal. The wife and her husband were members of the Hasidic Jewish community. This factually involved a relationship of complete trust and confidence between the wife and her husband in relation to financial matters. I agree with Lord Scott that it is a case where, having drawn the appropriate inferences, actual undue influence was in fact established. The wife was being asked to charge her home to secure advances to her husband for the purpose of enabling him to engage in property speculation, he being unable to offer the bank adequate other security. It was also a case where the bank was clearly put on enquiry. The relevant point which should have been considered was therefore whether the bank took steps of the kind referred to by Lord Nicholls (para 79) (or in the National Westminster document) in order to protect itself from being affected by any such undue influence. But at the trial the dealings between the bank and the wife and the solicitor were not covered by documentary evidence and seem not to have been the subject of direct oral evidence either. The wife simply said that she went to the solicitor’s office at the request of her husband and that all the managing clerk, whom they saw there, did before witnessing her signature was to ask her in the presence of her husband if he, her husband, had explained the documents to her. Her account (which the judge accepted) gives a pertinent reminder of the gap between theory and reality and illustrates the type of charade which, as Sir Peter Millett has observed (sup), lenders well know may occur and should not be tolerated or sanctioned by equity. However, at the trial, the wife’s case was that the elderly solicitor for whom the managing clerk worked was acting as her solicitor. She joined what she thought were the appropriate persons as third parties suing them for breach of professional duty. The elderly solicitor had died. The trial judge dismissed her claim against the third parties holding that she had sued the wrong persons. There was a further unusual feature of the case. The bank had asked for a certificate in the unusual terms: “I confirm that this document was signed in my presence and that the full effect of its contents have been explained to and were understood by Miriam Mara Coleman, and she has signed this document of her own free will.” (emphasis supplied.) It was this certificate that the managing clerk signed. If the bank were entitled to believe that this certificate was supplied by the wife’s own solicitor instructed by her, the bank might have had a basis for believing that the wife’s consent had been properly obtained. I venture to doubt whether any reasonable banker would have put this construction upon the available evidence but in view of the course of the proceedings before the trial judge and the basis upon which the wife’s case was then put it would not be permissible now to allow this appeal upon an inconsistent and untested basis. The greater part of the time at the trial seems to have been taken up with the dispute between the husband and the bank. As between the wife and the bank, the judgments in the courts below were primarily concerned with aspects of the problem of presumed undue influence which do not now arise and with the question of the adequacy of a certificate signed by a legal executive as opposed to a solicitor which must depend on the facts of each case.
Bennett: 131. I agree that this appeal should be allowed. The existence of the ranking agreement was important and qualified the transaction as it was disclosed to the surety. I do not wish to add anything to what is to be said about this point by Lord Scott. This suffices for the allowing of the appeal. It is accordingly unnecessary to say anything about the undue influence issues.”
Lord Nicholls
The complainant and third parties: suretyship transactions
The problem considered in O’Brien’s case and raised by the present appeals is of comparatively recent origin. It arises out of the substantial growth in home ownership over the last 30 or 40 years and, as part of that development, the great increase in the number of homes owned jointly by husbands and wives. More than two-thirds of householders in the United Kingdom now own their own homes. For most home-owning couples, their homes are their most valuable asset. They must surely be free, if they so wish, to use this asset as a means of raising money, whether for the purpose of the husband’s business or for any other purpose. Their home is their property. The law should not restrict them in the use they may make of it. Bank finance is in fact by far the most important source of external capital for small businesses with fewer than ten employees. These businesses comprise about 95 percent of all businesses in the country, responsible for nearly one-third of all employment. Finance raised by second mortgages on the principal’s home is a significant source of capital for the start-up of small businesses.
If the freedom of home-owners to make economic use of their homes is not to be frustrated, a bank must be able to have confidence that a wife’s signature of the necessary guarantee and charge will be as binding upon her as is the signature of anyone else on documents which he or she may sign. Otherwise banks will not be willing to lend money on the security of a jointly owned house or flat.
At the same time, the high degree of trust and confidence and emotional interdependence which normally characterises a marriage relationship provides scope for abuse. One party may take advantage of the other’s vulnerability. Unhappily, such abuse does occur. Further, it is all too easy for a husband, anxious or even desperate for bank finance, to misstate the position in some particular or to mislead the wife, wittingly or unwittingly, in some other way. The law would be seriously defective if it did not recognise these realities.
In O’Brien’s case this House decided where the balance should be held between these competing interests. On the one side, there is the need to protect a wife against a husband’s undue influence. On the other side, there is the need for the bank to be able to have reasonable confidence in the strength of its security. Otherwise it would not provide the required money. The problem lies in finding the course best designed to protect wives in a minority of cases without unreasonably hampering the giving and taking of security. The House produced a practical solution. The House decided what are the steps a bank should take to ensure it is not affected by any claim the wife may have that her signature of the documents was procured by the undue influence or other wrong of her husband. Like every compromise, the outcome falls short of achieving in full the objectives of either of the two competing interests. In particular, the steps required of banks will not guarantee that, in future, wives will not be subjected to undue influence or misled when standing as sureties. Short of prohibiting this type of suretyship transaction altogether, there is no way of achieving that result, desirable although it is. What passes between a husband and wife in this regard in the privacy of their own home is not capable of regulation or investigation as a prelude to the wife entering into a suretyship transaction.
The jurisprudential route by which the House reached its conclusion in O’Brien’s case has attracted criticism from some commentators. It has been said to involve artificiality and thereby create uncertainty in the law. I must first consider this criticism. In the ordinary course a bank which takes a guarantee security from the wife of its customer will be altogether ignorant of any undue influence the customer may have exercised in order to secure the wife’s concurrence. In O’Brien Lord Browne-Wilkinson prayed in aid the doctrine of constructive notice. In circumstances he identified, a creditor is put on inquiry. When that is so, the creditor ‘will have constructive notice of the wife’s rights’ unless the creditor takes reasonable steps to satisfy himself that the wife’s agreement to stand surety has been properly obtained: see [1994] 1 AC 180, 196.
Lord Browne-Wilkinson would be the first to recognise this is not a conventional use of the equitable concept of constructive notice. The traditional use of this concept concerns the circumstances in which a transferee of property who acquires a legal estate from a transferor with a defective title may nonetheless obtain a good title, that is, a better title than the transferor had. That is not the present case. The bank acquires its charge from the wife, and there is nothing wrong with her title to her share of the matrimonial home. The transferor wife is seeking to resile from the very transaction she entered into with the bank, on the ground that her apparent consent was procured by the undue influence or other misconduct, such as misrepresentation, of a third party (her husband). She is seeking to set aside her contract of guarantee and, with it, the charge she gave to the bank.
The traditional view of equity in this tripartite situation seems to be that a person in the position of the wife will only be relieved of her bargain if the other party to the transaction (the bank, in the present instance) was privy to the conduct which led to the wife’s entry into the transaction. Knowledge is required: see Cobbett v Brock (1855) 20 Beav 524, 528, 531, per Sir John Romilly MR, Kempson v Ashbee (1874) LR 10 Ch App 15, 21, per James LJ, and Bainbrigge v Browne, 18 Ch D 188, 197, per Fry J. The law imposes no obligation on one party to a transaction to check whether the other party’s concurrence was obtained by undue influence. But O’Brien has introduced into the law the concept that, in certain circumstances, a party to a contract may lose the benefit of his contract, entered into in good faith, if he ought to have known that the other’s concurrence had been procured by the misconduct of a third party.
There is a further respect in which O’Brien departed from conventional concepts. Traditionally, a person is deemed to have notice (that is, he has ‘constructive’ notice) of a prior right when he does not actually know of it but would have learned of it had he made the requisite inquiries. A purchaser will be treated as having constructive notice of all that a reasonably prudent purchaser would have discovered. In the present type of case, the steps a bank is required to take, lest it have constructive notice that the wife’s concurrence was procured improperly by her husband, do not consist of making inquiries. Rather, O’Brien envisages that the steps taken by the bank will reduce, or even eliminate, the risk of the wife entering into the transaction under any misapprehension or as a result of undue influence by her husband. The steps are not concerned to discover whether the wife has been wronged by her husband in this way. The steps are concerned to minimise the risk that such a wrong may be committed.
These novelties do not point to the conclusion that the decision of this House in O’Brien is leading the law astray. Lord Browne-Wilkinson acknowledged he might be extending the law: see [1994] 1 AC 180, 197. Some development was sorely needed. The law had to find a way of giving wives a reasonable measure of protection, without adding unreasonably to the expense involved in entering into guarantee transactions of the type under consideration. The protection had to extend also to any misrepresentations made by a husband to his wife. In a situation where there is a substantial risk the husband may exercise his influence improperly regarding the provision of security for his business debts, there is an increased risk that explanations of the transaction given by him to his wife may be misleadingly incomplete or even inaccurate.
The route selected in O’Brien ought not to have an unsettling effect on established principles of contract. O’Brien concerned suretyship transactions. These are tripartite transactions. They involve the debtor as well as the creditor and the guarantor. The guarantor enters into the transaction at the request of the debtor. The guarantor assumes obligations. On the face of the transaction the guarantor usually receives no benefit in return, unless the guarantee is being given on a commercial basis. Leaving aside cases where the relationship between the surety and the debtor is commercial, a guarantee transaction is one-sided so far as the guarantor is concerned. The creditor knows this. Thus the decision in O’Brien is directed at a class of contracts which has special features of its own. That said, I must at a later stage in this speech return to the question of the wider implications of the O’Brien decision.
The threshold: when the bank is put on inquiry
In O’Brien the House considered the circumstances in which a bank, or other creditor, is ‘put on inquiry.’ Strictly this is a misnomer. As already noted, a bank is not required to make inquiries. But it will be convenient to use the terminology which has now become accepted in this context. The House set a low level for the threshold which must be crossed before a bank is put on inquiry. For practical reasons the level is set much lower than is required to satisfy a court that, failing contrary evidence, the court may infer that the transaction was procured by undue influence. Lord Browne-Wilkinson said ([1994] 1 AC 180, 196):
‘Therefore in my judgment a creditor in put on inquiry when a wife offers to stand surety for her husband’s debts by the combination of two factors: (a) the transaction is on its face not to the financial advantage of the wife; and (b) there is a substantial risk in transactions of that kind that, in procuring the wife to act as surety, the husband has committed a legal or equitable wrong that entitles the wife to set aside the transaction.’
In my view, this passage, read in context, is to be taken to mean, quite simply, that a bank is put on inquiry whenever a wife offers to stand surety for her husband’s debts.
The Court of Appeal, comprising Stuart-Smith, Millett and Morritt LJJ, interpreted this passage more restrictively. The threshold, the court said, is somewhat higher. Where condition (a) is satisfied, the bank is put on inquiry if, but only if, the bank is aware that the parties are cohabiting or that the particular surety places implicit trust and confidence in the principal debtor in relation to her financial affairs: see Royal Bank of Scotland Plc v Etridge (No 2) [1998] 4 All ER 705, 719.
I respectfully disagree. I do not read (a) and (b) as factual conditions which must be proved in each case before a bank is put on inquiry. I do not understand Lord Browne-Wilkinson to have been saying that, in husband and wife cases, whether the bank is put on inquiry depends on its state of knowledge of the parties’ marriage, or of the degree of trust and confidence the particular wife places in her husband in relation to her financial affairs. That would leave banks in a state of considerable uncertainty in a situation where it is important they should know clearly where they stand. The test should be simple and clear and easy to apply in a wide range of circumstances. I read (a) and (b) as Lord Browne-Wilkinson’s broad explanation of the reason why a creditor is put on inquiry when a wife offers to stand surety for her husband’s debts. These are the two factors which, taken together, constitute the underlying rationale.
The position is likewise if the husband stands surety for his wife’s debts. Similarly, in the case of unmarried couples, whether heterosexual or homosexual, where the bank is aware of the relationship: see Lord Browne-Wilkinson in O’Brien’s case, at p 198. Cohabitation is not essential. The Court of Appeal rightly so decided in Massey v Midland Bank Plc [1995] 1 All ER 929: see Steyn LJ, at p 933.
As to the type of transactions where a bank is put on inquiry, the case where a wife becomes surety for her husband’s debts is, in this context, a straightforward case. The bank is put on inquiry. On the other side of the line is the case where money is being advanced, or has been advanced, to husband and wife jointly. In such a case the bank is not put on inquiry, unless the bank is aware the loan is being made for the husband’s purposes, as distinct from their joint purposes. That was decided in CIBC Mortgages Plc v Pitt [1994] 1 AC 200
Less clear cut is the case where the wife becomes surety for the debts of a company whose shares are held by her and her husband. Her shareholding may be nominal, or she may have a minority shareholding or an equal shareholding with her husband. In my view the bank is put on inquiry in such cases, even when the wife is a director or secretary of the company. Such cases cannot be equated with joint loans. The shareholding interests, and the identity of the directors, are not a reliable guide to the identity of the persons who actually have the conduct of the company’s business.
The steps a bank should take
The principal area of controversy on these appeals concerns the steps a bank should take when it has been put on inquiry. In O’Brien Lord Browne-Wilkinson, at [1994] 1 AC 180, 196-197, said that a bank can reasonably be expected to take steps to bring home to the wife the risk she is running by standing as surety and to advise her to take independent advice. That test is applicable to past transactions. All the cases now before your Lordships’ House fall into this category. For the future a bank satisfies these requirements if it insists that the wife attend a private meeting with a representative of the bank at which she is told of the extent of her liability as surety, warned of the risk she is running and urged to take independent legal advice. In exceptional cases the bank, to be safe, has to insist that the wife is separately advised.
The practice of the banks involved in the present cases, and it seems reasonable to assume this is the practice of banks generally, is not to have a private meeting with the wife. Nor do the banks themselves take any other steps to bring home to the wife the risk she is running. This has continued to be the practice since the decision in O’Brien’s case. Banks consider they would stand to lose more than they would gain by holding a private meeting with the wife. They are, apparently, unwilling to assume the responsibility of advising the wife at such a meeting. Instead, the banking practice remains, as before, that in general the bank requires a wife to seek legal advice. The bank seeks written confirmation from a solicitor that he has explained the nature and effect of the documents to the wife.
Many of the difficulties which have arisen in the present cases stem from serious deficiencies, or alleged deficiencies, in the quality of the legal advice given to the wives. I say ‘alleged’, because three of the appeals before your Lordships’ House have not proceeded beyond the interlocutory stage. The banks successfully applied for summary judgment. In these cases the wife’s allegations, made in affidavit form, have not been tested by cross-examination. On behalf of the wives it has been submitted that under the current practice the legal advice is often perfunctory in the extreme and, further, that everyone, including the banks, knows this. Independent legal advice is a fiction. The system is a charade. In practice it provides little or no protection for a wife who is under a misapprehension about the risks involved or who is being coerced into signing. She may not even know the present state of her husband’s indebtedness.
My Lords, it is plainly neither desirable nor practicable that banks should be required to attempt to discover for themselves whether a wife’s consent is being procured by the exercise of undue influence of her husband. This is not a step the banks should be expected to take. Nor, further, is it desirable or practicable that banks should be expected to insist on confirmation from a solicitor that the solicitor has satisfied himself that the wife’s consent has not been procured by undue influence. As already noted, the circumstances in which banks are put on inquiry are extremely wide. They embrace every case where a wife is entering into a suretyship transaction in respect of her husband’s debts. Many, if not most, wives would be understandably outraged by having to respond to the sort of questioning which would be appropriate before a responsible solicitor could give such a confirmation. In any event, solicitors are not equipped to carry out such an exercise in any really worthwhile way, and they will usually lack the necessary materials. Moreover, the legal costs involved, which would inevitably fall on the husband who is seeking financial assistance from the bank, would be substantial. To require such an intrusive, inconclusive and expensive exercise in every case would be an altogether disproportionate response to the need to protect those cases, presumably a small minority, where a wife is being wronged.
The furthest a bank can be expected to go is to take reasonable steps to satisfy itself that the wife has had brought home to her, in a meaningful way, the practical implications of the proposed transaction. This does not wholly eliminate the risk of undue influence or misrepresentation. But it does mean that a wife enters into a transaction with her eyes open so far as the basic elements of the transaction are concerned.
This is the point at which, in the O’Brien case, the House decided that the balance between the competing interests should be held. A bank may itself provide the necessary information directly to the wife. Indeed, it is best equipped to do so. But banks are not following that course. Ought they to be obliged to do so in every case? I do not think Lord Browne-Wilkinson so stated in O’Brien. I do not understand him to have said that a personal meeting was the only way a bank could discharge its obligation to bring home to the wife the risks she is running. It seems to me that, provided a suitable alternative is available, banks ought not to be compelled to take this course. Their reasons for not wishing to hold a personal meeting are understandable. Commonly, when a bank seeks to enforce a security provided by a customer, it is met with a defence based on assurances alleged to have been given orally by a branch manager at an earlier stage: that the bank would continue to support the business, that the bank would not call in its loan, and so forth. Lengthy litigation ensues. Sometimes the allegations prove to be well founded, sometimes not. Banks are concerned to avoid the prospect of similar litigation which would arise in guarantee cases if they were to adopt a practice of holding a meeting with a wife at which the bank’s representative would explain the proposed guarantee transaction. It is not unreasonable for the banks to prefer that this task should be undertaken by an independent legal adviser.
I shall return later to the steps a bank should take when it follows this course. Suffice to say, these steps, together with advice from a solicitor acting for the wife, ought to provide the substance of the protection which O’Brien intended a wife should have. Ordinarily it will be reasonable that a bank should be able to rely upon confirmation from a solicitor, acting for the wife, that he has advised the wife appropriately.
The position will be otherwise if the bank knows that the solicitor has not duly advised the wife or, I would add, if the bank knows facts from which it ought to have realised that the wife has not received the appropriate advice. In such circumstances the bank will proceed at its own risk.
The content of the legal advice
In Royal Bank of Scotland Plc v Etridge (No 2) [1998] 4 All ER 705, 715, para 19, the Court of Appeal set out its views of the duties of a solicitor in this context:
‘A solicitor who is instructed to advise a person who may be subject to the undue influence of another must bear in mind that it is not sufficient that she understands the nature and effect of the transaction if she is so affected by the influence of the other that she cannot make an independent decision of her own. It is not sufficient to explain the documentation and ensure she understands the nature of the transaction and wishes to carry it out: see Powell v Powell [1900] 1 Ch 243, 247, approved in Wright v Carter [1903] 1 Ch 27. His duty is to satisfy himself that his client is free from improper influence, and the first step must be to ascertain whether it is one into which she could sensibly be advised to enter if free from such influence. If he is not so satisfied, it is his duty to advise her not to enter into it, and to refuse to act further for her in the implementation of the transaction if she persists. In this event, while the contents of his advice must remain confidential, he should inform the other parties (including the bank) that he has seen his client and given her certain advice, and that as a result he has declined to act for her any further. He must in any event advise her that she is under no obligation to enter into the transaction at all and, if she still wishes to do so, that she is not bound to accept the terms of any document which has been put before her: see Credit Lyonnais Bank Nederland NV v Burch [1997] 1 All ER 144.’
I am unable to accept this as an accurate formulation of a solicitor’s duties in cases such as those now under consideration. In some respects it goes much too far. The observations of Farwell J in Powell v Powell [1900] 1 Ch 243, 247, should not be pressed unduly widely. Powell v Powell was a case where strong moral pressure was applied by a stepmother to a girl who was only just twenty one. She was regarded as not really capable of dealing irrevocably with her parent or guardian in the matter of a substantial settlement. Farwell J’s observations cannot be regarded as of general application in all cases where a solicitor is giving advice to a person who may have been subject to undue influence.
More pertinently, in In re Coomber, Coomber v Coomber [1911] 1 Ch 723, 730, Fletcher Moulton LJ summarised the general rules applicable to cases of persons who are competent to form an opinion of their own:
‘All that is necessary is that some independent person, free from any taint of the relationship, or of the consideration of interest which would affect the act, should put clearly before the person what are the nature and the consequences of the act. It is for adult persons of competent mind to decide whether they will do an act, and I do not think that independent and competent advice means independent and competent approval. It simply means that the advice shall be removed entirely from the suspected atmosphere; and that from the clear language of an independent mind, they should know precisely what they are doing.’
Thus, in the present type of case it is not for the solicitor to veto the transaction by declining to confirm to the bank that he has explained the documents to the wife and the risks she is taking upon herself. If the solicitor considers the transaction is not in the wife’s best interests, he will give reasoned advice to the wife to that effect. But at the end of the day the decision on whether to proceed is the decision of the client, not the solicitor. A wife is not to be precluded from entering into a financially unwise transaction if, for her own reasons, she wishes to do so.
That is the general rule. There may, of course, be exceptional circumstances where it is glaringly obvious that the wife is being grievously wronged. In such a case the solicitor should decline to act further. In Wright v Carter [1903] 1 Ch 27, 57-58, Stirling LJ approved Farwell J’s observations in Powell v Powell [1900] 1 Ch 243, 247. But he did so by reference to the extreme example of a poor man divesting himself of all his property in favour of his solicitor.
In Royal Bank of Scotland Plc v Etridge (No 2) [1998] 4 All ER 705, 722, para 49, the Court of Appeal said that if the transaction is ‘one into which no competent solicitor could properly advise the wife to enter’, the availability of legal advice is insufficient to avoid the bank being fixed with constructive notice. It follows from the views expressed above that I am unable to agree with the Court of Appeal on this point.
I turn to consider the scope of the responsibilities of a solicitor who is advising the wife. In identifying what are the solicitor’s responsibilities the starting point must always be the solicitor’s retainer. What has he been retained to do? As a general proposition, the scope of a solicitor’s duties is dictated by the terms, whether express or implied, of his retainer. In the type of case now under consideration the relevant retainer stems from the bank’s concern to receive confirmation from the solicitor that, in short, the solicitor has brought home to the wife the risks involved in the proposed transaction. As a first step the solicitor will need to explain to the wife the purpose for which he has become involved at all. He should explain that, should it ever become necessary, the bank will rely upon his involvement to counter any suggestion that the wife was overborne by her husband or that she did not properly understand the implications of the transaction. The solicitor will need to obtain confirmation from the wife that she wishes him to act for her in the matter and to advise her on the legal and practical implications of the proposed transaction.
When an instruction to this effect is forthcoming, the content of the advice required from a solicitor before giving the confirmation sought by the bank will, inevitably, depend upon the circumstances of the case. Typically, the advice a solicitor can be expected to give should cover the following matters as the core minimum. (1) He will need to explain the nature of the documents and the practical consequences these will have for the wife if she signs them. She could lose her home if her husband’s business does not prosper. Her home may be her only substantial asset, as well as the family’s home. She could be made bankrupt. (2) He will need to point out the seriousness of the risks involved. The wife should be told the purpose of the proposed new facility, the amount and principal terms of the new facility, and that the bank might increase the amount of the facility, or change its terms, or grant a new facility, without reference to her. She should be told the amount of her liability under her guarantee. The solicitor should discuss the wife’s financial means, including her understanding of the value of the property being charged. The solicitor should discuss whether the wife or her husband has any other assets out of which repayment could be made if the husband’s business should fail. These matters are relevant to the seriousness of the risks involved. (3) The solicitor will need to state clearly that the wife has a choice. The decision is hers and hers alone. Explanation of the choice facing the wife will call for some discussion of the present financial position, including the amount of the husband’s present indebtedness, and the amount of his current overdraft facility. (4) The solicitor should check whether the wife wishes to proceed. She should be asked whether she is content that the solicitor should write to the bank confirming he has explained to her the nature of the documents and the practical implications they may have for her, or whether, for instance, she would prefer him to negotiate with the bank on the terms of the transaction. Matters for negotiation could include the sequence in which the various securities will be called upon or a specific or lower limit to her liabilities. The solicitor should not give any confirmation to the bank without the wife’s authority.
The solicitor’s discussion with the wife should take place at a face-to-face meeting, in the absence of the husband. It goes without saying that the solicitor’s explanations should be couched in suitably non-technical language. It also goes without saying that the solicitor’s task is an important one. It is not a formality.
The solicitor should obtain from the bank any information he needs. If the bank fails for any reason to provide information requested by the solicitor, the solicitor should decline to provide the confirmation sought by the bank.
As already noted, the advice which a solicitor can be expected to give must depend on the particular facts of the case. But I have set out this ‘core minimum’ in some detail, because the quality of the legal advice is the most disturbing feature of some of the present appeals. The perfunctory nature of the advice may well be largely due to a failure by some solicitors to understand what is required in these cases.
Independent advice
I turn next to the much-vexed question whether the solicitor advising the wife must act for the wife alone. Or, at the very least, the solicitor must not act for the husband or the bank in the current transaction save in a wholly ministerial capacity, such as carrying out conveyancing formalities or supervising the execution of documents and witnessing signatures. Commonly, in practice, the solicitor advising the wife will be the solicitor acting also for her husband either in the particular transaction or generally.
The first point to note is that this question cannot be answered by reference to reported decisions. The steps a bank must take once it is put on inquiry, if it is to avoid having constructive notice of the wife’s rights, are not the subject of exposition in earlier authority. This is a novel situation, created by the O’Brien decision.
Next, a simple and clear rule is needed, preferably of well nigh universal application. In some cases a bank deals directly with a husband and wife and has to take the initiative in requiring the wife to obtain legal advice. In other cases, a bank may deal throughout with solicitors already acting for the husband and wife. The case of Bank of Baroda v Rayarel [1995] 2 FLR 376 is an example of the latter type of case. It would not be satisfactory to attempt to draw a distinction along these lines. Any such distinction would lack a principled base. Inevitably, in practice, the distinction would disintegrate in confusion.
Thirdly, here again, a balancing exercise is called for. Some features point in one direction, others in the opposite direction. Factors favouring the need for the solicitor to act for the wife alone include the following. Sometimes a wife may be inhibited in discussion with a solicitor who is also acting for the husband or whose main client is the husband. This occurred in Banco Exterior Internacional v Mann [1995] 1 All ER 936: see the finding of the judge, at p 941F-G. Sometimes a solicitor whose main client is the husband may not, in practice, give the same single-minded attention to the wife’s position as would a solicitor acting solely for the wife. Her interests may rank lower in the solicitor’s scale of priorities, perhaps unconsciously, than the interests of the husband. Instances of incompetent advice, or worse, which have come before the court might perhaps be less likely to recur if a solicitor were instructed to act for the wife alone and gave advice solely to her. As a matter of general understanding, independent advice would suggest that the solicitor should not be acting in the same transaction for the person who, if there is any undue influence, is the source of that influence.
The contrary view is that the solicitor may also act for the husband or the bank, provided the solicitor is satisfied that this is in the wife’s best interests and satisfied also that this will not give rise to any conflicts of duty or interest. The principal factors favouring this approach are as follows. A requirement that a wife should receive advice from a solicitor acting solely for her will frequently add significantly to the legal costs. Sometimes a wife will be happier to be advised by a family solicitor known to her than by a complete stranger. Sometimes a solicitor who knows both husband and wife and their histories will be better placed to advise than a solicitor who is a complete stranger.
In my view, overall the latter factors are more weighty than the former. The advantages attendant upon the employment of a solicitor acting solely for the wife do not justify the additional expense this would involve for the husband. When accepting instructions to advise the wife the solicitor assumes responsibilities directly to her, both at law and professionally. These duties, and this is central to the reasoning on this point, are owed to the wife alone. In advising the wife the solicitor is acting for the wife alone. He is concerned only with her interests. I emphasise, therefore, that in every case the solicitor must consider carefully whether there is any conflict of duty or interest and, more widely, whether it would be in the best interests of the wife for him to accept instructions from her. If he decides to accept instructions, his assumption of legal and professional responsibilities to her ought, in the ordinary course of things, to provide sufficient assurance that he will give the requisite advice fully, carefully and conscientiously. Especially so, now that the nature of the advice called for has been clarified. If at any stage the solicitor becomes concerned that there is a real risk that other interests or duties may inhibit his advice to the wife he must cease to act for her.
Thompson v Foy
[2009] EWHC 1076 [2010] 1 P & CR 16, [2009] 22 EG 119Undue influence
The law
I turn next to undue influence. The law relating to undue influence is comprehensively discussed by the House of Lords in Royal Bank of Scotland plc v. Etridge (No. 2) [2002] 2 AC 773. The following principles are relevant to the present case:
i) The objective of the doctrine of undue influence is to ensure that the influence of one person (“the donee”) over another (“the donor”) is not abused (§ 6);
ii) If the donor intends to enter into a transaction, but the intention was produced by means which lead to the conclusion that the intention thus procured ought not fairly to be treated as the expression of the donor’s free will, the law will not permit the transaction to stand (§ 7);
iii) Broadly, there are two forms of unacceptable conduct. The first comprises overt acts of improper pressure or coercion such as unlawful threats. The second form arises out of a relationship between two persons where one has acquired over another a measure of influence, or ascendancy, of which the ascendant person then takes unfair advantage. (§ 8);
iv) The principle is not confined to abuse of trust or confidence. It also extends to the exploitation of the vulnerable (§ 11);
v) Disadvantage to the donor is not a necessary ingredient of undue influence (§ 12). However, it may have an evidential value, because it is relevant to the questions whether any allegation of abuse of confidence can properly be made, and whether any abuse actually occurred (§ 104);
vi) Whether a transaction has been brought about by undue influence is a question of fact (§ 13);
vii) The legal burden of proving undue influence rests on the person alleging it. The evidence required to discharge the burden of proof depends on the nature of the alleged undue influence, the personality of the parties, their relationship, the extent to which the transaction cannot readily be accounted for by the ordinary motives of ordinary persons in that relationship, and all the circumstances of the case (§ 13);
viii) If the claimant proves (a) that the donor placed trust and confidence in the donee or that the donee acquired ascendancy over the donor, and (b) that the transaction calls out for explanation, the claimant has discharged an evidential burden, which will also enable an inference of undue influence to be drawn, and thus satisfy the legal burden, unless the donee produces evidence to counter the inference which would otherwise be drawn (§§ 14, 21 and 156);
ix) This is simply a question of evidence and proof. At the end of the day, after trial, there will either be proof of undue influence or that proof will fail and it will be found that there is no undue influence. In the former case, whatever the relationship between the parties and however the influence was exerted, there will have been found to have been an actual case of undue influence. In the latter there will be none (§ 93).
x) Proof that the donor received advice from a third party before entering into the impugned transaction is one of the matters a court takes into account when weighing all the evidence. The weight, or importance, to be attached to such advice depends on all the circumstances. In the normal course, advice from a solicitor or other outside adviser can be expected to bring home to a donor a proper understanding of what he or she is about to do. But a person may understand fully the implications of a proposed transaction, for instance, a substantial gift, and yet still be acting under the undue influence of another. Proof of outside advice does not, of itself, necessarily show that the subsequent completion of the transaction was free from the exercise of undue influence. Whether it will be proper to infer that outside advice had an emancipating effect, so that the transaction was not brought about by the exercise of undue influence, is a question of fact to be decided having regard to all the evidence in the case (§ 20);
xi) The nature of the advice required is that someone free from the taint of undue influence should put before the donor the nature and consequences of the proposed transaction. It is not necessary for the adviser to recommend the transaction. An adult of competent mind is entitled to enter into a financially unwise transaction if he or she wants to (§§ 60 and 61).
In the light of the arguments before me, there are some additional observations I should make. First, although in Etridge Lord Nicholls of Birkenhead described the paradigm case of a relationship where influence is presumed as being one in which the complainant reposed trust and confidence in the other party in relation to the management of the complainant’s financial affairs (§ 14), I do not consider that this description was intended to be exhaustive. To restrict the type of trust and confidence in this way would not be consistent with the authoritative exposition by Lindley LJ in Allcard v Skinner (1887) 36 Ch D 145 in which Lindley LJ referred to “cases in which the position of the donor to the donee has been such that it has been the duty of the donee to advise the donor, or even to manage his property for him”. This very sentence was paraphrased by Lord Nicholls (§ 9). In addition, when describing the circumstances in which the burden of proof would shift (§ 21) Lord Nicholls used much more general language. Second, the requisite trust and confidence can arise in the course of the impugned transaction itself: Turkey v Awadh [2005] 2 P. & C.R. 29 (§ 11). Third, although the cases (and the textbooks) speak of “presumed undue influence” and “actual undue influence” these are no more than different ways of proving the same thing. In the former case undue influence is proved with the aid of an evidential presumption. In the latter case it must be proved without any such presumption. Fourth, if a relationship of the requisite character is proved, the burden of proof does not shift unless the transaction itself is one that calls for an explanation and is not satisfactorily explained. As Buxton LJ said in Turkey v Awadh (§ 15):
“If on the evidence the transaction cannot so be explained — that is to say, the transaction calls for an explanation and that explanation is not forthcoming—the burden then shifts to the claimant to show that in fact, and despite the terms and nature of the agreement, he did not in truth abuse the position that he held. He would normally discharge that burden—as, for instance, now at least occurs in husband and wife cases—by showing that the defendant entered into the matter with his will fully unconstrained, usually with the benefit of independent legal advice.” (Emphasis added)
Fifth, in order to determine whether a transaction is explicable in terms other than undue influence, it is necessary to look at it in its context and to see what its general nature was and what it was trying to achieve for the parties: Turkey v Awadh (§ 32). Sixth, the critical question is whether or not the influence has invaded the free volition of the donor to withstand the influence. The donor may be led but she must not be driven; and her will must be the offspring of her own volition, not a record of someone else’s. There is no undue influence unless the donor if she were free and informed could say “This is not my wish but I must do it”: Drew v Daniel [2005] 2 FCR 365 (§ 36). Seventh, it is highly unlikely on the facts that the court would ever be justified in finding that undue influence consisted both of coercion and abuse of trust and confidence. People do not usually trust those who coerce them: Bank of Scotland v Bennett [1999] FLR 1115, 1135 (to which Lord Scott of Foscote referred in Etridge § 314). Lord Hoffmann made much the same point in R v HM Attorney General [2003] UKPC 22 (§ 24). Eighth, what I must look at is whether Mrs Thompson was caused to enter into the transaction by undue influence; and this necessarily means looking at the situation at the time the impugned transaction was entered into, rather than at subsequent events, save in so far as subsequent events cast light on what was happening before and at the time of the impugned transaction. A transaction into which someone enters of their own free will does not retrospectively become tainted by undue influence merely because the counter-party fails to perform his or her side of the bargain.
Daniel v Drew
[2005] EWCA Civ 507
Ward LJ
The judge’s directions as to the law.
He said that the relevant law was not in dispute and was contained in Lord Nicholls of Birkenhead’s speech in Royal Bank of Scotland v Etridge (No. 2) [2002] 2 AC 773 and he quoted from paragraphs 6 to 12 inclusive. In this part of his speech Lord Nicholls had found it “necessary to go back to first principles”. He explained in paragraph 6 that:-
“Undue influence is one of the grounds of relief developed by the Courts of Equity as a court of conscience. The objective is to ensure that the influence of one party over another is not abused.”
In paragraph 7 he explained how equity supplemented the common law which dealt narrowly with duress:-
“Equity extended the reach of the law to other unacceptable forms of persuasion. The law will investigate the manner in which the intention to enter into the transaction was secured; “how the intention was produced”; in the oft repeated words of Lord Eldon as long ago as 1807 (Huguenin v Baseley 14 Ves 273, 300). If the intention was produced by an unacceptable means the law will not permit the transaction to stand. The means used is regarded as an exercise of improper or “undue” influence and hence unacceptable, whenever the consent thus procured ought not fairly to be treated as the expression of a person’s free will. It is impossible to be more precise or definite. The circumstances in which one person acquires influence over another, and the manner in which influence may be exercised, vary too widely to permit of any more specific criterion.”
In paragraph 8 he drew the distinction between “overt acts of improper pressure or coercion such as unlawful threats” and the second form now commonly referred to as presumed undue influence which:-
“arises out of the relationship between two persons where one has acquired over another a measure of influence, or ascendancy, of which the ascendant person then takes unfair advantage.”
As he explained in paragraph 9:-
“Typically this occurs when one person places trust in another to look after his affairs and interests, and the latter betrays this trust by preferring his own interests.”
In paragraph 11 he pointed out that:-
“The principle is not confined to cases of abuse of trust and confidence. It also includes, for instance, cases where a vulnerable person has been exploited. Indeed there is no single touchstone for determining whether the principle is applicable. Several expressions have been used in an endeavour to encapsulate the essence: trust and confidence, reliance, dependence or vulnerability on the one hand and ascendancy, domination or control on the other. None of these descriptions is perfect. None is all-embracing. Each has its proper place.”
Judge Weeks, a very experienced judge, said this:-
“The reference to “exploitation of the vulnerable” in paragraph 11 was made in the context of what used to be called “presumed undue influence”. Although this is a case, if anything, of express undue influence, I think the reference is relevant because the exploitation of the vulnerable can be regarded as an example of unacceptable conduct where the consent procured ought not fairly to be treated as an expression of a person’s free will.”
The judge’s conclusion.
Having asked whether Margaret’s intention had been procured by unacceptable means he decided:-
“Mrs Drew was, in my judgment, a vulnerable person, unversed in business, anxious to avoid confrontation and eager to comply. Nicholas Daniel was younger and according to his aunt did not show her the respect she thought he should. I have heard him give evidence. He has a keen appreciation of his own interests and scant regard for those of others. “Unscrupulous” would be too harsh a description but he is, at the very least, insensitive. Again, in my view, “aggressive” would probably be too harsh and “forceful” might be a better description of his character.
He knew that if his aunt was given the chance to talk to her son or her solicitors the transaction would not proceed as he wished. He deliberately chose not to involve them, but to take advantage of his aunt’s naiveté in business matters. In my judgment the means by which her signature was procured is unacceptable. Mrs Drew’s consent, obtained in the circumstances that I have described ought not fairly to be treated as an expression of her free will.”
The appellant’s case.
In summary, Mr Batstone advances this case on behalf of the appellant, though only the first two submissions were set out in the grounds of appeal in the appellant’s notice.
i) It was necessary for the claimant, Aunt Margaret, to establish that her signatures had been procured by overt acts of improper pressure or coercion and the judge neither found that nor was there evidence to support any such finding.
ii) The judge was wrong to take account of her vulnerability: in doing so he elided actual and presumed undue influence.
iii) Lord Eldon’s often quoted words, “The question is, not, whether she knew, what she was doing, had done, or proposed to do, but how the intention was produced”, are applicable only in cases of presumed undue influence and so the judge erred in applying them here.
iv) To observe that the court would have to resolve the dispute cannot amount to unlawful or improper pressure.
v) The judge erred in the fact-finding exercise in that (i) he failed to weigh the medical evidence properly (ii) he failed to take into account the contemporaneous note written by the claimant (iii) he was wrong to find that Aunt Margaret was a vulnerable lady (iv) he failed to deal at all with the evidence of Nicholas and Mr Joint that he would leave the deed with her to decide at leisure whether or not to sign it (vi) accordingly, the judge made too great an invasion into the sanctity of understandings reached between individuals simply because one had been persuaded by the other.
Actual undue influence.
It is true that Lord Nicholls defined actual undue influence in terms of “overt acts of improper pressure or coercion such as unlawful threats”. He drew the distinction between cases of presumed undue influence and those where there was evidence of “specific overt acts of persuasion” or “overt acts of persuasive conduct”. Judge Weeks directed himself in accordance with that speech and for my part I cannot accept that he did not have those matters in mind. It is, of course, only one way of describing the first class of undue influence because, as Lindley L.J. observed in Allcard v Skinner (1887) 36 Ch.D 145, 183:-
“As no Court has ever attempted to define fraud so no Court has ever attempted to define undue influence, which includes one of its many varieties.”
His description at page 181 of the first category was this:-
“There are the cases in which there has been some unfair and improper conduct, some coercion from outside, some over-reaching, some form of cheating, and generally, though not always, some personal advantage obtained by a donee placed in some close and confidential relation to the donor.”
In the broadest possible way, the difference between the two classes is that in the case of actual undue influence something has to be done to twist the mind of a donor whereas in cases of presumed undue influence it is more a case of what has not been done namely ensuring that independent advice is available to the donor. I will return to the question of whether or not this is established in this case.
Mr Batstone is also correct in his submission that when Lord Nicholls included cases “where a vulnerable person has been exploited”, he was still dealing with presumed undue influence. Where I disagree with Mr Batstone is in his submission that the judge fell into the error of eliding the two classes of cases. He did not. He was clear that the reference to “exploitation of the vulnerable” was made in the context of presumed undue influence and that this case was “if anything, [one] of express undue influence”. He did not elide the two classes. He was, however, justified in treating the exploitation as a relevant factor because it “can be regarded as an example of unacceptable conduct where the consent procured ought not fairly to be treated as the expression of a person’s free will”. There is in any given case a vast penumbra of facts which bear upon the question whether actual undue influence was exerted. The vulnerability of one party must feature in that analysis. So does the forcefulness of the personality of the other. I can see no error in the judge’s approach.
I cannot accept Mr Batstone’s submission that Lord Eldon’s words apply only in the case of presumed undue influence. He draws support for that submission from this passage in Lindley L.J.’s judgment at page 181-182 which I cite at length:-
“The second group consists of cases in which the position of the donor to the donee has been such that it has been the duty of the donee to advise the donor, or even to manage his property for him. In such cases the Court throws upon the donee the burden of proving that he has not abused his position, and of proving that the gift made to him has not been brought about by any undue influence on his part. In this class of cases it has been considered necessary to show that the donor had independent advice, and was removed from the influence of the donee when the gift to him was made. Huguenin v Baseley was a case of this kind. The defendant had not only acquired considerable spiritual influence over the plaintiff, but was entrusted by her with the management of her property. His duty to her was clear, and it was with reference to persons so situated that Lord Eldon used the language so often quoted and so much relied on in this case. He said: “Take it that she (the plaintiff) intended to give it to him (the defendant): it is by no means out of the reach of the principle. The question is, not, whether she knew, what she was doing, had done, or proposed to do, but how the intention was produced: whether all that care and providence was placed round her, as against those, who advised her, which, from their situation in relation with respect to her, they were bound to exert on her behalf.” This principle has been constantly recognised and acted upon in the subsequent cases, but in all of them, as in Huguenin v Baseley itself, it was the duty of the donee to advise and take care of the donor. Where there is no such duty the language of Lord Eldon ceases to be applicable.”
I venture to think Mr Batstone has misunderstood the last sentence. What Lindley L.J. was saying is that if there is no duty of the kind which fixes the case in class two, then there is no need to question why the donor acted as she did. The court does not enter upon that enquiry unless the relationship of ascendancy, which is how Lord Nicholls described it, has first been established. Without that evidence a case of presumed undue influence simply would not get off the ground.
Nothing in Lindley L.J.’s judgment suggests that Lord Eldon’s dictum should be as narrowly confined as Mr Batstone submits. If there is no presumed undue influence then there is no need to inquire what prompted the relevant decision taken by the donor but if actual influence is under consideration the enquiry seems equally apposite. Lindley L.J. went on in his judgment on page 182 to examine the principle which underlies both classes of undue influence and he set it out in these terms:-
“Is it that it is right and expedient to save persons from the consequence of their own folly? or is it that it is right and expedient to save them from being victimised by other people? In my opinion the doctrine of undue influence is founded upon the second of these two principles. Courts of Equity have never set aside gifts on the ground of the folly, imprudence, or want of foresight on the part of donors. The Courts have always repudiated any such jurisdiction. Huguenin v Baseley is itself a clear authority to this effect. It would obviously be to encourage folly, recklessness, extravagance and vice if persons could get back property which they foolishly made away with, whether by giving it to charitable institutions or by bestowing it on less worthy objects. On the other hand to protect people from being forced, tricked or misled in any way by others into parting with their property is one of the most legitimate objects of all laws; and the equitable doctrine of undue influence has grown out of and been developed by the necessity of grappling with insidious forms of spiritual tyranny and with the infinite varieties of fraud.
As no Court has ever attempted to define fraud, so no Court has ever attempted to define undue influence, which includes one of its many varieties. The undue influence which Courts of Equity endeavour to defeat is the undue influence of one person over another; not the influence of enthusiasm on the enthusiast who is carried away by it, unless indeed such enthusiasm is itself the result of external undue influence. But the influence of one mind over another is very subtle …”
This passage, which I repeat applies to both forms of undue influence, demonstrates to me that in all cases of undue influence the critical question is whether or not the persuasion or the advice, in other words the influence, has invaded the free volition of the donor to accept or reject the persuasion or advice or withstand the influence. The donor may be led but she must not be driven and her will must be the offspring of her own volition, not a record of someone else’s. There is no undue influence unless the donor if she were free and informed could say “This is not my wish but I must do it”.
Any doubt that Lord Eldon’s words apply to both classes of undue influence is removed by paragraph 7 of Lord Nicholls’ speech which I have set out in paragraph 24 above where, when dealing with undue influence in general he expresses the view that the law will investigate the manner in which the intention to enter into the transaction was secured. Mr Batstone was forced to concede that Lord Nicholls was dealing with both forms of undue influence and that seems to me to be the end of his argument on this ground. The judge was perfectly entitled to pose the question he had to answer in terms culled from Lord Nicholls’ speech: “How was that intention procured and was it procured by unacceptable means?”
Winifred Carroll and Mary Jane Carroll v. Michelle Carroll
[2000] 1 I.L.R.M. 210
Supreme Court
Denham J
Undue influence — decision
There are two classes of transactions which may be set aside on the grounds of undue influence. They were described by Cotton LJ in Allcard v. Skinner (1887) 36 ChD 145 at p. 171 as:
The question is — Does the case fall within the principles laid down by the decisions of the Court of Chancery in setting aside voluntary gifts executed by parties who at the time were under such influence as, in the opinion of the court, enabled the donor afterwards to set the gift aside? These decisions may be divided into two classes — First, where the court has been satisfied that the gift was the result of influence expressly used by the donee for the purpose; second, where the relations between the donor and donee have at or shortly before the execution of the gift been such as to raise a presumption that the donee had influence over the donor. In such a case the court sets aside the voluntary gift, unless it is proved that in fact the gift was the spontaneous act of the donor acting under circumstances which enabled him to exercise an independent will and which justifies the court in holding that the gift was the result of a free exercise of the donor’s will …. In the second class of cases the court interferes, not on the ground that any wrongful act has in fact been committed by the donee, but on the ground of public policy, and to prevent the relations which existed between the parties and the influence arising therefrom being abused.
This case arises under the second class of case. Counsel for the appellant quite rightly accepted that this case falls into the latter category. He acknowledged that the relationship between Thomas Carroll Senior and Thomas Carroll Junior and the surrounding circumstances gave rise to the presumption of undue influence.
The legal situation arising on such relationship being established was described in Equity and the Law of Trusts in Ireland by Hilary Delany at p.482 as:
Once a relationship giving rise to a presumption of undue influence is established, and it is shown that a ‘substantial benefit’ has been obtained, the onus lies on the donee to establish that the gift or transaction resulted from the ‘free exercise of the donor’s will’ . As Dixon J put it in Johnson v. Butress (1936) 56 CLR 113 , 134–35, the evidence must establish that the gift was ‘the independent and well-understood act of a man in a position to exercise a free judgment based on information as full as that of the donee’ . The manner in which this presumption may be rebutted relates to two main issues; first the question of whether independent legal advice has been received and secondly, whether it can be shown that the decision to make the gift or transfer was ‘a spontaneous and independent act’ or that the donor ‘acted of his own free will’ .
I adopt this analysis of the law and apply it. In this case the presumption is established and a substantial benefit was obtained; thus the onus lies on the donee, the appellant, to establish that the transfer was the free exercise of the will of the donor, Thomas Carroll Senior. Thus, it was for the appellant to provide the evidence that the transfer was the independent and free gift of Thomas Carroll Senior. The issue then arising is whether there was evidence upon which the learned trial judge could be satisfied that the presumption was not rebutted. In analysing this the first matter is that of independent legal advice. Although it was submitted that Mr Joyce was the family solicitor on the evidence he appears to have been predominantly that of Thomas Carroll Junior. The legal advice relied upon was given by Mr Joyce. Mr Joyce was engaged and paid by Thomas Carroll Junior. It was Thomas Carroll Junior’s name which was on the file. In his evidence Mr Joyce referred to ‘his instructions’ . He appeared to misconceive his duty. Further, Mr Joyce did not know that the asset being transferred was practically the sole asset of Thomas Carroll Senior and so could not advise him fully or explain the consequences of his action. Nor did he know of the family, the relationships with the daughters, and so could not advise on this matter either. In light of the absence of this information he could not advise Thomas Carroll Senior appropriately.
In considering whether Thomas Carroll Senior acted of his own free will an important matter was whether or not the transfer was read over to Thomas Carroll Senior. There was no evidence of this even though the appellant was given an opportunity in the High Court to address the matter.
This case is not about the presence or absence of mental capacity. The onus is on the appellant to produce evidence to dislodge the presumption of undue influence.
The learned trial judge concluded, on this aspect of the case, at pp. 230– 231, that:
I am not satisfied that the [appellant] has established as a matter of probability that the transaction was the result of the free exercise of the donor’s will such as to rebut the presumption of undue influence. Mr Joyce allowed that in substance and fact he was acting as the ‘family solicitor’ in the transaction for both parties. He saw the donor on two occasions for a total of about 35–40 minutes, not all of which was devoted to the business of the transfer. It is clear the donor never read the transfer deed nor had it read to him by anyone else. While its contents were apparently discussed between him and Mr Joyce, I am not satisfied that any real consideration was given to the fact that the donor (a frail man, in dependent circumstances) was disposing of all his real assets without reserving to himself (by way of a revocation clause or by way of charging the property with his maintenance and support), any protection for his own future particularly in the event of a falling out with his son, or in the event of his son predeceasing him. It is, I think, clear that Philip Joyce was not aware of the family’s circumstances either in the context of the position of the other members of the family, the totality of the assets held by the family members or the assurances given by the donor to other members of the family including the plaintiffs as to their user of the Burke Street premises during their lifetimes. Thus, while I accept the evidence (which was not really disputed) that the donor was a man who was mentally alert at the date of the transfer, I am not at all happy that at the date of the transfer he had the necessary independent advice (whether it was that of a legal advisor or a competent and qualified lay person) such as would persuade me that the transaction was made of his own free will.
There was evidence before the learned trial judge upon which he could reach these conclusions of fact. Thus, I would affirm his determination.
Mr Dwyer submitted that for the respondents to succeed there should be evidence that Thomas Carroll Junior exercised undue influence on Thomas Carroll Senior. This submission was at the core of the appeal. Counsel argued strongly that as Thomas Carroll Junior himself had not unduly influenced his father that was sufficient to rebut the presumption. He argued that in this case Thomas Carroll Junior did not exercise undue influence, or in Mr Dwyer’s word, ‘wiles’ on Thomas Carroll Senior. That being the case, it being accepted that Thomas Carroll Senior was mentally capable, it was submitted that he could give away his assets as he wished. Mr Dwyer relied on the lack of undue influence exercised by Thomas Carroll Junior and referred to R. (Proctor) v. Hutton [1978] NI 139 .
However, this is not a case of actual undue influence being expressly exercised but is rather a case in which the relationship between the donor and donee has raised the presumption of undue influence. It is then for the appellant to rebut the presumption. The burden was described in Inche Noriah v. Shaik Allie Bin Omar [1929] AC 127 at pp. 135–136 by Lord Hailsham LC:
It is necessary for the donee to prove that the gift was the result of the free exercise of independent will. The most obvious way to prove this is by establishing that the gift was made after the nature and effect of the transaction had been fully explained to the donor by some independent and qualified person so completely as to satisfy the court that the donor was acting independently of any influence from the donee and with the full appreciation of what he was doing; and in cases where there are no other circumstances this may be the only means by which the donee can rebut the presumption. But the fact to be established is that stated in the judgment already cited of Cotton LJ [in Allcard v. Skinner [1887] 36 Ch D 145] and if evidence is given of circumstances sufficient to establish this fact, their Lordships see no reason for disregarding them merely because they do not include independent advice from a lawyer. Nor are their Lordships prepared to lay down what advice must be received in order to satisfy the rule in cases where independent legal advice is relied upon, further than to say that it must be given with a knowledge of all relevant circumstances and must be such as a competent and honest adviser would give if acting solely in the interests of the donor.
In R. (Proctor) v. Hutton [1978] NI 139 at p. 146 Lord Lowry described the different approaches to the different classes of undue influence. He stated:
When relying on ‘express undue influence’ the plaintiff must prove that an unfair advantage has been gained by an unconscientious use of power in the form of some unfair and improper conduct, some coercion from outside, some overreaching, some form of cheating. The undue influence which is presumed in the second class of case is influence of the same kind: the difference lies in not being able to prove its exercise but, by virtue of the presumption, undue influence is deemed to have been exercised until its exercise is negatived on a balance of probabilities by evidence.
It is clear that what is at issue is whether the donee has taken advantage of his position or
… been assiduous not to do so. The question can only be answered in each case by a meticulous consideration of the facts: Hanbury, Modern Equity (9th ed.), p.652.
I am satisfied that this is the correct approach. In this case, the presumption existing, it was then necessary to conduct a careful analysis of the facts. On the facts it was a matter of determining if the donee, Thomas Carroll Junior, had taken advantage of his position or had been assiduous not to do so. This was not a case where the issue was whether Thomas Carroll Junior had taken advantage of his position expressly. Rather it was a case where in the circumstances assiduous care should have been taken not to take advantage of the position of Thomas Carroll Senior.
The learned trial judge conducted a painstaking analysis of the facts as has been set out fully in this judgment. I am satisfied that the appeal was argued on a mistaken approach to the law. The reason for the equitable law to protect Thomas Carroll Senior is one of public policy — to protect a frail person. As Cotton LJ said in Allcard v. Skinner at p. 171:
In the second class of cases the court interferes, not on the ground that any wrongful act has in fact been committed by the donee, but on the ground of public policy, and to prevent the relations which existed between the parties and the influence arising therefrom being abused.
Thus, the issue is whether on the facts and circumstances of the case the donee has rebutted the presumption of undue influence. The facts and circumstances of this case were fully considered and determined by the learned High Court Judge. In this case the donor was giving away practically his sole asset and the learned trial judge made careful findings of fact about the transaction.
The conclusions reached in Inche Noriah are analogous on the law and facts to those found by the learned trial judge. In that case Lord Hailsham, describing amongst other matters the conduct of the lawyer Mr James Aitken, stated at p. 136:
In the present case their Lordships do not doubt that Mr Aitken acted in good faith; but he seems to have received a good deal of his information from the respondent; he was not made aware of the material fact that the property which was being given away constituted practically the whole estate of the donor, and he certainly does not seem to have brought home to her mind the consequences to herself of what she was doing, or the fact that she could more prudently, and equally effectively, have benefited the donee without undue risk to herself by retaining the property in her own possession during her life and bestowing it upon him by her will. In their Lordships’ view the facts proved by the respondent are not sufficient to rebut the presumption of undue influence which is raised by the relationship proved to have been in existence between the parties; and they regard it as most important from the point of view of public policy to maintain the rule of law which has been laid down and to insist that a gift made under circumstances which give rise to the presumption must be set aside unless the donee is able to satisfy the court of facts sufficient to rebut the presumption.
The learned trial judge reached a similar conclusion on the law in this case. I am satisfied that he was correct, it was not necessary to prove specific acts of undue influence by Thomas Carroll Junior. The evidence as a whole must be considered to see whether the presumption of undue influence has been rebutted. This was done most carefully by the learned trial judge. I would affirm his decision on this aspect of the appeal.
Improvidence of the transaction — decision
Thomas Carroll Senior was disposing of practically his only asset. At the time he was frail. He did not retain any right of maintenance or support. I have already analysed the nature of the legal advice he received and affirmed the decision that it was inadequate. In all the circumstances, as described above, it is clear that Thomas Carroll Senior was an unequal party. In Grealish v. Murphy [1946] IR 35 at pp. 49–50 Gavan-Duffy J stated:
The issue thus raised brings into play Lord Hatherley’s cardinal principle (from which the exceptions are rare) that equity comes to the rescue whenever the parties to a contract have not met upon equal terms, see Lord Hatherley’s judgment (dissenting on facts) in O’Rorke v. Bolingbroke 2 App Cas 814 ; the corollary is that the court must inquire whether a grantor, shown to be unequal to protecting himself, has had the protection which was his due by reason of his infirmity, and the infirmity may take various forms. The deed here was in law a transaction for value: Colreavy v. Colreavy [1940] IR 71 ; however tenuous the value may have proved to be in fact, and, of course, a court must be very much slower to undo a transaction for value; but the fundamental principle to justify radical interference by the court is the identical principle, whether value be shown or not, and the recorded examples run from gifts and voluntary settlements (including an abortive marriage settlement) to assignments for a money consideration. The principle has been applied to improvident grants, whether the particular disadvantage entailing the need for protection to the grantor were merely low station and surprise (though the grantor’s rights were fully explained). Evans v. Llewellin 1 Cox Eq Cas 333 ; or youth and inexperience: Prideaux v. Lonsdale 1 De GJ & S 433 ; Everitt v. Everitt 10 Eq 405 ; or age and weak intellect, short of total incapacity, with no fiduciary relation and no ‘arts of inducement’ to condemn the grantee: Longmate v. Ledger 2 Giff 157 ; Anderson v. Elsworth 3 Giff 154 . Even the exuberant or ill-considered dispositions of feckless middle-aged women have had to yield to the same principle: Phillipson v. Kerry 32 Beav 628 ; Wollaston v. Tribe 9 Eq 44 .
He also concluded at p. 51:
In my judgment, without any regard to any question of undue influence, upon Lord Hatherley’s principle and the concurrent authorities the plaintiff by reason of his own weakness of mind, coupled with the deficiencies in the legal advice under which he acted and his unawareness, is entitled to have the improvident indenture of settlement, dated 24 October 1942, set aside and the Register of Freeholders rectified.
Whilst one might not agree with all of the classifications recognised by Gavan Duffy J the legal principle is stated clearly and is applicable to this case.
In light of the evidence of the omissions in relation to the legal advice given, the fact that there was no evidence that the transfer was read over to Thomas Carroll Senior, his frail health, his lack of practically any other assets, his relationship with his daughters and all the circumstances, there was clear evidence upon which the learned trial judge could come to the determination, which he did, at p.232, that:
This in my view is a clear case where the equitable jurisdiction can and should be invoked with a view to setting aside the transaction on the grounds of its improvidence.
I would affirm his conclusion.
Acquiescence Laches — decision
I am satisfied there are no grounds raised upon which the appeal on this point could succeed. On the evidence the respondents learnt of the transfer, obtained a copy thereof and issued proceedings all well within one year. I am satisfied that the learned trial judge was correct in his conclusion that there was no acquiescence by the respondents. Consequently, I would dismiss the appeal on this ground also.
Conclusion
I affirm the judgment and order of the High Court that the deed of 3 May 1990 should be set aside.
Grealish v Murphy
[1946] IR 35
Gavan Duffy J. 45
The settlement purports to make Peter Grealish, as beneficial owner, assign the farm absolutely as from Peter’s death to Thomas Murphy, his heirs and assigns, subject to a life interest in Peter; the land is expressly charged with a right for Murphy to reside in Peter’s house and to be supported and maintained out of the land during Peter’s life; Murphy for his part covenants with Peter, during Peter’s life, without reward to reside in the house and work and manage the land and sow and harvest the crops and attend to and take proper care of all farm stock and implements and the buying and selling of stock and generally to perform all the farm work and the duties of a labourer as required by Peter and (a very important covenant) duly and properly to account for all moneys expended or received by him on behalf of Peter; and Murphy covenants to pay Peter £1 a week for every week in which he fails to reside with Peter and to indemnify Peter for any loss and expense incurred on the maintenance or wages of any person employed by Peter to perform any work that Murphy may fail to do.
Thus Peter executed an improvident settlement, surrendering irrevocably his own absolute title for a life interest in consideration of personal covenants, backed by no adequate sanctions; the farm itself was hypothecated to secure the newcomer, beside whom Peter was a Croesus; and Peter was to be left for the remainder of his life very much at the mercy of a rather impecunious young man, who had no ties of blood and was still unproved as a friend. I think effective safeguards for Peter could have been devised, if there was to be a settlement, or alternatively Peter might have contracted to settle the property on Murphy by will, upon the lines suggested by Coverdale v. Eastwood (1);whatever plan was adopted, I think that suitable conditions could and should have been determined in negotiation between the solicitors for the parties, each of whom ought to have been separately represented. But these reflections are otiose, if the conclusive answer to Peter’s present claim is that he was separately advised by an independent solicitor.
That contention deserves careful examination and I have examined it with great care. I am satisfied that Peter received from an experienced solicitor advice that was absolutely independent and I am satisfied that the draft deed was settled by very able counsel, upon instructions reflecting, of course, the state of mind and knowledge of the solicitor. Nevertheless, the question of Peter’s actual understanding of the solemn document that he executed on October 20th, 1942, is a question of first importance. Dr. Comyn, who avows that he looked upon the settlement as a transaction similar to the three attempts which, as Peter told him, had broken down, says that he was absolutely satisfied that Peter understood the instructions he gave for the deed. I have no doubt that Peter did know that the deed would secure the land to Murphy at Peter’s death and that he knew generally the undertakings that Murphy was giving in return; Peter showed his own understanding of the young man’s obligations, when he formulated his grievance in his own words:”He (Murphy) did not do anything about the agreement; he failed. . . . He was bound to look after me and buy and sell and give up the moneywhat he did not do.” But the trouble is that the solicitor, whose advice was essential to Peter, did not advise en connaissance de causeand that Peter’s actual knowledge of what he was doing fell very short of the knowledge that the settlor ought to have had. That is the result in my mind of candid evidence from Dr. Comyn himself and of inferences thereform. Consequently the principle of Harrison v. Guest (1) and Coomber v.Coomber (2), that a competent assignor, who knows what he is doing, must be held to his deed, does not apply here.
The evidence proves that the solicitor did not know all the material facts, that he did not give Peter a complete explanation of the nature and effect of the deed, and that the duty of illuminating Peter’s benighted mind was more imperative and more formidable, if the task was possible, than the solicitor supposed.
First. Dr. Comyn did not get the facts. He did not ascertain the total of Peter’s property, nor the proportion between that total and the value of the farm at Carnmore; yet that was relevant and material information for an adviser. Still more important to be known was the fact that Peter had already placed £2,000 on deposit in the joint names of himself and Murphy, with Murphy’s ready acquiescence, under the illusion, known to Murphy, that this device would ward off the imaginary terrors of Dublin Castle. Murphy, knowing Peter for what he was, could not assume that Peter had mentioned the episode, still less that he had given an accurate account of it; Murphy ought to have told the solicitor all about it, but he persisted in his curious policy of silence. Perhaps Murphy did not know positively how silly Peter’s ruse was as a measure of defence, but he is intelligent enough, in my estimate of him, to have felt the transaction to be one of questionable virtue and of very dubious value, and, both for this reason and because he stood to gain a large sum of money from his pitiable patron, he ought to have spoken out at this juncture. Here was cogent evidence, had the solicitor and counsel known it, that Peter was and would be incapable of taking care of his own interests and that Peter and Murphy combined were and would be unequal to the burden of taking care of his property. Instead of favouring the projected settlement, as he did, Dr. Comyn must have gone into the whole affair very much more warily, had he known. He did not know, because, by agreement or coincidence, each of the two men vitally concerned said nothing.
Secondly. Peter was not told and did not realise how gravely he was committing himself and jeopardising his own interests; he probably understood neither the immediate pledging of his favour to Murphy nor the effect of that charge; certainly the difference between this deed and a will was not explained to him, nor the fact that the settlement was to be irrevocable and his alienation irretrievable, no matter how badly Murphy might behave, no matter what untoward development might supervene; and he was certainly not a man to apprehend the risks, at least without the clearest and most insistent exposition of them. What precautions were taken in the deed against the vicissitudes of life? Murphy might have mismanaged the farm hopelessly, for all the solicitor could tell; or, for all he could tell, Murphy might have taken to drink or gone to the devil or married a shrew who would make Peter’s life a torture; he might have become a bankrupt; he might have been sent to hospital for years, or been committed for some time to an asylum; he might even have been sentenced to imprisonment. Unlikely events, very unlikely? Perhaps, but why do I insure my house against fire, and how was the solicitor, a stranger to Murphy, to gauge the probabilities of an ensuing incapacity or incompetence? An act of God is always unlikely (before it happens) and the devil’s action may often seem unlikely too. And if some such calamity had smitten Peter, the law might or might not have given him some costly redress. It was unlikely, perhaps very unlikely, that the young man would predecease the old; but how deplorable would Peter’s position have been, if Murphy had died after a few months’ work under the deed and perhaps twenty years before Peter himself! However, Peter’s advisers had no more dark forebodings than their client. Clearly there were some important aspects of the deed far outside poor Peter’s ken, when he scratched his rude mark upon the paper.
Thirdly. The solicitor quite erroneously considered and treated Peter as a normal member of the farming community; in fact I think he treated him as a man of high intelligence. Taking his client to be a competent judge of his own man, the solicitor, who just knew Murphy to be a farmer’s son and no relative and Peter’s dumb attendant, made no inquiries at all as to Murphy’s antecedents, character, capacity or financial position; he assumed both the fitness of Murphy and the value of his covenants; he did not suspect how easily the young man might become master of the situation, nor how much he would be tempted to abuse his trust; and the deed reflects that kindly confidence; whether Dr. Comyn seriously expected Murphy to keep accounts, I do not know. No need was felt to appoint trustees; perhaps they would have been hard to find, but, had the solicitor realised the settlor’s weakness, he would have seen that Peter required and must have the protection for which trusts were invented. Unless there be a legal presumption of undue influence against Murphy, making other questions quite subordinate, I regard it as a matter of high importance that Peter’s advisers in this particular transaction should have been equipped to advise him with a just appreciation of his mental debility and his special need of protection. They were not so equipped and Peter did not get the circumspect advice and protection so necessary to him.
Now, how is Murphy affected by any criticism reflecting upon the advice under which Peter acted? I have shown that Murphy’s own conduct in the matter was not beyond reproach, but any impartial person will see that it is quite impossible to say that the deed was procured through Murphy’s undue influence, even if he did his part during nearly nine months, as he naturally would, to keep the old man’s ardour alive. Nor is this the familiar case in which the Court, from the relation of the parties, must presume undue influence until disproved positively by the recipient of the bounty; Murphy had constituted himself Peter’s interim confidential agent in January, 1942, and had thus placed himself in a very delicate position, an exceptionally delicate position in view of Peter’s mentality; but the undoubted fact is that some such transaction as that eventuating in the actual settlement had been expressly envisaged by the parties from the outset, before Murphy can have acquired any influence whatsoever; therefore I cannot fairly impute to him Peter’s decision to put the business on a legal basis as soon as the way was made clear by the final elimination of the Fox interest, the only obstacle. And Murphy in no way interfered with the drafting of the deed in the particular form which it took.
Peter had intended all through to leave the property to Murphy and to bind himself to that effect, in return for the precious services to be rendered by the vigorous young man to the rather helpless old one. As from January, 1942, Murphy had only to be kind to Peter, as he was, and to retain his goodwill, as he certainly did, in order to secure his reward from that eager benefactor. Besides, the plan was not originated by Murphy, but by Peter, and by Peter alone. Murphy on his side had faced appreciable risks in accepting Peter’s advances; and any picture of him as an adventurer, inveigling his witless victim into a trap in the October settlement, would be a caricature. Much as I blame Murphy for his reticence (partly perhaps through ignorance) as to the existence of his own solicitor and for his want of candour in suppressing the eccentric and disquieting £2,000 deposit in the joint names, I could not in common sense treat these faults as any evidence of undue influence in relation to the settlement on the facts; and, if Murphy throws doubt on the veracity of his own evidence concerning Peter’s alleged original offer to settle money on him, by his failure to mention that important promise to Dr. Comyn and his failure to call upon the solicitor to make good that promise in the deed, here again my criticism of Murphy as a witness is foreign to the issue of undue influence in fact and remote from any evidence that would raise a legal presumption of undue influence against Murphy, so far as the settlement is concerned.
The result is that the plaintiff’s attempt to set aside the deed on the ground of undue influence, whether actual or presumptive, by Murphy cannot succeed, and, if the deed had to stand or fall upon that issue, there would be nothing more to say. But the position in law as I see it, upon the pleadings, is not so simple as that; there is another crucial matter to be determined.
Peter cannot avoid the deed for undue influence; but his claim is further based on the improvidence of the transaction and also he directly alleges (though in connection with the charge of undue influence) his own mental incapacity; I think I can reasonably read these averments together without calling for an amendment of his pleadings.
The issue thus raised brings into play Lord Hatherley’s cardinal principle (from which the exceptions are rare) that Equity comes to the rescue whenever the parties to a contract have not met upon equal terms, see Lord Hatherley’s judgment (dissenting on facts) in O’Rorke v. Bolingbroke (1);the corollary is that the Court must inquire whether a grantor, shown to be unequal to protecting himself, has had the protection which was his due by reason of his infirmity, and the infirmity may take various forms. The deed here was in law a transaction for value: Colreavy v. Colreavy (2);however tenuous the value may have proved to be in fact, and, of course, a Court must be very much slower to undo a transaction for value; but the fundamental principle to justify radical interference by the Court is the identical principle, whether value be shown or not, and the recorded examples run from gifts and voluntary settlements (including an abortive marriage settlement) to assignments for a money consideration. The principle has been applied to improvident grants, whether the particular disadvantage entailing the need for protection to the grantor were merely low station and surprise (though the grantor’s rights were fully explained): Evans v. Llewellin (1), or youth and inexperience: Prideaux v. Lonsdale (2); Everitt v. Everitt (3), or age and weak intellect, short of total incapacity, with no fiduciary relation and no “arts of inducement” to condemn the grantee: Longmate v. Ledger (4); Anderson v. Elsworth (5).Even the exuberant or ill-considered dispositions of feckless middle-aged women have had to yield to the same principle: Phillipson v. Kerry (6); Wollaston v. Tribe (7).
The principle prevailed, when the deed was “the most honest thing in the world” so far as the settlor and her solicitor were concerned: Everitt v. Everitt (3), and though the evidence of the solicitor acting for the grantor was fully accepted: Phillipson v. Kerry (6), and again where the deed had been prepared by the grantor’s own solicitor, a man of honour, but the grantor, while fully understanding the benefit to accrue to the grantee, had not fully understood the effect of her deed as it affected her own interests: Anderson v. Elsworth (5); in several other instances the inadequacy of the explanations given to the grantor has been a conspicuous, indeed a decisive, factor in the Court’s action against an improvident deed, the Court either assuming: Prideaux v. Lonsdale (2), or having direct evidence: Phillipson v. Kerry (6); Wollaston v. Tribe (7), to prove a serious lack of understanding. The least the Court can demand is that an infirm grantor shall have known what he was doing. In the much more frequent, but analogous, instances of deeds attacked for undue influence the Judicial Committee has insisted that the donor must have had a complete explanation of the nature and effect of the transaction, from an advisor who himself knew all the relevant circumstances: Inch Noriah v. Shaik Allie Bin Omar (8), even where the advisor was selected by the donor: Williams v. Williams (9),and the same imperative requirement was stressed in a transaction for value by Isaacs J. upon a deed closely resembling the deed in this action in some aspects, but obtained by undue influence: Watkins v. Combes (1).
In my judgment, without any regard to any question of undue influence, upon Lord Hatherley’s principle and the concurrent authorities the plaintiff by reason of his own weakness of mind, coupled with the deficiencies in the legal advice under which he acted and his unawareness, is entitled to have the improvident indenture of settlement, dated October 24th, 1942, set aside and the Register of Freeholders rectified.
I may add that the balancing of equities is not complicated here by any plea of estoppel, nor have I on the evidence any reason to suppose that the defendant has suffered any prejudice worth mentioning through executing the settlement.
Bourke -v- O’Donnell & Ors
[2010] IEHC 348 (5 October 2010)
Judgment of Mr. Justice Hedigan delivered on the 5th day of October, 2010
1. The plaintiff is a widow and resides at Portumna Retirement Village in the County of Galway. She was born on the 22nd May, 1930.
2. The first and second named defendants are husband and wife and reside at Shannon Park, Portumna in the County of Galway. The third named defendant is a publicly quoted company having their registered offices at Lower Baggot Street in the City of Dublin.
3. The plaintiff claims against the first and second defendants damages in respect of an alleged improvident transaction in which she was induced to make a gift to the first and second named defendants of €124,000 being the full amount of an insurance policy recently cashed by her. Against the third named defendant the plaintiff claims damages for negligence and breach of contract in causing or permitting the plaintiff to enter into such an improvident transaction.
4. The background:
4.1 The plaintiff at the time of this impugned transaction was 77 years old. Her family have been associated with Portumna Bridge for a number of generations. Her father in his time was the man who opened the bridge to allow boats pass through on the Shannon River either en route to Lough Derg and south or north to Banagher and beyond. She was married but had no children. When her husband died in 1994 she moved back to the Bridge where she lived with her brother who had succeeded his father on the Bridge. She herself operated the Bridge and was apparently well known to travellers on the river and locals as the woman who opened the Bridge. When her brother died eight years ago, she remained on in the Bridge House. She has no close family. Her only family with whom she has regular contact seems to be her nephew, Robert Butler. He lives in Birmingham where he works as a window fitter. He visited her four to five times a year.
4.2 The plaintiff knew the defendants for many years. The first defendant used to come to the house while her brother lived. He used to do messages for them and was paid therefor. The defendants helped to look after the plaintiff and she paid them. The first defendant had a key to the house. For at least some time the first defendant had possession of her Old Age Pension book. He returned it at some stage to her nephew at his request. Her OPW pension went to the Killimer Nursing Home.
4.3 The plaintiff has been in poor health for many years. In June 2007 she had a bad fall. She was suffering from several large lacerations and widespread skin infections. She was and had been for many years suffering from chronic lung disease. This resulted in lung infections during which she becomes a little confused according to her GP. She also suffered from cirrhosis of the liver. She was admitted to Portiuncula Hospital on the 6th June, 2007. She was very ill. She remained there until 11th June, 2007 when she was transferred to Killimer Nursing Home. She was confused and disoriented in time and place. She was considered dangerously ill. Over the following six weeks she improved but remained confused. She required re-admission to hospital for just over two weeks and returned to the nursing home on 24th August, 2007. She was noted by the nursing home at that time as being confused at all times. Her GP, Dr. Murphy, agreed with that assessment. On further reports by the nursing home dated 28th September, 2007 she was still confused at all times – her GP again agreed. On 18th October, 2007 she was reported as intermittently confused – her GP agreed, explaining she was fine some days but confused others. On the 23rd November, 2007 she was reported orientated at all times, was much better, was mainly good in conversation but sometimes confused. On the 3rd December, 2007 she was transferred to Portumna Retirement Village and Nursing Home. She was brought there by her nephew, Richard Butler. On the 7th December, 2007 her GP reported her as lucid. He did not ask her any searching questions as this was a routine visit. He recorded no comments. This was on the day following the events in question.
4.4 On the 4th December, 2007 the plaintiff went to the bank (the third defendant) in company with her nephew. She lodged three cheques totalling €1,264.01 and withdrew €1,200. These related to overpayments to the nursing home. The money withdrawn was given by her nephew to Portumna Nursing Home. There is disagreement as to whether her nephew saw an account with a balance of €124,000. He stated in evidence he was given two statements of dormant accounts. It is clear from the evidence that at this time there was one account (No. 40905779) with a balance of €15,635.85. There was another account (No. 46405265) with a balance of €124,452.84. The vast bulk of this amount was the proceeds of an insurance policy cashed on the 15th November, 2007.
4.5 On the 6th December, 2007, the first and second defendants signed the plaintiff out of the nursing home and brought her to the bank. The plaintiff insisted throughout her evidence that she had no recollection whatever of the visit or the events that occurred at the bank. The party arrived at the bank and the plaintiff was noted by Ms. Marie Bourke to be in good form and using a walking stick. They asked to see the manager, Ciaran Ryan, and he did so. The manager had not met either the plaintiff or the defendants before. Ms. Bourke did know the plaintiff but not well. She described her as a very independent lady who did her business and left. When they settled into the office the plaintiff told the manager she wanted to give some money to her neighbours, the first and second defendants. The manager looked at her accounts and saw €16,000 in one and €124,000 in the other. The manager could see the €124,000 was largely composed of an insurance policy cashed recently. This was obvious from the code on the account entry. She said she wanted to give them €124,000. The manager asked the defendants to leave the office to enable him speak privately with the plaintiff. He talked to her about the proposal. She said they had been very good to her and she wanted to do something for them. He advised her to give a smaller sum but she insisted. He asked her about her family and she said she had no sons or daughters and did not mention any other family. He recommended that she seek independent legal advice. She replied she understood but wanted to go ahead. He explained he would do the transaction by way of a bank draft. This meant, he explained, that once the draft was handed over it was the defendants’ money. The manager was of the view that she knew her business and knew what she wanted. He did not think she was confused nor did she “drift away” while speaking to him. He did not consider ringing her solicitor because she was a customer and she knew what she wanted to do. He told her if she was happy to go ahead he would give her the draft. The manager did not know she was living then in a nursing home and he filled in her address on the withdrawal form as Bridge Road, Portumna. When he had filled in the withdrawal form, he wrote on the form;
“Spoke to Mary alone in relation to transaction. Happy she of sound mind and was able to carry out her expressed wish. It was clear to me she was not under duress.
See Ryan (?)”
He then made out a draft in favour of the defendants. The party left the bank. Later in the day the defendants returned and deposited the draft in their account. In the defence the defendants stated (para. 19) that they “subsequently dissipated the monies or the preponderance thereof …”
4.6 The above events came to the attention of Robert Butler, the plaintiff’s nephew who visited her regularly from his home in Birmingham. He used to visit four to five times a year. In 2007 he visited about once every month. In February 2009 he became aware from Richard Bourke, another nephew, that the plaintiff had an insurance policy. He ascertained from the insurance company that this had been cashed in November 2007 and had been lodged in the plaintiff’s bank in Portumna. He returned immediately and visited the plaintiff. She indicated she knew nothing about cashing the insurance policy. He went with her and his former partner, Karen, to the bank. He saw the manager who confirmed that the insurance policy had been cashed and that the full amount of it had been paid out by way of bank draft in favour of the first and second defendants. Following this visit to the bank, they visited the plaintiff’s solicitors and subsequently these proceedings were issued.
5. The evidence
5.1 Mary Bourke, the plaintiff, gave evidence as follows. She used to live at the Bridge, Portumna. Her father worked on the Bridge for many years. She left and got married. She had no children. On the 31st March, 1994 her husband died. She returned to the Bridge to live there with her brother who had succeeded her father on the Bridge. He died eight years ago. She continued to live in the house on her own. She knew the first and second named defendants at the time when her brother lived and worked on the Bridge. George O’Donnell used to come to the house there. He used to do messages for her or for her brother. She used to pay him for whatever he did. She stated that she did not remember being in hospital in June 2007. She did remember being in the nursing home in Killimer. She recollected that Dr. Murphy was her general practitioner. She moved from Killimer to Portumna Nursing Home on the 3rd December, 2007. Her nephew brought her. She gave the key of the house to George O’Donnell. He used to visit her in the nursing home. She said she did not remember visiting the bank in Portumna on the 6th December, 2007. She subsequently became aware of a problem with her account in Portumna. She was told that her insurance money was missing. She said her nephew told her that €124,000 was gone from the account. She said her nephew told her the money was gone. When told this first she said she could not believe it but eventually she did and she was mad. She said she had paid the O’Donnells for whatever they did. She said she never wanted to give them the money. She said she was certain she never wanted to give them any of her money.
On cross-examination by counsel for the first two defendants she stated that she had lived a mile from the O’Donnells. She agreed her nephew had brought her to Portumna Nursing Home. As to three days later and the visit to the bank, she said she did not know anything about going to the bank. She did not remember discussing her life policy with the bank manager a week before. A week before she said she was living at her own home. She said George O’Donnell did not lodge anything to her account. She agreed they had looked after her but insisted she paid them. She stated the insurance money was cashed by the O’Donnells but did not know when. She denied she had ever told them that Robert (her nephew) had enough money. She said her nephew lived in England and came home about twice a month. She remembered nothing about going to the bank. She speculated she must have been on medication at the time. She said she handed her pension into the nursing home. She did not remember if she signed the insurance policy to be cashed. She remembered investing €20,000 in the insurance policy originally. She was at that time in the bank when she met the bank adviser and the insurance policy followed.
Cross-examination by counsel for the third defendant
The plaintiff said that she had one account in the bank. She never knew that the insurance money amounted to €124,000. She did not recall the car journey to the bank. Ms. Marie Bourke may well have been in the bank at the time but she did not recall meeting her, she did not recall meeting Mr. Byrne, she did not in fact remember anything about that visit to the bank. She agreed the signature on the withdrawal slip was hers. She agreed she had gone to the bank with her nephew on the 4th December, 2007 and lodged three cheques totalling €1,264.01 and withdrew €1,200. She also lodged €287 and withdrew €187. She agreed she saw her general practitioner the next day and that she was not confused then. She said her nephew told her about the dealings in the bank on the 6th December, 2007 but she did not know how. She said her nephew got Mr. Collins, solicitor, to issue proceedings. She did not remember any dealings since – she did not have any business in the bank now. She did not know whether the bank sent her statements. She agreed the bank had no reason to know she was not well.
5.2 Robert Butler gave evidence that he lived in Birmingham in the United Kingdom where he was a window fitter. He said he used to come to visit his aunt four to five times a year. In 2007 he was coming home about once every month. He knew her brother Sean very well. He was in fact there when Sean died. He thought that around 2002 she had broken her leg. He knew she was in Portiuncula Hospital and was moved into Killimer Nursing Home in June 2007. He had met the O’Donnells once. George had a key to the house. He himself had arranged her move to Killimer Nursing Home. She was in receipt of two pensions – an Old Age Pension and an Office of Public Works pension. He retrieved her OAP book from George O’Donnell. The OPW pension went to Killimer. He himself had arranged that. In July of 2007, in Portiuncula Hospital she did not know who he was. In August, she also had not a clue who he was. She seemed drugged, blank and tearful. He himself arranged her move to Portumna. He sorted it out. He thought she was very unhappy in Killimer. It was a kind of mental hospital. He sorted out the Portumna move including the change of pensions. He recollected he had collected Mary from Killimer at 9.30am. She was very chirpy and knew who he was. Portumna is a nursing home and it is located in her home town. It is very nice and he thought she would be very happy there. The Killimer Nursing Home gave him some cheques in relation to overpayments. On the 4th December, 2007 he went with Mary to the bank at about 12.30. He talked to an official. There were two accounts. Both were dormant with no transactions. There was €16,000 in each. He deposited cheques and took money out to give to Portumna. He only became aware of the current problem in February 2009. He had been talking to Richard Bourke (another nephew of Mary through her husband). He told him that he thought she had an insurance policy. He checked with the insurance company. They said it had been cashed in December 2007 in an amount of €108,000. It had been lodged in Portumna. He came straight back and saw Mary. She knew nothing about cashing the insurance policy. He went to the bank with Mary and with his then partner, Karen. He saw the manager. The manager indicated that he had no time to meet him until he mentioned the name of Mary Bourke and then he said to come straight into his office. He confirmed there had been a bank draft in an amount of €124,000. The manager confirmed that no ID was used during the transaction. He said that he knew Mary Bourke. He confirmed that he had made no inquiries about where she was living. When asked why he wrote on the bank draft the words that he did, he said, “I thought it might come back and bite me on the bum and it has now”.
Cross-examination by counsel for the first and second defendants
She was not unhappy to leave Killimer. In fact she was very happy to do so. He confirmed it was himself who had pressed her on the question of where the money had gone. She did not know anything about the €108,000. He never inquired about her financial affairs.
Cross-examination by counsel for the third defendant
As to the OPW cheque, she hands both pensions to the Home she is in now. In Killimer she was very confused but getting better. Whilst she was there there was a drastic change for the better. From summer 2007 she was confused but getting better. Sometimes she was clear, other times confused. She did not like Killimer. She was strapped into a chair. He agreed she was coming round. By the 15th November, 2007 she was released by the HSE. Around November he told Mary she was going to be transferred to Portumna. Killimer is eight miles from Portumna. He wanted her to go back where she came from. He found out about the life policy by talking to her other nephew, Richard. “We found out it had been cashed by ringing the insurance company”. When he talked to Mary about cashing this insurance policy, she knew nothing of it. On his visit to the bank on the 4th December, 2007, he confirmed he got two statements, both of them in relation to dormant accounts. He denied that he was shown the account of €108,000. He was quite definitive that he was not shown it. In February 2009, having returned from Birmingham to meet Mary, he went to the bank with her and met the bank manager. He agreed that he was the one who was taking up the cudgels in this matter. He said he told the bank she was in a nursing home. He said he had told them this when he visited with her on the 4th December, 2007. He said he told the lady at the counter this. When challenged that this has never been mentioned before in pleadings or anywhere else, he stated that he did not mention this matter before because he did not think it relevant. He stated that he went to Mr. Collins, solicitor, in February 2009 and got a power of attorney. Through 2008 and 2009 she was getting better all the time. In July 2008 she seemed to drift but was getting better. She was a bit in and out.
Re: examination
When I went to the bank on 4th December, 2007 I had some cheques from Killimer. I lodged them. The lady looked at them. In February 2009, when I went to the bank, I was shown the withdrawal slip with writing on it. I asked the manager why he had written on the withdrawal slip that Mary was of sound mind.
5.3 Dr. Sean Murphy
Dr. Murphy stated that he had been in practice since 1971 in Portumna. He had known the plaintiff since 1978. He saw her then. The next time he saw her was in 1987. She had liver damage. 1993 was her next consultation. In 2000 she was living with her brother on the Bridge. In 2004 she was mentally ok. She called in once a month with chest infections generally. A Miss Spain from the town used to call in to help her but there was some sort of a falling out. On 5th June, 2007 she had had a fall. She was very ill and was removed to hospital. After five days she was transferred to Killimer. On 11th June, 2007 she was mentally ok. Afterwards in Killimer she became very confused. On the 16th July, he signed a restraint order. In a falls assessment dated 20th July, 2007 her mental state was noted as “intermittent confusion”. This means coming and going from time to time. With him at the time she was very confused. On the 24th August, 2007 report she was confused at all times according to the nursing home records and he agreed with this assessment. On the 28th September, 2007 report of the nursing home she was confused at all times and he agreed with this also. On the 18th October, 2007 report she was described as intermittently confused. He agreed with this also. Some days she was fine and others she was confused. On the 23rd November, 2007 she was orientated at all times. She was much better in conversation. She was mainly good, sometimes confused. He agreed with this assessment also. In relation to her leaving Killimer he was surprised that she was leaving. When he saw her on the 27th November, 2007 he told her it would be nicer for her to live in Portumna. Going back in time, from the 8th August, 2007 until 24th August, 2007 she was admitted to hospital. She was under Dr. Durcan. This was not a psychiatric assessment. Dr. Durcan is a physician. Dr. Murphy noted in particular that a letter referred to from the HSE dated the 15th November, 2007 reported on her as she was on 28th September, 2007. He notes that this letter says the nursing home report states “no confusion at this time – on 28th September, 2007”. In fact, the nursing home report of that date actually says “confused at all times”. On the third week of November 2007 she was reasonably well. He had a talk with her then. He next talked to her on the 27th November, 2007 after she heard she was leaving. She was tearful. This move had been arranged by her nephew. Her moving to Portumna Nursing Home occurred on 3rd December, 2007. He saw her on 7th December, 2007 and found her lucid. He did not actually ask her anything. He did not know what had happened in the bank. Over the following months there were no complaints in relation to her and he did not question her in depth. He said he only heard in February 2009 what had happened in the bank. Mr. Collins, solicitor, asked him to examine her with a view to executing a power of attorney. He said he was shocked to hear of the events of December 2007. He knew her nephew was her only family. One who looked out for her. He knew the O’Donnells just to say hello on the street. It was George O’Donnell who told him that he was very worried. He had said that she was very ill. He did not know of any relationship with the O’Donnells. He was aware she was a very vulnerable person. She was elderly with no family in Ireland and nobody to advise her. He stated he would automatically question her capacity to make a transaction such as occurred on the 6th December, 2007. He said had he been asked he would have said she should be assessed. The solicitor should do this. He took view because this whole area of capacity is a minefield. He stated it would be necessary to examine her at the particular time.
Cross-examination by counsel for the first and second defendants
He stated that although it was not mentioned in medical records she was always a little hard of hearing. He said he could not be sure when put to him that there was no mention in his records of her suffering from memory loss. In relation to the note of attendance of 7th December, 2007, which is to be found on the second last page of the medical reports, she was noted to be in Portumna Nursing Home, very happy and settled and with no problems. In relation to this, Dr. Murphy said that on his attendances he would stay about ten minutes and ask her if she was okay. No comments are recorded in relation to this.
Cross-examination by counsel on behalf of the third defendant
Dr. Murphy said that he was just a little bit concerned by the plaintiff’s move from Killimer to Portumna Nursing Home. He was consulted a week or so before her move but it had already been arranged. In relation to the entry in his notes dated 5th September, 2007, the dramatic recovery to which he referred was that which had occurred between the time of her being in hospital and the completion of her stay in Killimer Nursing Home. The recovery during that period from very serious problems was a dramatic recovery. In early December she did not present as one who was obviously ill. In his opinion in the kind of situation that existed here, questions needed to be asked to ascertain the condition of the plaintiff. Dr. Murphy agreed that when he saw her on the day following the 6th December, she seemed fine but he noted that his visit was purely routine.
5.4 Michael Collins – solicitor
Mr. Collins has been a solicitor since 1992. He knew the plaintiff since the mid-1990s when he dealt with her husband’s estate. In the early 2000s he dealt with her in relation to her brother, Sean’s estate. He made a will for her in 2001 on the 19th June. In 2006 in relation to inquiries on an insurance policy he dealt with a letter. She seemed to him to be a careful, shrewd lady who led a simple life. She was especially careful in relation to her money. She never owned a house and her funds were her only asset. In the will her executor was her nephew. This nephew also has a brother. He is a nephew on the other side, a nephew of her late husband. In 2006 she seemed in perfectly good form. Everyone knew Mary. She was the woman who opened the Bridge at Portumna. In February 2009 the plaintiff, her nephew and his partner came into his office. Mary said her money was gone. Her nephew explained the details of their visit to the Bank of Ireland. Mr. Collins said that he was shocked. He thought that possibly there was some confusion and he rang Mr. Ryan, the bank manager. The story he was told he said made his hair stand on end. If the bank manager had telephoned him he would have said stop immediately. This was because she was an elderly client, she had no other assets, there was no logical reason for her to do this, to deprive herself of all her assets. He knew the first named defendant did not feature in any way in her will. In relation to the power of attorney, it was only when he received a certificate from a doctor that he prepared one. The plaintiff directed that her attorney should be her nephew.
Cross-examination by counsel for the first and second defendants
They arrived at the office without an appointment. In February 2009 she was in a frail physical state. Mentally she was alert. Mr. Collins stated that he frequently requests the certificate from a general practitioner as to mental capacity. He confirmed the power of attorney was a general one. He has not had to use it because there are no affairs to conduct.
Cross-examination by counsel for the third defendant
In answer to items 50 and 51 in the third defendant’s notice for particulars, Mr. Collins had answered that the plaintiff was unable due to lack of mental capacity to execute a power of attorney. He was not trying to mislead, he considered that the question related to the transaction in question. The solicitor’s duty in relation to an elderly client, in his view, was to question them carefully and to give them time especially in relation to a big decision. A decision should be treated cautiously and should be fully ventilated. Mr. Collins thought the manager should have consulted her solicitor because he was dealing with a vulnerable and elderly person. As to whether the bank knew that she was living in hospital or a nursing home, it should have known. Mrs. Bourke was coming in on a fortnightly basis. Suddenly she was no longer coming in. Someone must have said something. Someone must have known. She was a well known person. It was always her on the Bridge until four or five years ago. In relation to the power of attorney, this was an enduring power of attorney in relation to her affairs and her care. She was asked for a certificate from her doctor. This is required by law. The power of attorney has not, in fact, been registered. It has to be registered if it is to be used. She is neither mentally incapable at this moment nor becoming so. She was in Court on Monday and seemed perfectly capable. Mr. Collins had not met Mr. Butler very much. He met him on the occasion of the power of attorney and twice since. In relation to the evidence of Mr. Butler that he told the bank she was in a nursing home, he agreed that the letter from the third defendant dated the 13th March, 2009 indicated that the bank did not know she was under medical care or in a nursing home. This letter was in response to his letter dated the 26th February, 2009. The accounts had been dormant for three years. There was no mention in the letter of February 2009 of Mr. Butler having told the bank that she was in a nursing home. His evidence that the bank was told by him that she was in a nursing home is not in fact supported by anything in the replies to particulars or in his attendances on file.
5.5 Ciaran Ryan
Mr. Ryan has been twenty years with the Bank of Ireland. In 2001, he became a manager. In 2006, he was posted to Portumna. Portumna is a good sized retail branch with about 2000 connections. At the time of the events in question, he lived in Ennis. They had ten staff in Portumna branch. He departed Portumna branch approximately a year and a half after the events in question. In his time as manager, he tried to meet about twenty-five per cent of the customers. He never met the plaintiff before the day of the events in question and he never met the first and second named defendants before. On the day in question, the plaintiff and the O’Donnells wanted to see him. Marie Bourke told him. She knew the plaintiff but knew nothing of the matter in question. They were brought into the manager’s office. The plaintiff said she wanted to give some money to her neighbours. The manager looked at her accounts. There was €124,000 in one and €16,000 in the other. She said that she wanted to give €124,000 to the O’Donnells. The manager asked the O’Donnells to leave the office so that he could talk privately to the plaintiff. They did so. He spoke initially to her of general things. He then asked why did she want to give this money. She replied they were very good to her and that she wanted to. It was clear on examination of the accounts that she was not living out of the funds contained in those accounts. She said in answer to him that she had no sons or daughters and she did not indicate the existence of any other family. He recommended that she take independent legal advice. She said she understood this but she wanted to go ahead. He explained the process that would be involved. He would draw up a bank draft in favour of the O’Donnells and would give it to her. She seemed ok to him. She was using a walking stick and was frail. It appeared to him that she knew her business and knew what she wanted to do. She did not appear confused, she did not drift away. Asked whether he should have rung her solicitor, Mr. Ryan said she was a customer and she knew what she wanted to do. He did not think that she was being taken advantage of. There was no mention of her being in a nursing home. He said to her “if you happy to go ahead, I am ready to give you the cheque”. He meant the draft. He left the office to get the draft. He said that he wrote the words on the withdrawal slip because it was necessary to have a record. By that he meant a memory aid. He stated the bank kept these slips in Head Office for six years minimum and often for much longer. The draft was also witnessed by Marie Bourke. The O’Donnells came back to the branch that day and deposited the draft in their account. He first became aware of the problem when he received a phone call in relation to the plaintiff’s account. He pulled up details on his computer. The next thing Mr. Butler and the plaintiff and Mr. Butler’s partner arrived at the bank. He did try to put matters back to 2.30 because he was very busy. He did, however, see them. It was at first what he described as an amenable meeting. It was an inquiring meeting. They asked had he seen her solicitor or doctor. He tried to engage with the plaintiff but Mr. Butler in fact did most of the talking. She seemed distant and he asked himself how this lady’s health could have disimproved so much. The meeting gradually became more disagreeable. He agreed that he probably did say that he thought this matter might come back to haunt him. It was only at this meeting that he became aware that she was in a nursing home at the time of the events in question.
Cross-examination by counsel for the plaintiff
He arrived in September 2006 in Portumna as manager. It is quite common to tell people to make an appointment to see the manager. It was mid-morning on the 6th December, 2007. It was definitely before lunch. Marie Bourke told him that there were three people to see him. Marie Bourke lives close to Portumna. He was in his office. He did not know or recollect whether they were in his view. Marie Bourke did not say why they wanted to see him. He did not know them at all. The plaintiff came into his office using a walking stick. She seemed fine although frail on her feet. She said she would like to give some money to her neighbours. He said ok and called up her accounts. She had two accounts. He referred to account 46405265. Up to 2007 there was little action on this account. Then on 15th November, 2007 in came €108,293.41. He did not ask the plaintiff what this lodgement was. He assumed it came from an insurance policy because of the code. He found nothing unusual in the size of the transaction. He did not ask the O’Donnells anything before they left the room. The initial small talk with the plaintiff was as would be normal. She said she lived in Portumna all her life. He did not ask any personal questions at all. He asked why she wanted to give the O’Donnells the money. She said they had always been good to her. He suggested she give less – maybe €50,000. She responded – she was adamant – she wanted to give €124,000. He asked her would she not need this in the future. She said no. He asked her if she had any sons or daughters. She said no. She said she had no family she wished to discuss this with. He asked her if she wanted to talk to a solicitor. She said no. As far as he was concerned she knew what she was doing. He had the impression the O’Donnells knew her all their lives. A bank draft was used instead of a cheque because it was a deposit account, therefore a cheque could not have been used. He did not ask anything of the O’Donnells. He agreed Marie Bourke might have been able to give more details had he asked her about the plaintiff. He agreed that perhaps he should have asked her. He agreed there had been occasions when he had refused to cash cheques. This occurred, as far as he could recollect, in relation to people who were either intoxicated or in relation to letters of guarantee. In answer to a question from the Court, Mr. Ryan stated that there are no protocols in existence to assist managers in dealing with possibly incapable customers. He stated he decided to proceed to deal with her there and then. He did not think a cooling off period would be appropriate. As to the withdrawal slip, the address was probably filled in by him from the computer. He said he told the plaintiff that once she gave them the draft and they lodged it, it was their money. He said he was anxious that she know everything as to how this transaction worked. By this he meant that she could bring the draft back. He said he took her to be a person who knew what she was doing. The notes on the back that he wrote on the withdrawal slip were to have some record of an unusual transaction. Marie Bourke was asked to witness it in case anything happened to me. He told her what had happened because it might be necessary in case some question arose. A few days before the February 2009 visit by the plaintiff, her nephew and his partner, there was a phone call. There were inquiries made. He was told of this and he looked at the screen and checked the file. He checked the documents. In February 2009 he did not know Robert Butler. Mr. Butler made it clear that he, the manager, would have to explain himself. The plaintiff sat behind at the meeting. He could not engage with her. He found this disturbing. He could not believe that the plaintiff was the same woman he had met a year before. He said that he had never before or since dealt with such a situation.
Re-examination
The transactions requiring cooling off periods relate to sale of products. No cooling off period is required in these types of transactions.
5.6 Marie Bourke
Mrs. Bourke stated she worked in Customer Service in Portumna. She was there since 1973 to 1979 and then full-time in 1992. She is from Ennis. She lives in Tynagh which is 7 miles from Portumna. She knew the plaintiff before these events. She used to cash an Old Age Pension. She knew little of her. She did not know she opened the Bridge. The plaintiff was a very private person. She did not have any knowledge of her being ill. She did not know that she was in a nursing home. It was quite normal not to know the customers. She did not notice that Mary Bourke had not been in or had been ill. She was a very independent person who just wanted to do her business and leave. She had no recollection of her coming into the branch. She definitely did not know Mary Bourke was in a nursing home. Robert Butler did not tell her that. If she had been told she probably would have remembered. She remembered them coming into the bank on the 6th December, 2007. She thought the plaintiff was in good form. She thought she had a walking stick. The O’Donnells were on either side of her. She asked the manager to see them. When she saw the docket and its contents there was no discussion. Her dealings with the plaintiff and the O’Donnells were brief but she had absolutely no concerns. She stated she would not do such a transaction without questioning. She stated she would have to have the agreement of the customer to discuss such a transaction with her solicitor or any other third party.
Cross-examination
She would not pay any attention to the fact that a person was no longer coming in. Also she would not be particularly surprised when the plaintiff did. She had no recollection of a visit on the 4th December, 2007. It would be very common to write notes on a withdrawal slip and to have it witnessed.
6. Submissions of the plaintiff
The first and second defendants in their defence at paragraphs 9 and 10 set out the close relationship that they had with the plaintiff. They conceded in the defence that the sum of money was a gift. They knew that the plaintiff was in a nursing home. They were aware of her age and of her vulnerability. They were better aware than anyone else of the fact that she had been very seriously ill over the immediate six months preceding the events in question. They were well aware she had been disorientated and confused for substantial periods of time up until quite recently before the events in question. They visited her in the nursing home more than anyone else. On the evidence there were enough facts to establish a relationship that could give rise to a presumption of undue influence. The onus therefore shifted onto the first and second defendants to rebut that presumption. This they have not done.
In relation to the third defendant, even if they did not know that she was in a home at the time of the transaction there was still a duty on them. The bank manager, Mr. Ryan, agreed that there was a duty in relation to persons who were intoxicated and others who might be obviously incapable. Here the circumstances were so bizarre he should have been alert to the possibility that she did not have the capacity to give instructions. There had been a huge deposit only three weeks before. The plaintiff relied upon the rule in Ward v. McMaster. There was a duty, there was the clear foreseeability of loss and there was no public policy exception. The bank should have done a lot more than they did.
7. Submissions from the third defendant
It would be an awful step to impose a duty not imposed on a bank before. It was conceded that this was an unusual transaction. It was because of that that the manager spoke to the client in private. Should the manager “go over” the head of a customer where the client has rejected the manager’s advice? According to the medical evidence available for the date in question, or as close to it as possible, the plaintiff was orientated at all times. Everyone agreed that around the time of the 6th December, 2007, she was orientated and not incompetent. In relation to the plaintiff’s submission on Ward v. McMaster, each relationship must be examined on its own facts. Here, the relationship is a contractual one. Any duty the manager had was met by him in his private advice to the plaintiff. There was no immediate family. She told him the O’Donnells were good friends and she wished to help them. He had no reason to know if she was ill. She refused to accept the advice to consult a solicitor. The manager realised it was an unusual situation and did all that was required. The bank went as far as it could. The plaintiff gave evidence in court that demonstrated a full capacity. She was found capable of executing a power of attorney in early 2009. The nursing home notes at the time of the transaction indicated she was no longer confused. Her GP, the day following these events, considered her to be okay. There was no reference in the documentation to any memory loss. To find incapacity would be contrary to the evidence.
8. Decision
8.1 The case against the first and second named defendants essentially is that, due to the relationship that existed between them and the plaintiff, a presumption of undue influence over the plaintiff arises that has not been rebutted. In the result, the court should set aside the transaction impugned herein.
8.2 The doctrine of undue influence enables a court to set aside transfers of property inter vivos whenever it appears that one party has not freely consented to the transaction. The law assumes that certain relationships of their very nature give rise to a presumption of undue influence and where this occurs the burden of proof shifts and the onus falls upon the party seeking to uphold a transaction to show the other party freely consented to it. The Court of Appeal of Northern Ireland in R. (Proctor) v. Hutton, re Founds Estate [1978] N.I. 139, in considering the doctrine explained it as follows:-
“The presumption of undue influence may arise in two sorts of cases. The evidence may show a particular relationship, for example, that of solicitor and client, trustee and cestui que trust, doctor and patient or religious advisor and pupil. Those cases, or some of them, depending on the facts, may of themselves raise the presumption. Such examples, as regards undue influence, have much in common with the doctrine of res ipsa loquitur in relation to negligence. But then there is the other sort of case, the precise range of which is indeterminate, in which the whole evidence, when meticulously considered, may disclose facts from which it should be inferred that a relationship is disclosed with justifies a finding that there is a presumption of undue influence. In other words, the presumption enables a party to achieve justice by bridging a gap in the evidence where there is a gap because the evidence is impossible to come by.”
Lord Lowry, L.C.J., agreed:-
“The relationships which raise the presumption are left unlimited by definition, wide open for identification on the facts and in all the circumstances of each particular case as it arises . . . it is a common but not a necessary feature of the relationship that the person on whose part undue influence is alleged assumed a responsibility for advising the donor even managing his property. There are certain relationships which are recognised as giving rise to the presumption, but there are also those which, upon a consideration of the particular facts, may raise the same presumption.”
This approach, and notably the speech of Lord Lowry, was approved in this jurisdiction by Barr J. in McGonigle v. Black (Unreported, High Court, 14th November, 1988). An elderly farmer living alone following the death of relatives, contracted to sell his property to a near neighbour. The transaction was set aside. Having examined all the facts, Barr J. concluded the sale was:
“A grossly improvident transaction which was brought about by undue influence persistently exercised by the defendant over Mr. McGonigle who, because of a combination of bereavement, inability to cope, loneliness, alcoholism and ill-health was vulnerable to manipulation and was so manipulated by the defendant to the vendor’s obvious disadvantage.”
The actual fact of the transaction and the circumstances surrounding it was such as could be relied on as well as the relationship itself to raise the presumption. Moreover, it is not necessary that the court find a wrongful act. Where the presumption arises, the court intervenes in order to prevent an abuse of influence possessed by one over the other – see Carroll v. Carroll [2000] 1 I.L.R.M. 210.
8.3 In this case, it is clear there was a long-term relationship in existence between the plaintiff and the first and second defendants. It was a relationship in which the plaintiff was dependent to varying degrees at different times on these defendants. They called to see her – minded her house – had possession of her old age pension book. The nursing home notes show that they were the most frequent visitors to her in the nursing home. Although her nephew visited four/five times a year, these defendants were, in reality, her only link to the world outside the nursing home. She had been very seriously ill in the six months prior to the transaction. Her illness, as the defendants well knew, involved long periods of confusion and disorientation. She was a highly vulnerable, elderly lady. The transaction itself was wholly improvident. She was divesting herself of the large bulk of her assets for no return whatever. Taking all of these circumstances, including the fact of the transaction itself into account, it is clear, upon the basis of the law outlined above, that a presumption of undue influence arises. The first and second defendants chose not to give any evidence and consequently I find the presumption is unrebutted and the transaction will be set aside.
8.4 The case against the third defendant is brought on an entirely different basis. The plaintiff pleads that the bank was negligence in breach of its duty of care and of its fiduciary duty and that it acted in breach of its contract with the plaintiff. It seems to me that the claim better belongs in this last category of claim – it is a claim in contract. That claim essentially is that the bank breached an implied term of its contract with the plaintiff. That term was that it would not act upon instructions from its customer, the plaintiff, when she did not have the capacity to give instructions, not being, at the time, in possession of all her faculties. The submission on behalf of the plaintiff in this regard was that the circumstances of this transaction were so bizarre – i.e. the huge deposit in November 2007, followed three weeks later by a withdrawal of all this deposit plus all else in that particular account, by an elderly lady, to a much younger couple who had accompanied her into the bank, almost all her cash assets – that the bank ought to have enquired further to satisfy itself that their customer had the capacity to issue instructions. The questions for the court, therefore, are, firstly, was the plaintiff at the time labouring under an incapacity to give instructions to the bank to effect the transaction. Secondly, does the bank, in such circumstances, have a duty to ascertain the capacity of its customer to give instructions.
8.5 The bank’s contractual duty to the plaintiff
In its submissions, written and oral, the bank pleads its contractual obligation is to repay to its customers the sums lodged thereby. Foley v. Hill [1848] 2 H.L. Cas. 28 at p. 1,006:-
“. . . he (the banker) is of course answerable for the amount, because he has contracted, having received that money, to repay to the principle, when demanded, a sum equivalent to that paid into his hands.”
The underlying basis of the relationship is debtor and creditor. Failure to honour its customers’ instructions may redound to the discredit of its customer. There is nothing in the contract express or implied that requires a banker to consider the commercial wisdom of a particular transaction. Lipkin Gorman v. Karpnale Ltd. [1989] 1 W.L.R. 1340, at p. 1352.
In the absence of knowledge of her incapacity, the bank was obliged to comply with the plaintiff’s instructions. Paget’s ‘Law of Banking’ (13th Ed.) at p. 202, makes it clear that the banker must have knowledge of the alleged mental incapacity before he can treat the customer’s mandate has having been withdrawn or otherwise being void:-
“Where a person is mentally incapacitated and the banker knows of it, he has no mandate on which to act . . .”
The requirement for knowledge of the alleged mental incapacity on the part of the bank is crucial. Clearly, the bank cannot treat every elderly customer as being unable to give instructions in relation to their accounts merely because of their age. Further, although the bank had no knowledge of the fact that the plaintiff had been ill and was now living in fulltime residential care, even if it had, that fact alone would not have been sufficient for the bank to assume that she lacked mental capacity as opposed to being physically infirm. Paget states further at p. 478, in relation to mental disorder and contractual incapacity:-
“If the customer becomes mentally disordered or otherwise loses contractual capacity, the bank should not honour his cheques. If the state of the customer’s mind is such that he does not know what he is doing, he can give no mandate and any existing mandate is revoked. But if the bank has no knowledge and no reason to suspect, then the mandate is operative. What is sufficient to entitle a banker to refuse to obey his customer’s mandate, on the ground that he is suffering from a mental disorder depriving him of mental capacity, is not easy to define. The opinion of the customer’s medical practitioner would be a guide, but not conclusive, though if he advised positively that his customer was of sound mind, the banker would normally be justified in paying. Entry into hospital for observation or treatment is not in itself enough.”
McLoughlin J. held in Bank of Ireland v. Hussey [1965] I.R. 46, at p. 55:-
“It is also the position that it is not the death or insanity of the customer that amounts to a withdrawal of authority but the notice of the customer’s death or insanity.”
As the bank had no notice of any incapacity, it was obliged to act on instructions.
8.6 I accept that the bank has no duty to advise on the wisdom of carrying through what the customer wishes and instructs. I accept that, in the circumstances of this case, any fiduciary duty the bank might have does not arise. I accept further that the bank must follow the instructions of its customer until it has knowledge of the customer’s incapacity. When it has such knowledge, the mandate is revoked. Until it has such knowledge, the mandate is operative. It seems to me to follow from this that where there are circumstances attendant upon a transaction that clearly raise substantial grounds to doubt the capacity of its customer to give instructions, the bank has a duty to make enquiry. It is obvious that such a situation would be rare. Certainly, the mere fact that a customer is elderly could not give rise to such a duty. Something more would have to be present in the mix of circumstances.
8.7 In this case, I consider that the evidence given by the plaintiff was telling. She presented as an elderly lady, a little infirm and very hard of hearing. She answered clearly and firmly, albeit at times a little confused. She was emphatic that she never intended to give her money to the first and second defendants. This, above all else, was clear in her mind and I have no doubt there was no confusion in this regard. I accept her evidence. She had been, during six months before the transaction, in very frail health. In particular, until relatively shortly before, she had been in various stages of confusion and disorientation. It appears to me, on the evidence, that on the balance of probabilities, the plaintiff, at the time of this transaction, was so mentally disordered as to have lost her contractual capacity. The fact she may have been under no such incapacity before or after the transaction does not render such a finding inconsistent with the evidence. The medical evidence clearly shows that, as her General Practitioner stated – “she was coming and going from time to time”. As late as 23rd November, 2007, she was reported, and her GP agreed, as “sometimes confused”. This was only two weeks before the transaction.
8.8 The bank had, I accept, no direct notice of this incapacity. The only thing, in my view, that could engage the bank’s duty would be that the circumstances of the transaction itself were such as should have raised substantial doubt as to the plaintiff’s capacity to give instructions. I have considerable sympathy with the bank manager. He gave frank and direct answers to all questions asked. He agreed it was an unusual transaction. He had not before or since come across another like it. There were no written protocols in existence to guide him. He clearly had reservations at the time and did his best as he saw it. I can only look to the facts that presented themselves to him at that time. He had before him an elderly, but apparently capable lady. She was a customer. He owed her the respect due to her status, both as a customer and a senior citizen. I find that he did not know she was in a nursing home nor did he know she had been ill. Yet the requested transaction was a bizarre one. He himself agreed with that. As far as his knowledge of her assets went, she was proposing to divest herself almost entirely and for no consideration whatever. It seems to me that these circumstances alone raise substantial doubts that ought to have been investigated further and resolved. There was no suggestion made of any need for urgency. The manager might have temporised. He might have asked for a medical certificate. He might have insisted on only dealing with her in the company of her solicitor unless she produced such a medical certificate. There may have been other ways in which the process could have been delayed to allow some further investigation or cooling off period. I would consider there should be written protocols to assist managers in such a situation.
It seems to me that there were substantial grounds arising from the circumstances herein to doubt the capacity of the plaintiff to give instructions. The manager, in the absence of any protocols to guide him in this most unusual transaction, did not make any real enquiry as to her capacity. His questions to her were only to elicit her intentions and to advise she give less and also that she see a solicitor. Any further enquiry would have elicited the information that she was living in a nursing home, that she had a nephew who looked out for her and that she had been ill in a way that gave rise to very serious questions about her mental capacity. In my view, the bank breached a duty to enquire as to their customer’s capacity where substantial grounds to doubt existed.
9. Judgment
For the reasons set out, there will be judgment in favour of the plaintiff against each of the defendants jointly and severally in the sum of €124,000.
Ulster Bank Ireland Ltd. v. Fitzgerald
[2001] IEHC 159 (9th November, 2001)
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JUDGMENT of Mr. Justice Diarmuid B. O’Donovan delivered on the 9th day of November, 2001 .
1. At the outset, on the application of Counsel for the Plaintiffs to which the Defendants did not object, I amended the title to these proceedings by substituting the name Ulster Bank Ireland Limited for the name Ulster Bank Limited as Plaintiffs.
2. The Plaintiffs claim herein, as against the First Named Defendant, is for the sum of £203,971.85, together with interest thereon, and, as against the Second Named Defendant, for the sum of £106,832.92, together with interest thereon. The said sums of money are alleged to be due and owing by the Defendants to the Plaintiffs; firstly, in respect of monies advanced by the Plaintiffs to and at the request of the Defendants and each of them on foot of a joint and several personal Current Account number 53631019 (hereinafter called the “Current Account”) maintained by the Defendants at the Tralee Branch of the Plaintiffs Bank situate at 43-44 Ash Street, Tralee in the County of Kerry, secondly being monies due and owing to the Plaintiffs by the Defendants for principal and interest under and by virtue of a guarantee in writing dated the 16th October, 1997 whereby the Defendants and each of them, in consideration of the Plaintiffs giving time, credit, banking facilities or other accommodation to Fernhill Developments Limited of 11 Denny Street, Tralee, County Kerry (hereinafter called “the Debtor”), guaranteed payment to the Plaintiffs on demand of all present or future or actual contingent liabilities of the Debtor to the Plaintiffs howsoever incurred and, thirdly, monies due and owing by the Defendants to the Plaintiffs for principal and interest under and by virtue of a guarantee in writing dated the 12th March, 1998 whereby the Defendants and each of them, in consideration of the Plaintiffs giving time, credit, banking facilities or other accommodation to the said Debtor guaranteed payment to the Plaintiffs on demand of all present or future or actual or contingent liabilities of the Debtor to the Plaintiffs howsoever arising.
3. By Order of this Honourable Court made herein on the 26th June, 2000, it was Ordered ( inter alia ) that the Plaintiffs do recover from the First Named Defendant a sum of £215,881.34 and the cost of these proceedings, when taxed and ascertained.
4. The Plaintiffs claim aforesaid against the Second Named Defendant came on for hearing before me on Wednesday 10th October, 2001. At the commencement of the hearing, Counsel for the Second Named Defendant indicated to me that, in accordance with paragraph 12 of an Affidavit sworn herein by the Second Named Defendant on the 4th February, 2000, she accepted liability to the Plaintiffs for the principal sum of £10,169.35, together with interest thereon amounting to £1,036.57, on foot of the Current Account aforesaid and, for their part, Counsel for the Plaintiffs indicated that they were satisfied to accept the said sums in satisfaction of their claim against the Second Named Defendant on foot of the said Current Account.
5. Insofar as the Plaintiff’s claims against the Second Named Defendant on foot of the said guarantees in writing, respectively dated the 16th October, 1997 and the 12th March, 1998, were concerned, the Second Named Defendant, through her Counsel, maintained that the said guarantees in writing were not enforceable against her for the reason that, while she accepted that the signatures to the said guarantees, which purported to be hers, were, in fact, made by her, she asserted; on the one hand, that she, personally, had no financial interest in either of the said guarantees and, on the other, that she had been persuaded to execute the said guarantees by an undue and wrongful influence exercised over her by the First Named Defendant who is her husband; a wrongful influence of which the Plaintiffs were aware, or are deemed to have been aware.
6. In the course of the hearing before me, I heard evidence from a number of witnesses and, in particular, I heard evidence from Mr. Teddy Reynolds, who was the Manager of the Branch office of the Plaintiff’s Bank situate at Ash Street, Tralee in the County of Kerry at the material time, and from the Second Named Defendant, Catherine Williams (otherwise Fitzgerald). Mr. Reynolds gave sworn testimony that he had witnessed the signatures of both of the Defendants to the said guarantees respectively dated the 16th October, 1997 and the 12th March, 1998 and he said that both guarantees were signed by each of the Defendants on the dates upon which each guarantee purported to have been signed and that they were signed by each of the Defendants in his presence and, in his office at the Plaintiff’s Bank at Ash Street aforesaid. He agreed that the Defendants were not present together, on the occasions upon which each of the said guarantees had been executed by them. However, he said that, before each of the Defendants had executed the said guarantees he had explained to each of them the meaning of the guarantees and the reason why they were required by the Plaintiff bank. Moreover, he was adamant that, before the Second Named Defendant had executed either of the said guarantees, he had told her that she could obtain legal advice with regard to the guarantees. However, notwithstanding that advice, she had signed the guarantees on the spot. Mr. Reynolds’ testimony was challenged on two grounds; firstly, it was put to him that, while the Second Named Defendant conceded that she had executed both of the said guarantees and while she conceded that she could not recall exactly when and where she had executed them, she would say that they had not been signed by her in his presence. Furthermore, it was put to him that the First Named Defendant could not, as Mr. Reynolds had asserted, have signed the said guarantee of the 16th October, 1997 in his office at the Defendant’s bank at Ash Street aforesaid because the fact of the matter was that, on that date, the First Named Defendant had attended a conference in Dublin and, accordingly, had not been physically present in the town of Tralee during banking hours. In that regard, the Second Named Defendant gave a sworn testimony that, while she accepted that she had executed both of the said guarantees and that she could not recall, precisely, when and where the said guarantees had been executed by her (she thought, perhaps, that she had signed them at her home), she was adamant that she had never signed either guarantee in the presence of Mr. Reynolds in his office. Moreover, the Second Named Defendant gave sworn testimony that, on the 16th October, 1997, her husband, the First Named Defendant, had attended a conference in Dublin and, accordingly, had been away from the town of Tralee for the entire of the day and, therefore, could not, as Mr. Reynolds had asserted, have signed a letter of guarantee on that date in Mr. Reynolds office. Furthermore, I heard evidence from a Ms. Renee McManus who, at the material time, was Personnel and Administration Manager of the C.I.F and who said that, on the 16th October, 1997, she had been responsible for organising a conference hosted by the C.I.F. in the city of Dublin; a conference which had commenced at 8 o’clock am. Ms. McManus produced a register purporting to the list the names of the persons who had attended that conference and, among those names, is that of Kenneth Fitzgerald. However, Ms. McManus could not say for how long the person named as Kenneth Fitzgerald on the said list, had attended the said conference; nor, indeed, did she ever say that she had actually seen the First Named Defendant at the said conference. The clear implication of the evidence of Ms. McManus, when taken in conjunction with that of the Second Named Defendant, was that the First Named Defendant could not having signed the said guarantee of the 16th October, 1997 in the office of Mr. Teddy Reynolds at the Plaintiff’s bank at Ash Street aforesaid, as Mr. Reynolds had asserted and that, therefore, Mr. Reynolds testimony in that behalf was, to say the least of it, unreliable and, accordingly, he could not be considered to be a credible witness. However, although I was advised by Counsel for the Second Named Defendant that the fact of the matter was that the First Named Defendant had been in Court at all material times throughout the hearing of these proceedings, he was never called as a witness to contradict Mr. Reynolds’ evidence that he had signed the said guarantee of the 16th October, 1997 on that date and that he had signed it in Mr. Reynolds office aforesaid. In those circumstances and, given that Mr. Reynolds positively denied the suggestion that Kenneth Fitzgerald had not signed the said guarantee dated the 16th October, 1997 on that date in his office, I do not accept that he did not do so. As judgment has already been obtained against Mr. Fitzgerald and, therefore, he could not be prejudiced by giving evidence and exposing himself to cross examination, I think that I am entitled to infer from his failure to do so that he is not prepared to give sworn testimony that he did not, as Mr. Reynolds has said that he did, sign the said guarantee of the 16th October, 1997 on that date in Mr. Reynolds’ office. Accordingly, notwithstanding the evidence of the Second Named Defendant and that of Ms. McManus, I accept Mr. Reynolds’ evidence that Kenneth Fitzgerald did indeed sign the said guarantee of the 16th October, 1997 on that date and in Mr. Reynolds office aforesaid. Moreover, as it follows that I consider that the evidence of Catherine Williams (Catherine Fitzgerald) in that behalf is, to say the least of it, unreliable, I also prefer the evidence of Mr. Reynolds that Ms. Williams (Fitzgerald) signed both of the guarantees aforesaid in Mr. Reynolds office, in his presence and upon the dates upon which each guarantee purports to have been executed to the evidence to the contrary given by Ms. Williams (Fitzgerald).
7. While, as I have already indicated, Catherine Williams (Catherine Fitzgerald) accepted in evidence that she had executed the said guarantees in writing respectively dated the 16th October, 1997 and the 12th March, 1998, she maintained that she could neither recall the dates upon which she had executed either of those documents or where she was at the time that she had executed them. Moreover, she was adamant that she had not executed them in an office at the Tralee Branch of the Plaintiff’s Bank at Ash Street aforesaid and that she had not executed them in the presence of Mr. Reynolds. As I have also indicated, I do not accept her evidence in that regard because I prefer the evidence of Mr. Reynolds with regard to when and where Ms. Williams (Fitzgerald) executed those guarantees. Ms. Williams (Fitzgerald) also asserted in evidence that, when she was signing the guarantees, she did not appreciate what she was signing but that she did so because her husband prevailed upon her to do so. In that regard, she said that, had she not signed the guarantees at the request of her husband, there would have been extra problems between them; particularly, as he had insisted that he knew what he was doing and that she should trust him. In that context, Ms. Williams (Fitzgerald) gave evidence that, towards the end of the year 1997 and early in the year 1998, her marriage to Mr. Fitzgerald was in difficulties, that he worked long hours and was rarely at home, and when he was, he was inclined to drink to excess, became intoxicated and verbally abusive to her. She maintained that the situation was compounded by the fact that, during that period, their daughter, Laura, was very unwell and spent some time in hospital with the result that she and her husband were kept further apart. Indeed, Ms. Williams (Fitzgerald) made it very clear to me that she believed that her marriage was breaking up but that, after her husband had made an appointment for marriage counselling for both of them, which in fact, he subsequently cancelled, the relationship between them improved and he reduced the extent of his drinking. This would have been in the month of March, 1998 and Ms. Williams (Fitzgerald) offered this improvement in the relationship as one of the reasons for acceding to her husbands’ insistence that she execute the said guarantee of the 12th March, 1998, in that, had she not done so, she was convinced that it would cause further trouble between them and again threaten their marriage. She also told me that her husband had told her that, had she not signed the guarantee of the 12th March, 1998 there would have been insufficient monies available to pay the staff of the creditor with the result that the business of the creditor would collapse. In that regard, I was persuaded by the evidence of Ms. Williams (Fitzgerald) that she and her husband and children were dependant on the income from the business of Fernhill Developments Limited for their daily living.
8. In the light of the foregoing, I am prepared to accept that Kenneth Fitzgerald may, indeed, have exercised inordinate pressure on his wife to execute the guarantees aforesaid and I am prepared to accept that she believed that she had little option but to sign them. Moreover, while I do not think it necessary for the purposes of this Judgment to determine whether or not the influence in that regard exercised by Kenneth Fitzgerald over his wife was unlawful, I think that it may well have been so. However, whether or not it was, I heard no evidence whatsoever to suggest that Mr. Reynolds, or, indeed, any other representative of the Plaintiff Bank had even an inkling that there were difficulties in the marriage of Kenneth Fitzgerald and Catherine Williams (Catherine Fitzgerald) or that there was any other reason why Catherine Williams (Catherine Fitzgerald) might not had been a free agent; in the sense that she not do so of her own free will, when she executed the said guarantees. Accordingly, if the Second Named Defendant executed the said guarantees as a result of undue influence exercised over her by her husband, which, as I have indicated, may well be so; although I do not think it necessary for me to come to any conclusion on that point, I am satisfied that the Plaintiffs were not aware of that fact. Moreover, as it is well settled that, where they are parties to the same contract, the relationship of husband and wife does not give rise to a presumption of undue influence and, accordingly, the burden of proving undue influence is on the party alleging it, I am not persuaded that the Plaintiffs had constructive notice that the Second Named Defendant executed the said guarantees as a result of undue influence exercised over her by her husband; if that be the case.
9. Apart from the foregoing, Counsel on behalf of Ms. Williams (Fitzgerald) submitted that, as she had no financial stake in the business of the Debtor and her husband, Kenneth Fitzgerald, had, the Plaintiffs were on notice that there was a risk that she may have been unduly influenced by her husband to execute the said guarantees and, accordingly, they were obliged to urge that she obtain independent legal advice before she executed them. In that regard, Counsel submitted that it was not sufficient that Ms. Williams (Fitzgerald) be advised by the Bank that she was entitled to seek independent legal advice before executing the guarantees, as Mr. Reynolds said that he had advised her. Counsel argued that, in this case, it was especially necessary that Ms. Williams (Fitzgerald) be urged to obtain independent legal advice before executing the said guarantees because, by executing them, she was putting her family home at risk. Insofar as these submissions are concerned, I have to say that, I do not accept that Ms. Williams (Fitzgerald) did not have a financial stake in the business of the creditor. Certainly, she gave sworn testimony to that effect and, in particular, she said that she was neither a shareholder, nor a director of Fernhill Developments Limited and, that, while she may have signed documents in which she is described as the secretary of the company, she was not aware that she was the secretary thereof. Apart from the fact that that evidence appears to me to be inconsistent with the contents of an Affidavit which Ms. Williams (Fitzgerald) swore herein on the 4th February, 2000 in which she seems to acknowledge she was a shareholder and director of Fernhill Developments Limited, as I have already indicated, I was persuaded by her evidence that her family, which included herself, relied on the income generated by the business of Fernhill Developments Limited for their day to day living and, accordingly, I have no doubt but that she had a financial stake in the business of the company. Moreover, there is absolutely no substance to the suggestion that, by signing the said guarantees, Ms. Williams (Fitzgerald) was putting her family home at risk because, in the event that the Plaintiffs enforced the said guarantees against her, their only relief would be a money Judgment which would not necessarily affect the family home.
10. In the circumstance thus I am satisfied that a presumption of undue influence does not arise merely because the two defendants (being husband and wife) executed the said guarantees respectively dated the 16th October 1997 and the 12th March 1998 and given that I am also persuaded that Catherine Williams (otherwise Fitzgerald) had a financial stake in the business of Fernhill Developments Limited, I do not consider that there was any obligation on the plaintiffs to urge on Ms. Williams (Fitzgerald) that she should obtain legal advice with regard to the said guarantees before she executed them. In that regard, there is no doubt but that the courts are not required to intervene to protect a contracting party from ill-advised action and, therefore, if it be the case that it was ill-advised for Ms. Williams (Fitzgerald) to execute the said guarantees (I am not convinced that it was) the court is not entitled to relieve her of her obligations thereunder merely because a more prudent person might not have signed them. Neither, in the absence of any actual or constructive knowledge that Ms. Williams (Fitzgerald) was not a free agent when she executed the said guarantees (if it be the case) were the Plaintiffs under any obligation to take any special steps to ensure that she obtained independent legal advice. Indeed, given that the actual forms of guarantee executed by Ms. Williams (Fitzgerald) contained a note at the top headed by the words “IMPORTANT” strongly recommended that any persons signing the guarantee should seek independent legal advice before doing so, I think that it was above and beyond the call of duty for Mr. Reynolds to advise Ms. Williams (Fitzgerald) to seek independent legal advice before signing those guarantees, as I am satisfied that he did. In this regard, I was referred to a number of authorities; the suggested import of which was that, in the particular circumstances of this case, there was an obligation on the part of the Plaintiffs to warn Ms. Williams (Fitzgerald), before she signed the said guarantees, that she and her matrimonial home were potentially liable for the debts of the creditor and that, therefore, it was essential that she obtain independent legal advice before so doing. In particular, I was referred to the cases of Barclays’ Bank Plc. .v. O’Brien and Anor. ([1994] 1 AC 180) and The Governor and Company of the Bank of Ireland .v. Michael Joseph Smyth and (by order) Una Smyth ([1995] 2 IR 459). However, both of those cases were concerned with a direct threat to a family home; the Barclays’ Bank .v. O’Brien case arising from a bank’s attempt to enforce a surety executed by a wife with regard to a transaction in which she had no financial stake and the Bank of Ireland .v. Smyth , arising from a bank’s attempt to recover possession of a family home in respect of which the wife was alleged to have executed a consent pursuant to the Family Home (Protection) Act 1976. In this case, however, as I have already indicated, I am satisfied that no threat to Ms. Williams’ (Fitzgerald) family home resulted from the guarantees aforesaid executed by her and, in any event, she had a financial stake in both of those guarantees. In those circumstances, I reject the contention that the said guarantees are not enforceable against her.
11. As I have already indicated, the Second Named Defendant has accepted liability to the Plaintiffs for a principal sum of £10,169.35 with interest thereon amounting to £1,036.57 on foot of the current account aforesaid and, in the light of the evidence which I heard, I am satisfied there is currently due and owing to the Plaintiffs by the Second Named Defendant on foot of the said guarantee dated the 16th day of October 1997 a sum of £50,000 for principal and accrued interest thereon calculated to the 21st day of September 2001 amounting to £12,021.39 together with continuing interest thereon from the 21st day of September 2001 at a rate of £13.36 per day and on foot of the said guarantee the 12th day of March 1998 a sum of £45,000 for principal and accrued interest thereon calculated to the 21st day of September 2001 amounting to £11,514.59 together with continuing interest on the said sum at a rate of £12.02 per day the date of payment. Accordingly, there will be judgment for the Plaintiffs against the Second Named Defendant for a sum of £129,741.90 together with continuing interest at a rate of £25.38 per day from the 21st day of September 2001 to date of payment.
Johnson v. Church of Scientology & Ors
[2001] IESC 112 (27 February 2001)
Judgment of Mrs. Justice Denham delivered on 27th day of February, 2001.
1. Proceedings
This is an appeal by the Church of Scientology, Mission of Dublin, Limited, John Keane, Tom Cunningham and Gerard Ryan, the defendants and appellants, hereinafter referred to as the defendants, from a reserved judgment of the High Court (Unreported, High Court, Geoghegan J., 30th April, 1999) and order dated 4th June, 1999. Mary Johnson, the plaintiff and respondent, hereinafter referred to as the plaintiff, instituted an action against the defendants in 1995 in which she seeks, inter alia, (a) Damages for conspiracy, misrepresentation and breach of her constitutional rights; (b) Damages for libel; (c) A declaration that the payments made by the plaintiff to the first named defendant, its servants or agents, in the sum of £1,915.45 ought to be set aside as having been procured by the undue influence of the first named defendant, its servants or agents; and, (d) An order directing the first named defendant, its servants or agents, to repay to the plaintiff the sum of £1,648.06 being the balance of the said sum of £1,915.45 due and owing to the plaintiff. The plaintiff brought a motion for further and better discovery against the defendants. On the hearing of the motion before the High Court the main issue raised was that of sacerdotal privilege in relation to counselling notes. The defendants claimed that there should not be disclosure of the documents on the basis of sacerdotal privilege. The High Court rejected this claim. The issue of sacerdotal privilege has not been appealed and is not an issue before this Court. There were other issues before the High Court relating to the nondisclosure of documents. It was submitted that the documents were in the procurement of the defendants. It is the issue of the possession, custody or power of documents which is at the kernel of this appeal.
2. The High Court
The High Court (Geoghegan J.) ordered that certain documents must be procured by the first named defendant. He stated:
“Of course there is another argument for non-disclosure being made. It is suggested that in the case of some of the documents which would be material, they are no longer in the possession or procurement of the Defendants in that they have been sent to branches of the Church of Scientology in the U.K. I do not find it credible that these documents are not procurable and I think it likely that this is being used as a method of defeating discovery in the Irish Courts. It was the Mission of Dublin in the Church of Scientology which the Plaintiff joined and any documents prepared in connection with her membership would seem to be clearly in the possession and ownership of one or more of the Defendants. The argument has been made on behalf of the Defendants that even if it were true that on request to England, documents would be returned, this does not mean that they are within the procurement of the Defendants within the meaning of the Rules of the Superior Courts. I accept that proposition in circumstances where the requesting party and the retaining party have no institutional link with each other and are fully at arms length with each other. In such a case the test is whether the documents could be recovered by action and not whether as a matter of probability they would be voluntarily handed over on a request. But I do not accept that that is the position where two branches of the same institution are involved. There would seem to be strong prima facie evidence here that any documents relating to the Plaintiff and in the possession of an English branch of the Church of Scientology are being held by the English branch as agents for the Defendants or one or other of them. I will therefore direct that the documents which come within this category must be procured by the First named Defendant and included in a Supplemental Affidavit of Discovery if not already discovered and must be produced for inspection to the Plaintiff if requested and the Plaintiff must be given copies thereof.
Some of the other discovery sought by the Plaintiff seems to me to be excessive. However, I am prepared to make an Order in the terms of paragraph 2 of the Notice of Motion, that is to say; an Order directing the Defendants to make further and better discovery of the documentation described in paragraphs 9 and 10 in the Affidavit of Dympna Murphy but limited to such of the documents as are mentioned in those paragraphs as refer to the Plaintiff and which are not fully and adequately discovered already. Otherwise I will make all the Orders as set out in the Notice of Motion of 3rd July, 1998.
With reference to the documents now in England, it is worth noting what the Fourth named Defendant swore in his Affidavit of Discovery of 30th July, 1997 in paragraph 3. He said the following :-
“The counselling notes were last in my possession, power or procurement in 1995. At that time the documents were transmitted by me to the Church of Scientology at East Grinstead, Sussex in the United Kingdom. I am now making arrangements for this documentation to be returned to the Dublin Mission.”
This clearly re-enforces my view that those documents are within the procurement of the Defendants.”
The Order of the High Court dated 4th June, 1999 stated:
“IT IS ORDERED that within 6 weeks from the date hereof or from the date of lifting of the stay hereinafter granted whichever date shall be the later
1) the Defendants do make available for inspection the originals of all documents being discovered and disclosed by the Defendants pursuant to the Order of the Master made on the 1 lth day of April 1997.
2) the Defendants do make further and better discovery of the documentation described in paragraphs 9 and 10 of the said affidavit of Dympna Murphy but limited to such of the documents as are mentioned in those paragraphs as refer to the Plaintiff and originals or copies of which would routinely be procurable at the request of the Defendants and which are not fully and adequately discovered already.
3) the Defendants do disclose to the Plaintiff those documents in respect of which the Defendants have maintained a claim of sacerdotal privilege.
4) the Defendants do list each and every document in respect [of which] a claim to legal professional privilege is maintained.”
3. Grounds of Appeal
Against that judgment and order, in an amended notice of appeal, the defendants have appealed on the following grounds:
” 1. That the documents referred to at Paragraph 2 of the learned trial Judge’s Order would not in fact have been routinely procurable at the request of the Defendants/Appellants, even if appropriate searches had disclosed them still to be in existence:
2. That the learned trial Judge erred in law, or upon a mixed question of law and fact, in finding at Page 8 of his Judgment that there were
documents within the description set out in Paragraph 2 of his Order held or created by non-parties as agents for the Defendants:
3. That the learned trial Judge erred in law so far as by Paragraph 2 of his Order he directed the Defendants/Appellants to disclose any documents not within their possession, custody or power, but within their “procurement”, and in so far as he required the Defendants/Appellants
to disclose documents originals or copies of which would routinely be procurable at the request of the Defendants/Appellants:”
4. Issue
The issue on this appeal is the disclosure of specific documents. The documents are those set out in the affidavit of Dympna Murphy, dated 2nd July, 1998, at paragraph 10. The documents referred to in paragraph 10A and 10B have been discovered. At issue are the documents mentioned in paragraphs IOC, D, E and F, of which it is deposed:
“… I am instructed that there are specific Documents which have not been discovered by the Defendants and which are in their possession, control or power of procurement. The Plaintiff can identify certain istances (sic) where there should be documents available.
C. The Plaintiff completed an IQ test, an Aptitude test and an OCA test in or around the 1st April 1994 at the first Defendant’s headquarters in St. Hill, East Grinstead, England, which has not been discovered.
D. The Plaintiff completed a “Success Story” in St. Hill in or around the 1st April 1994 which has not been discovered, although other “Success Stories” have been discovered.
E. A ‘Security Check List’ (a list of questions designed to gain information from members to ensure that they only have good intentions towards
the Organisation) which the Plaintiff completed in St. Hill in or around the 1st April 1994 has not been discovered.
F. The Plaintiff signed an Agreement with the Sea Org. (an elite, dedicated group of staff members within the organisation who make a commitment of one billion years to work for the Organisation) in or around the 4th April 1994 in St. Hill which has not been discovered.”
In the affidavit of Gerard Ryan, made on behalf of the defendants, on 19th October, 1998 in relation to the said paragraphs 10, C, D, E and F, he deposed as follows:
‘C. The defendants do not have these documents.
D. The defendants do not have these documents in their power or possession.
E. The defendants do not have these documents in their power or possession.
F. Again this is not in our possession or procurement.”
5. Submissions of the Defendants
Mr. James Connolly, SC, counsel for the defendants, submitted that: (a) a party must disclose all relevant documents that either are or have been in his physical possession whether he has, or has previously had, a proprietary interest in them or not, or; (b) although they are not at present in his physical possession, are, or formerly were, under his control, either by his having, or having had, some, though not necessarily the entire, proprietary interest in them, or by his having, or having had, absolute control over them. Despite the reference by the learned trial judge to “procurement” he submitted that there is no such provision in the Rules of the Superior Courts.
Counsel referred to Bula Ltd. v. Tara Mines Ltd.fl 994111.L.R.M. 111 at p. 113 wherein it was stated that there were three distinct concepts: possession, custody and power; that the three concepts are to be considered disjunctively, that is any document to which any one of them applies must be listed. He submitted that a party is not obliged to take steps which would place documents in his power or possession at some stage in the future, but which are not in his power at present; Lonrho Ltd. v. Shell Petroleum [1980] Q.B. 358 at pp. 375-376. He submitted that usually documents in a party’s power are those which are his property but which are not in his physical possession. Even where documents are not a parry’s property, and are not in his physical possession, they may still be liable to disclosure and production if he has absolute control over them. The only established category of documents liable to disclosure on this ground is documents belonging to a company which is under the unfettered control of and therefore the alter ego of a director who is a party to the proceedings; Yates v. Ciba Geiev Agro Ltd. (Unreported, High Court, Barron J., 29th April, 1986), Horgan v. Murray [1999] 11.L.R.M. 257 at pp. 259-260. He submitted that documents in the possession or custody of a subsidiary company are not necessarily in the power of its parent company; Lonrho Ltd. v. Shell Petroleum [1980] Q.B. 358. He submitted that otherwise documents that are not a parry’s property are not in his power. Mere rights of inspection which a party may enjoy over other peoples’ documents are usually conferred for a specific purpose, which does not include the defence of the inspecting party’s personal interest.
Counsel submitted that the two cases that appear to recognise a separate concept of procurement are Northern Bank Finance v. Charlton (TJnreported. High Court, Finlay, P., 26th May, 1977) and Yates v. Ciba Geigy Agro Ltd. (Unreported. High Court, Barron J., 29th April, 1986). He submitted that if the sole basis of the decision in Northern Bank Finance v. Charlton was that the directors of the non-party company from whom the documents were to be procured were agents of the plaintiff, the decision was incorrect and that documents of one company are not within the power of another, wholly unrelated company, merely because they share a director who has a right to inspect documents belonging to the first company in his capacity as its director; the decision may, however, be justified on the ground that in that case the non-party company appears to have been largely controlled by the plaintiff and, in such circumstances, its documents might be considered to have been in the power of the plaintiff. He referred to Yates v. Ciba Geigy Agro Ltd. and to Barron J., at pp. 3-4 of his judgment, where he held that documents in the possession of the defendant’s parent company were within its “procurement” in that if the defendant sought them it would probably be supplied with them, and it was admitted that the documents would be made available to the defendant for the purpose of the trial. He argued that Barron J. appeared to think that “procurement” was a distinct head of control for the purpose of the rules, additional to “possession or power”. However, no authority was cited other than Northern Bank Finance v. Charlton and it was submitted there is no authority for it in the rules.
Counsel submitted that there were a number of High Court decisions inconsistent with Northern Bank Finance v. Charlton and Yates v. Ciba Geigy Agro Ltd. He referred to Bula Ltd. (in Receivership) v. Tara Mines Ltd. (Unreported High Court, Murphy J., 11th January, 1991); and Murphy v. J. Donohoe Ltd. [1996] 11.R. 123, atpp.130-131 cited with approval a passage from Halsbury’s Laws of England (4th edition), Volume 13, paragraph 39. Counsel submitted that the decisions Northern Bank Finance v. Charlton and Yates v. Ciba Geigy Agro Ltd. appear to be inconsistent with the subsequent decision of the Supreme Court in Bula Ltd. v. Tara Mines Ltd. [1994] I.L.R.M. 111 where the Court, referring to the terms used in the rules, held that a party was only obliged to disclose documents in his “possession, custody or power”. He referred to Quinlivan v. Conroy [1999] 11.R. 271 where Kinlen J. at p. 275, referring to Bula Ltd. v. Tara Mines Ltd. specifically noted that there was no such concept as “procurement” in the rules. Counsel referred to the observation in the Supreme Court of O’Flaherty J., in the same case at p. 281, that even if the Assistant Commissioner who endorsed an extradition warrant was in some sense the “agent” of the British authorities, this “agency” did not confer on the Commissioner an enforceable legal right to obtain the documents from those parties, consequently they were not within his power.
Counsel also referred to the judgment of this court in Irish Nationwide Building Society v. Charlton (Unreported, Supreme Court, 5th March, 1997) where Murphy J. referred to the plaintiffs having obtained copies of correspondence between their solicitors and solicitors for a non-party from the latter solicitors and added at p.7 of his judgment that “The plaintiffs clearly were not bound to obtain such documentation…”
In relation to the issue of agency, counsel submitted that a document held by the agent of a party is normally the party’s property if it was created in the course of the agency and for the purpose thereof. He submitted that to this there are exceptions. For example, a contract of agency may confer the proprietary interest on the agent.
Counsel submitted that in this case there is no corporate relationship at all between any of the English church corporations and any of the defendants. None of the English church corporations has any legal interest in the first-named defendant, their only link is that they are obliged to propagate the same belief system. Even if they had a corporate link, which they do not, only if the controller is the party does it have the documents of the entity controlled in its power, it can have no power over documents that have never been in its physical possession and that belong to the controller. A subsidiary’s documents may be in the power of its parent, but the parent’s documents cannot be in the power of the subsidiary. He submitted that the English church corporation are not agents of the defendants generally. They were not, specifically, agents of the appellants for the purpose of the creation or holding of any undisclosed document in this case and no such documents were created in the course or for the purpose of such an agency. There were documents created in the course of the relationship between the second, third and fourth named defendants, on the one hand, and the plaintiff on the other, which are in the custody of the English church corporations, but no objection on the ground of this custody was ever taken to the disclosure or production of these documents, and they have now all been disclosed.
Counsel submitted that a court may not go behind the oath of a party that he does not have certain documents in his possession, custody or power merely because, for whatever reason, it concludes that it is probable that the parties have more documents. The court must be satisfied by specific evidence that the party’s statement is incorrect, and he referred to Phelan v, Goodman [2000] 21.L.R.M. 378.
Counsel pointed out that the document sought as being in the procurement of the defendants in that they or copies of them allegedly would be supplied by the English church corporation on request are an I.Q. test; an OCA test; an aptitude test, allegedly completed by the plaintiff in or about 1st April, 1994 at East Grinstead; a success story allegedly completed by her in or about the same time; a security check-list allegedly prepared by her in or about the same time; a project to prepare sheet allegedly completed by the plaintiff at East Grinstead on or about 4th April, 1994 pursuant to her intention to join the CSEA Organisation and an alleged agreement dated 4th April, 1994 between the plaintiff and the CSEA Organisation. Counsel submitted that, contrary to the learned trial judge’s findings in his judgment, none of these documents was ever in the possession of the defendants or was ever their property or indeed would such documents or copies of them be furnished to the defendants on request nor, if they exist, were they in any sense created in any capacity as agents of the defendants or any of them. Nor can the defendants state whether they ever existed, or control, or authorise, a search for them in England, or give an account of their whereabouts.
Counsel submitted to the court that it was important that the scope of disclosure be limited. He argued that the main reason for such limitation is that, if a party fails to comply with an order for discovery, he or she may, if a defendant, have his or her defence struck out and be placed in the same position as if he or she had not defended. This may be acceptable so far as the documents are in his or her physical possession so he or she has direct control over them or has a proprietary interest which, if need be, the court can require him or her to enforce. However, it is not satisfactory for parties here, including the three personal defendants, who can have their defence struck out because they are in no position to comply directly with the order. He submitted that to preclude a defendant from defending proceedings because of the alleged default of some person over whom he has no control would be a denial of a defendant’s constitutional right to fair procedure. He submitted that this is the reason why the fact that documents, or copies thereof, which are in the possession of a foreign entity of a similar description to a party resident within the jurisdiction which might be supplied in the ordinary course by the foreign entity to the resident party cannot place the resident party under an obligation to obtain the documents. If a foreign organ is under the control of the resident party the documents may well be within the party’s power but otherwise it would be unfair and unconstitutional to make the party’s right to defend an action depend on its ability to obtain documents from a person outside the jurisdiction whom he could in no way control.
Counsel submitted that the point at issue is of great importance over and above the facts of this case. A rule that limits discovery to documents that are or have been the property of a party, or are or have been in his or her physical custody, or are under his absolute dominion where no other person has a legal right to interfere with disclosure, sets clear limits to the duty to disclose. A rule that requires a party to “procure” documents that are not within these categories on the other hand is potentially boundless. It requires searches to be undertaken by people who are not under the control of the party for documents that the party has never seen and has no right to obtain. He referred to Lonrho Ltd. v. Shell Petroleum [1980] 1 W.L.R. 627 at p. 636, per Lord Diplock.
Counsel submitted that the learned trial judge appears to have believed that it was argued for the defendants that there were relevant but undisclosed documents that were no longer in the possession of the defendants in that they had been sent to branches of the church in the United Kingdom. However, he submitted, no such argument was ever made and there are no such documents and there was no evidence before the court supporting the learned trial judge’s conclusion that there were such documents. Further, he said, the English church bodies are not branches but separate corporate entities.
Counsel submitted that the learned trial judge appears to have believed that documents were being shifted out of the jurisdiction to avoid discovery. He said there was no evidence before the court for this conclusion. He submitted that that is not so and that the existence of any documents, including in particular those included in the counselling folder, which had been transferred abroad, have been disclosed.
6. Submissions of the Plaintiff
Mr. John Hennessy, BL, counsel for the plaintiff, submitted that the defendants had made lengthy submissions on the subject of “possession, custody or power” much of which, he submitted, was irrelevant to the matters under appeal. He argued that the net issue is whether the learned trial judge was correct in law in ordering the defendants to make discovery of certain specific documents which are mentioned in paragraph 10 of the affidavit of Dympna Murphy recited above and which refer to the plaintiff, originals or copies which would routinely be procurable at the request of the defendants and which are not fully and adequately discovered already. He distinguished Bula Ltd. v. Tara Mines Ltd. [1994] 1 I.L.R.M. 111 and said that the issue of interpretation is still open. He pointed out that the statement of law by O’Flaherty J. in Quinlivan v. Conroy [1999] 1 IR 271 is obiter dicta. He submitted that to make an enforceable legal right an absolute prerequisite for documents to fall within the power of a party under Order 31 Rule 12 of the Rules of the Superior Courts would be too restrictive. In particular it would risk permitting organisations with operations outside the State to evade discovery of relevant documents otherwise obtainable by ensuring that they originated and remained with the foreign operation. He submitted that this was the thinking behind the order of the learned High Court judge and that it was correct. He submitted that the learned trial judge recognised in his judgment that, notwithstanding the formal corporate structures adopted by the Church of Scientology in various jurisdictions, “two branches of the same institution are involved”. He referred to references in affidavits to the first-named defendant and its sister organisation operating as a single organisation. He referred to statements in documents relating to original documents being sent to England, to original documentation being requisitioned from England, and contact being made about documentation with England. And, finally, he referred to the affidavit by the fourth defendant, quoted by the learned High Court Judge at page 9 of his judgment, where it was said:
“The counselling notes were last in my possession, power or procurement in 1995. At that time the documents were transmitted by me to the Church of Scientology at East Grinstead, Sussex in the United Kingdom. I am now making arrangements for this documentation to be returned to the Dublin mission.”
The Court was informed that there was no dispute as to the obligation to produce counselling notes.
Counsel submitted that the nature of the relationship between the Irish and the English branches of the Church of Scientology is akin to a parent/subsidiary relationship between corporations. He argued that the relevant case law is set out in the judgment of Barron J. in Yates v. Ciba Geigy Aero Ltd. (Unreported, High Court, Barron J., 29th April, 1986). In that case the learned trial judge found that discovery could be ordered in respect of documents in respect of the parent company of the defendant on the grounds that “Possession alone is not the test. Documents may be in the power or procurement of a party even though they are not in his possession” and “In the present case, there is no reason to suppose that a request for such documents by the defendant would be refused.”
Counsel pointed out that the Rules of the Superior Courts make no reference to the concept of procurement. He pointed out, however, that one of the defendants used the term “procurement” in one of the affidavits.
Counsel referred to the argument in relation to agency. The fact that it was submitted that even if the documents in question are at present outside the control and possession of the defendants, the English branch of the Church of Scientology was acting as agent for the first named defendant when the relevant documents were created. He referred to the finding of agency by the learned trial judge.
Counsel submitted that the documents which the plaintiff believes to be in the possession or power of a United Kingdom branch of the Church of Scientology were, in fact, created as a result of the plaintiffs attendance at courses delivered to her by the United Kingdom branch acting as agent for the first named defendant.
Counsel submitted that the agency is demonstrated by a number of facts, not least of which being the fact that one of the activities undertaken by the plaintiff in the United Kingdom branch was a continuation of a course already commenced with the first named defendant in Dublin. Further, it was the plaintiffs case that she joined the first named defendant and that when she attended courses run in the United Kingdom she did so in her capacity as a member of the first named defendant. As a result the United Kingdom branch of the Church of Scientology having no other basis for having an interest in the plaintiff acted as agent of the first named defendant in delivering such courses to the plaintiff.
Counsel submitted that documents held by an agent and created in the course of the agency and for the purpose thereof are the property of the principal. He submitted that this places the documents in question in the ownership of the first named defendant, giving it a legally enforceable right to obtain them and thereby rendering them discoverable under Order 31 Rule 12 and the decision of this honourable Court in Bula Ltd. v. Tara Mines Ltd. [19941 1 I.L.R.M. 111. Counsel submitted that there is no merit in the defendant’s submissions relating to the position in which they find themselves if they fail to comply with the order of the High Court. The order limits the discovery obligation to those documents which would be routinely procurable by the defendants. At the hearing held to clarify the scope of the order the learned trial judge made it clear that he would be very sceptical of any assertion by the defendants that any of the documents covered by his order had been bonafide destroyed. It is clear that documents routinely procurable can, by definition, be obtained and produced and that therefore the defendants must be prepared to face the full consequence of non-compliance with the order of the High Court if they fail to produce the documents.
7. Law
Order 31, Rule 12(1) of the Rules of the Superior Courts states:
“Any party may… apply… for an order directing any other party to any cause or matter to make discovery on oath of the documents which are or have been in his possession or power, relating to any matter in question therein.”
In the said Rules Appendix C, No. 10, paragraph 7 sets out the form of affidavit provided;
The averment is:
“According to the best of my knowledge, information, and belief, I have not now, and never had in my possession, custody or power, or in the possession, custody or power of my solicitors or agents, solicitor or agent, or in the possession, custody or power of any other persons, or person on my behalf, any deed,… relating to the matters in question in this suit, or any of them, or wherein any entry has been made relative to such matters, or any of them, other than and except the documents set forth in the … schedules hereto.”
8. Decision
In relation to the discovery of documents the law evokes three concepts, possession, custody and power; see Order 31, Rule 12(1) Rules of the Superior Courts and Appendix C, No. 10, paragraph 7. In Bula Ltd. v. Tara Mines Ltd. H99411 I.L.R.M. Ill at p. 113, O’Flaherty J. stated:
“I believe that the three concepts come into play, viz. possession, custody and power and they are to be considered disjunctively.”
“Power” was defined by O’Flaherty J. at p.l 13 as:
“A document is within the power of a party if he has an enforceable legal right to obtain from whoever actually holds the document inspection of it without the need to obtain the consent of anyone else.”
This statement was reinforced in Quinlivan v. Conrov F19991 11.R. 271, at p. 281, when O’Flaherty J., in a judgment agreed to by the four other members of the Court, referred to the fact that an enforceable legal right to obtain the documents is necessary, stating:
“Nor would the relationship (if it existed) give to the defendants the enforceable legal right to obtain those documents which, as has been held by this Court in Bula Ltd. v. Tara Mines [1994] I.L.R.M. 111, is necessary to establish that documents are within the “power” of a party or person for the purposes of O. 31, r.12 of the Rules of the Superior Courts, 1986.”
Thus a document to be discovered must be in the possession, custody or power (in accordance with the enforceable legal right test) of a party.
In this case the learned High Court Judge in his judgment directed that the documents now in issue be procured by the first named defendant and be produced for inspection to the plaintiff. That direction was based on the premise that the documents in question were in the possession of the English Church of Scientology Corporation as agents of the first named defendant. In effect the learned High Court Judge was holding that the documents were within the power of the first named defendant because of an agency relationship with the English Church of Scientology and for that reason could be procured by them.
As to the matter of agency, the first named defendant is sued in its capacity as a corporation. On the basis of the facts adduced in this application the first named defendant is a separate corporate body to the English Church of Scientology corporation. While it has been shown that both corporations work towards the same goal and that they have co-operated in matters of mutual interest, it has not been established that, on the facts of this case, the English corporation acted as the agent for the first named defendant in relation to the documents at issue. This is not to say that the first named defendant and the English Church of Scientology must be treated in all circumstances as if they were wholly separate and distinct corporate entities operating at arms length. The Court is not concerned with the general relationship between those two entities but only with their relationship so far as it is relevant to the correctly set out by O’Flaherty J. in Bula Ltd. v. Tara Mines Ltd. [1994] 1 I.L.R.M. 111 and Quinlivan v. Conroy [1999] 1 IR 271.
9. Conclusion
Documents which are in the possession, custody or power of a party must be discovered. A document is in the power of a party when that party has an enforceable legal right to obtain the document.
The documents in issue in this case are not in the possession, custody or power of the defendants and the defendants have no enforceable legal right to obtain them. Accordingly, the plaintiff is not entitled to the discovery sought. I would allow the appeal.
Ulster Bank Ireland Ltd -v- Louis Roche & Anor
[2012] IEHC 166 (29 March 2012)
JUDGMENT of Mr. Justice Clarke delivered on the 29th day of March, 2012
1. Introduction
1.1 In early 2006, the first named defendant (“Mr. Roche”) was running a business through a corporate entity called Louis Roche Motors Ltd. (“Roche Motors”). As the name implies, the business involved the motor trade. At that time, the second named defendant (“Ms. Buttimer”) was his partner in the personal sense of that term, although she took no role in the business. She was, at all material times, employed as a hairdresser on a modest salary. It does, however, have to be noted that she had become a director of Roche Motors, although her case is that her involvement was limited in the extreme.
1.2 In any event, Mr. Roche was dissatisfied with his then current banking arrangements and entered into discussions with a Mr. Brendan Healy who was the manager of the Midleton branch of the plaintiff bank (“Ulster Bank”). As a result of those discussions, Mr. Roche agreed that the banking business of Roche Motors would be transferred to Ulster Bank at the Midleton branch.
1.3 The various banking formalities were entered into, but, of particular relevance to the issue which I now have to decide is the fact that one of the terms imposed by Ulster Bank was that a guarantee be put in place from the directors of Roche Motors. It is not disputed that a guarantee document was in fact signed by Ms. Buttimer. Moreover the circumstances in which that occurred are of some controversy. A guarantee was also executed by Mr. Roche. Ultimately, both the guarantees of Mr. Roche and of Ms. Buttimer were called in and proceedings against both, seeking to recover the monies said to be due arising out of those guarantees, were commenced by Ulster Bank by summary summons. I understand that judgment has been obtained against Mr. Roche but no sums have been paid by him on foot of that judgment. The case as against Ms. Buttimer was adjourned to plenary hearing and came on for hearing before me.
1.4 The guarantee concerned was for a maximum sum of €50,000 together with interest from the time when the guarantee was called in. That event occurred on 27th July, 2007, so that the claim is now for the sum of €50,000 together with interest from that date. There is no dispute between the parties as to the calculation of the amount due. The dispute which arises is as to whether Ms. Buttimer is liable on the guarantee at all. In that context, Ulster Bank’s case is simple. Ulster Bank says that Ms. Buttimer guaranteed the liabilities of Roche Motors up to maximum of €50,000, that that guarantee has been validly called on and that the amount claimed is now due and owing. Against that background, it is appropriate to turn, first, to the defence put forward on behalf of Ms. Buttimer.
2. Ms. Buttimer’s Defence
2.1 Counsel for Ms. Buttimer commendably confined himself at the hearing to making two points in defence of Ulster Bank’s claim. I propose dealing with them separately.
2.2 The first point arises out of a factual dispute, to which brief reference has already been made, as to the circumstances in which Ms. Buttimer came to sign the relevant guarantee. It does need to be noted that Ms. Buttimer accepted in evidence that the signature on the guarantee is hers. The guarantee purports to be witnessed by an employee of Ulster Bank, a Ms. Sinead O’Connell. Ms. Buttimer says that she never attended at Ulster Bank in Midleton and never met Ms. O’Connell. On the other hand, Ms. O’Connell gave evidence that, while she had no direct recollection of the circumstances in which Ms. Buttimer came to sign the guarantee, it was her universal practice not to sign banking documents as witness unless the signatory was in her presence and signed the document in a way which she could verify.
2.3 On the assumption that I might favour the evidence of Ms. Buttimer on this point, counsel suggested that, in the event that the guarantee was not signed in the manner asserted on behalf of Ulster Bank, it could be said that Ulster Bank had failed in a duty to Ms. Buttimer which it is said that Ulster Bank had assumed. It is argued that by producing a standard form contract which, by its terms, required the document to be signed in the presence of a witness, Ulster Bank intended to afford Ms. Buttimer an opportunity to make enquiries and the like in relation to the substance of what she was doing. There is, under this heading, therefore, both a factual dispute and a legal question as to whether, even if Ms. Buttimer’s evidence is accepted, same would afford any defence. Finally, under this heading, it should be noted that Ms. Buttimer’s account is that she, on a number of occasions, signed documents that were given to her by Mr. Roche in connection with Roche Motors without reading the documents or considering their contents.
2.4 Indeed, that latter point leads to the second issue in the case. It is asserted on behalf of Ms. Buttimer that she was subject to undue influence from Mr. Roche. Evidence was lead in favour of that proposition. However, even if that evidence is accepted, there is a difficult legal issue as to the circumstances in which a finding of undue influence by Mr. Roche gives Ms. Buttimer a defence to these proceedings. It is, of course, clearly the case that, where one contracting party induces the other to enter into the relevant contract by the exercise of undue influence, then the contract concerned can be set aside inter partes. However, the problem here is that the assertion of undue influence is not made against a contracting party, but rather against a person who, in the context of the guarantee, is a third party, albeit one who had an interest in the execution of the guarantee in question by Ms. Buttimer, as the guarantee was a necessary part of the banking arrangements which were put in place which favoured Roche Motors and through that company, Mr. Roche himself. In that context, it does need to be noted that Ms. Buttimer was not a shareholder in Roche Motors even though she was a director. I propose dealing with both of the issues, which I have identified, in turn.
3. The Signature Witness Question
3.1 It seems to me that it is appropriate to address the legal question first. There have been cases such as: Tulsk Cooperative Livestock Mart Ltd. v. Ulster Bank Ltd. (Unreported, High Court, Gannon J., 13th May, 1983); Towey v. Ulster Bank Ltd. [1987] ILRM 142; and T.E. Potterton Ltd. v. Northern Bank Ltd. [1993] 1 I.R. 413, where the courts have held that, while a bank does not ordinarily owe a duty of care (outside the context and terms of the relevant contracts) to a customer, a bank may assume, by giving advice to the customer, added obligations which may leave the bank liable in the event that the advice concerned is not competently given. I have no difficulty in accepting that general proposition.
3.2 However, the only way in which counsel was able to suggest that Ulster Bank, on the facts of this case, had accepted any additional advisory responsibility in relation to Ms. Buttimer was that it was said that, by producing a standard form which bears in print the statement “in the presence of” prior to leaving space for the witness, Ulster Bank undertook to advise Ms. Buttimer. It was suggested that by producing such a form, Ulster Bank was, in substance, intimating that it required that the document be signed in the presence of an official of the bank. It was then further suggested that part of the reason for such a requirement was to enable such a bank official to give advice, if necessary, to the person signing the guarantee, as to the consequences of the guarantor so doing. It was suggested that that in turn amounted to an acceptance by Ulster Bank of an obligation to advise.
3.3 I am afraid I cannot agree with that proposition. The principal reason why any party may wish to have a witness (and preferably a witness from within its own ranks) to a signed contract is to deal with the difficulty which might well arise in the event that it is contended that the document was not signed by the other contracting party at all. Only a very limited class of legally effective documents are required, as a matter of law, to be not only signed, but to have that signature witnessed. A will is a good example. There is no requirement that a guarantee be witnessed at all. It seems to me that the only inference to draw from the fact that the standard form used by Ulster Bank in this case contains provision for a witness is that Ulster Bank considered it prudent that it have a witnessed document to minimise the risk of there being a dispute as to whether the guarantee had actually been signed by the person purporting so to do.
3.4 Counsel for Ms. Buttimer placed some reliance on the fact that Mr. Healy, the bank manager, did indicate in evidence that the presence of a bank official as a witness might afford that bank official the opportunity to answer any questions which the proposed guarantor might wish to put. That may well be so, but it seems to me that that fact falls far short of bringing the bank within the circumstances, identified in the jurisprudence to which I have referred, where the bank has taken it on itself to offer advice and then gives that advice negligently.
3.5 The fact remains that Ms. Buttimer signed a guarantee in circumstances where it was likely that that guarantee would be given to Ulster Bank as representing her guarantee. It will be necessary to turn to the circumstances in which she signed the guarantee when dealing with the second issue to which brief reference has already been made. However, in the ordinary way (and as I pointed out in ACC Bank PLC v. Kelly & Anor [2011] IEHC 7, and as Kelly J. adopted in Irish Bank Resolution Corporation Ltd v. Quinn & Anor [2011] IEHC 470), a person who signs a document which may well have significant legal effect and does so, either without reading the document or without applying themselves to the content of the document, “must accept the consequences of having signed a commercially binding agreement in those circumstances” and will, prima facie, be bound by what they have signed. The fact is that Ms. Buttimer signed a document without making any attempt to ascertain what it was or what its consequences might be. In the ordinary way, she has to bear responsibility for her own actions in so doing. As I pointed out in ACC v. Kelly, the situation might be different where the bank concerned itself misrepresents the content of the document or otherwise acts in a way which would allow the party to have the transaction set aside. However, there does not seem to me to be any evidence to suggest that the bank in this case acted improperly. Even if, therefore, the way in which the guarantee came to be signed is as Ms. Buttimer asserts, I am not satisfied that that would afford her any defence. She signed banking documents on behalf of a company which was owned by her partner and of which she was a director. Any bank receiving those documents is entitled to assume that she has committed herself to guarantee the loan referred to in the documentation. Subject, therefore, to the undue influence question, it seems to me that Ms. Buttimer bound herself to the guarantee when she signed it. I, therefore, turn to the undue influence question.
3.6 However, lest I be wrong in that conclusion, it does seem to me that I need to make a finding of fact on the question of whether the signature was witnessed, even though, for the reasons which I have set out, it does not seem to me to be determinative of these proceedings. I found both Ms. Buttimer and Ms. O’Connell to be truthful witnesses who gave evidence in accordance with their current recollection. They cannot, of course, both be correct. Either Ms. Buttimer is now mistaken as to the circumstances in which she came to sign the guarantee, or Ms. O’Connell is mistaken in her assertion that she has never witnessed a banking document without the witness in question being in her presence. It does, of course, have to be noted that Ms. O’Connell does not, for entirely understandable reasons, have any direct recollection of the signing in this case. She was not directly involved in the lending transaction, save to the extent that it was her obligation to ensure that the formalities were dealt with so as to set up the account and to ensure that all necessary documentation (including the guarantees) was in place. There is no reason why she should recollect what would, on any view, have been a very brief event when a document was signed in her presence by someone who she did not know and where her only involvement would have been to witness the relevant signature. If her evidence was that she might on occasion depart from an otherwise normal practice (which was never to sign documents as a witness without the signatory being present), then it might easily be possible to conclude that this was one of those cases where she witnessed without the signatory being there. However, her clear evidence was that she never signed as a witness without the signatory being present. Having concluded that she was a truthful witness, I could only find the facts against her if I were satisfied that, while that is her universal practice, she did, on this occasion, depart from it in circumstances which she now does recollect.
3.7 Likewise, I could only find against Ms. Buttimer on this issue if I came to the view that, as a truthful witness, she now believes that she never attended Ulster Bank, but that she did, in fact, do so. In assessing that later possibility, a number of factors need to be taken into account. First, having regard to the fact that Ms. Buttimer has accepted that she dealt with formal banking documents on behalf of Mr. Roche without paying a great deal of attention to them, it is possible that she did not pay any attention to, and therefore does not recollect, going into Ulster Bank. The possibility of such an explanation is, in my view, heightened by the facts concerning her relationship with Mr. Roche at the time in question and the psychological difficulties which she was encountering at that time, which are addressed later in relation to the undue influence point. On balance, if forced to choose, I would conclude that it is more likely that Ms. Buttimer is mistaken and no longer recollects having attended Ulster Bank, rather than that Ms. O’Connell is mistaken by having, unusually and in circumstances which she no longer recollects, departed from her universal practice of never signing as a witness, save in the presence of the person whose signature she is to attest.
4. Undue Influence
4.1 As pointed out earlier, there are both factual and legal aspects to the argument under this heading. The first factual question is as to whether Ms. Buttimer was actually under the undue influence of Mr. Roche. The legal question (which involves, at least in one view, some further questions of fact) is as to whether there are sufficient circumstances that allow Ms. Buttimer to have the guarantee set aside on the basis of the undue influence of Mr. Roche where Ulster Bank was not, itself, guilty of any undue influence. I propose dealing with the first of those issues straight away.
4.2 Having heard the evidence of Ms. Buttimer and the evidence of her clinical psychologist, I am satisfied that Ms. Buttimer was under the undue influence of Mr. Roche at the time in question. I am satisfied that she had no involvement in the business of Roche Motors of any material variety and that she was in a dependent and quite abusive relationship. Of particular assistance, on the evidence in this case, is the fact that the professional contact between Mr. Buttimer and her clinical psychologist was contemporaneous to the events with which this case is concerned. This is not one of those cases where a mental health professional is attempting to reconstruct a situation some time (often years) after the events which are crucial to the proceedings. Rather, this is a case where Ms. Buttimer was in receipt of counselling at the time in question and where her clinical psychologist is in a position to give a professional judgment as to her mental state and the relationship between that mental state and the actions of Mr. Roche, at the very time when the events which are at the heart of this case occurred. I fully accept the evidence of Ms. Buttimer’s clinical psychologist and, on that basis, am satisfied that she was in the sort of dependent and abusive relationship with Mr. Roche at the relevant time where she would have done anything that he asked. That leg of the test is, therefore, in my view, met. Ms. Buttimer signed the guarantee in question while under the undue influence of Mr. Roche.
4.3 The case, therefore, comes down to the question of whether that fact affords Ms. Buttimer a defence to Ulster Bank’s claim in this case. I therefore turn to that question.
5. Does Mr. Roche’s Undue Influence Provide a Defence?
5.1 As pointed out earlier, there is a significant legal question which arises under this heading. That question is as to the extent to which a bank may find itself unable to rely on a banking contract (including in this context a guarantee for a bank debt) where it can be shown that the relevant contract was entered into as a result of the exercise of undue influence by a third party not directly connected with the bank.
5.2 As pointed out in Donnelly “The Law of Credit and Security” (1st Ed. Round Hall 2011) at para. 19-141, the only occasion on which third party undue influence, in the context of contracts of guarantee, has come directly before the Irish courts to date is in Ulster Bank Ireland Ltd. v. Fitzgerald & Anor (Unreported, High Court, O’Donovan J., 9th November, 2001). In Fitzgerald, O’Donovan J. considered that it was not necessary for him to reach a conclusion as to whether undue influence actually existed on the facts of the case because he was satisfied that the bank in question had neither actual nor constructive notice of any undue influence. As O’Donovan J. put it, the bank did not have “even an inkling” of any reason why the guarantor might not have been a free agent. O’Donovan J. considered that a bank is not put on inquiry simply because a wife guarantees a loan to her husband’s business and also accepted the proposition that the surety in the case in question had a stake in her husband’s business (even though she was not a shareholder or a director) because she and her family relied on the income generated by the company, whose debts were to be guaranteed, for their day-to-day living. On the basis of those views, O’Donovan J. came to the conclusion that there was no obligation on the bank in question to seek to ensure that the surety should obtain independent legal advice.
5.3 There can be little doubt, therefore, that if I am to follow the views of O’Donovan J. in Fitzgerald, Ms. Buttimer must fail. There is no evidence on the facts of this case that Ulster Bank was in any way aware of any undue influence that Mr. Roche might have brought to bear on Ms. Buttimer. Indeed, I did not understand counsel for Ms. Buttimer to strongly press the argument that he could succeed in his defence if l am to follow Fitzgerald.
5.4 However, counsel for Ms. Buttimer places reliance on Royal Bank of Scotland plc v. Etridge (No. 2) [2002] 2 AC 773, in which the House of Lords clarified the law in respect of third party undue influence so far as the United Kingdom is concerned. It does need to be noted that the decision of O’Donovan J. in Fitzgerald came a few weeks after Etridge and, therefore, for understandable reasons, Etridge does not appear to have been referred to in argument and was certainly not referred to in the judgment. In substance, counsel for Ms. Buttimer suggests that I should now adopt the authority of Etridge as the law in this jurisdiction rather than the view of O’Donovan J. as set out in Fitzgerald. In that context, it is worth noting that Laffoy J. endorsed the approach of the House of Lords in Etridge in the context of a separate aspect of the judgment in that case which concerned a plaintiff’s argument that she had not received adequate independent legal advice in signing a deed of confirmation in respect of a right of residence. The case in question was Tynan v. County Registrar for Kilkenny & Anor [2011] IEHC 250. It is also worthy of some note that the decision in Fitzgerald has been the subject of an amount of academic criticism. See para. 19-143 of “The Law of Credit and Security” by Donnelly; J. Mee “Undue Influence on Bank Guarantees” (2002) 27 Ir. Jur. 292; and Delaney, “Equity and the Law of Trusts in Ireland” (5th Ed. Round Hall 2011), p. 746.
5.5 The substance of that criticism is that the approach taken in Fitzgerald offers insufficient protection to potential vulnerable sureties and leaves a lender with no obligations arising from knowledge that the parties are married or otherwise closely connected unless it has some special reason to believe that a wrong has actually taken place.
5.6 In reality the issue with which I am concerned is one of constructive knowledge. In what circumstances is it appropriate to attribute to a bank knowledge of undue influence in circumstances where the bank is not actually aware of the exercise of the undue influence concerned? There is absolutely no evidence from which it could be inferred that Ulster Bank in this case was actually aware of the undue influence which I have found Ms. Buttimer to be under from Mr. Roche. If Ms. Buttimer is to succeed in her defence then it is necessary for her to establish that Ulster Bank has constructive knowledge of that undue influence.
5.7 Constructive knowledge can often usefully be broken down into two separate questions. The first is as to what factors place a party on inquiry. The second is as to the nature of the inquiry or action that may then be required. If, in circumstances where a party is put on inquiry, that party does not carry out the inquiries necessary or take whatever other form of action may be mandated, then the party will be fixed with knowledge of matters which it would have discovered had it made the appropriate inquiries or, at least, may be faced with the situation where the court views the case on the basis that appropriate steps were not taken.
5.8 The starting point has to be to note that it seems clear that O’Donovan J. in Fitzgerald did accept, at least at the level of principle, that it was possible that a bank might have constructive knowledge of third party undue influence. However, O’Donovan J. was not satisfied that constructive notice existed on the facts of the case before him.
5.9 I am mindful of the fact that if I am either to follow Etridge or go someway down the road towards the position adopted by the House of Lords in that case, I will necessarily be disagreeing with O’Donovan J.. The jurisprudence concerning the circumstances in which a judge of this Court should depart from the interpretation of the law as found by another judge of this Court is clear (see- Irish Trust Bank v. The Central Bank of Ireland [1976-7] ILRM 50; Worldport Ireland Ltd. (In liquidation) v. Companies Acts [2005] IEHC 189; Brady v. D.P.P. [2010] IEHC 231; and I v. MJELR [2011] IEHC 66). However, in circumstances where O’Donovan J. was not referred to Etridge and did not, therefore, have an opportunity to consider whether the views expressed by the House of Lords in Etridge should find favour in this jurisdiction, it seems to me that this is an appropriate case where I should at least consider whether the United Kingdom jurisprudence is persuasive.
5.10 On that basis, and returning to the two questions into which constructive knowledge can usefully be divided, it seems appropriate to turn first to the question as to when a bank may be placed on inquiry. In that context it is appropriate to consider the views on that question expressed by the House of Lords in Etridge. It must be recalled that the House of Lords was considering, in that case, appeals in some eight different cases raising, at least in general terms, the same types of issues. The head note to the judgment suggests that the finding of the court was as follows:-
“Whenever a wife offered to stand surety for the indebtedness of her husband or his business, or a company in which they both had some shareholding, the lender was put on inquiry and was obliged to take reasonable steps to satisfy itself that she had understood and freely entered into the transaction. The steps reasonably to be expected of a lender in relation to past transactions were to bring home to the wife the risk she was running by standing surety, either at a private meeting with her or by requiring her to take independent advice from a solicitor on whose confirmation the lender might rely that she had understood the nature and effect of the transaction. In respect of future transactions the lender should contact the wife directly, checking the name of the solicitor she wished to act for her and explaining that for its protection it would require his confirmation as to her understanding of the documentation to prevent her from subsequently disputing the transaction. The lender should not proceed until it had received an appropriate response from the wife and should in every case receive the written confirmation from the nominated solicitor. Subject to the husband’s consent to disclosure, without which the transaction could not in any event proceed, the lender should routinely furnish to the nominated solicitor financial information relating to the facility and the husband’s existing indebtedness to enable a proper explanation to be given to the wife. The nominated solicitor should require confirmation that the wife wished him to act for her, and he might, so long as no conflict of duty or interest arose and he was satisfied that it was in her best interests to do so, also act for the husband or the lender. His advice should be given at a face-to-face meeting in the absence of the husband, and its contents need not be directed to the commercial wisdom of the transaction but should include, as a core minimum, an explanation of the documentation, its practical consequences and inherent risks based on the financial information provided by the lender; he should also state that the choice whether to proceed was to be exercised by her and should check that she wished to continue and, if so, he should obtain her consent to his giving the confirmation required by the lender. Since in so advising her the solicitor assumed professional responsibilities to the wife he did not act as agent for the lender, who was entitled to assume that he had acted properly, and, in consequence, knowledge of the contents of advice given to the wife, whether negligently or otherwise, was not to be imputed to the lender”.
5.11 In his speech in Etridge, Lord Nicholls found that a bank was put on inquiry when faced with a transaction which called for explanation and thus is put on inquiry: where a wife stands surety for her husband’s debts; where a husband stands surety for his wife’s debts; and where unmarried couples, whether heterosexual or homosexual, stand surety for each other’s debts in circumstances where the lender is aware of the relationship. Lord Nicholls went so far as to suggest that the only practical way of dealing with the matter was to regard the lender as on inquiry in every case where
“the relationship between the surety and the debtor is non-commercial”. While Lord Nicholls distinguished between cases where the surety guaranteed the debts of a spouse or partner from a case where the monies were advanced to the spouses or partners jointly (the lender not being in inquiry in the latter case unless it was known to the bank that the loan was for the benefit of one person only), nonetheless Lord Nicholls took the view that a guarantee over the debts of a company in which the shares were held by both spouses or partners did place the lender on inquiry having regard to what was said to be the fact that, in many such cases, the shareholding did not reflect the true situation.
5.12 It seems to me that this issue raises very difficult questions. It is not, in my view, necessary to fully explore the precise parameters of the circumstances in which a bank may be placed on inquiry for the purposes of determining the issues in this case. It seems, for example, to follow from the adoption of the test from Etridge that a bank would be placed on inquiry when faced with a request for guarantees from two business partners who were the principals and shareholders in a business whose debts were to be guaranteed and who were also, to the knowledge of the bank, same sex partners in the relationship sense of that term. There would be no particular reason why either one of the partners might not be said to be the one who might exercise undue influence and the other be the one who might be influenced. It follows that it would be necessary to ensure that both had independent legal advice. Again, given the recognition that the principle applies equally between husband and wife as it does between wife and husband, it is difficult to see how there could be any logic in requiring a wife to demonstrate independent legal advice but not a husband in circumstances where they were both shareholders in the business whose debts were to be guaranteed and where there were no facts known to the bank concerned which would suggest that the business was, in truth, operated by only one of them. Nothing in this judgment should be taken as, therefore, necessarily implying that the law in Ireland goes as far as the position in the United Kingdom as identified in Etridge in placing a bank on inquiry.
5.13 However, and in any event, on the facts of this case it is not necessary to go that far. First, it is clear that Ms. Buttimer was not a shareholder in Roche Motors even though she was a director. That is a factor which suggests at least a significant possibility of a non-commercial aspect to the case. Second, the bank had some knowledge of the fact that Mr. Roche and Ms. Buttimer were engaged in a personal relationship. Admittedly that knowledge was somewhat limited and indirect in that it seems that another official in the same bank who had a tangential involvement in the transaction (being the official who was required to verify compliance with the various formal requirements, as a second set of eyes, after they had initially been confirmed as being in order by Ms. O’Connell) also happened to know of the relationship between Mr. Roche and Ms. Buttimer. Third, there is some evidence which suggests that Ulster Bank may have been aware that both Mr. Roche and Ms. Buttimer operated from the same address. The address ultimately placed on the relevant banking documents for Ms. Buttimer was a different address to that of Mr. Roche. However, the address initially placed on the documents seems to have been tippexed and printed over in circumstances where the verifying documentation, for the purposes of the money laundering legislation, seems to have given a different address to that initially tendered by Ms. Buttimer. In the circumstances I am satisfied that Ulster Bank was, in fact, aware that Mr. Roche and Ms. Buttimer were in a relationship. Furthermore, it is clear that all of the discussions between Roche Motors and the bank were conducted by Mr. Roche. That fact, of itself, would not, in my view, be sufficient. It is, as Mr. Healy pointed out, frequently the case that one of a number of partners in business ventures (whether carried out as a partnership or through a corporate vehicle) will have primary responsibility for dealing with financial matters including relations with the venture’s banks. That fact of itself should not necessarily place a bank on inquiry as to whether others involved in the venture, who are asked to put up security by way of guarantee, might not be the subject of undue influence. However, in circumstances where a person who is required to offer security is not a shareholder and where there is no evidence to suggest that the bank was aware of any active involvement of that party in the business, then it seems to me that the personal relationship between the parties emerges as a much more significant factor.
5.14 It seems to me that the academic criticism of Fitzgerald is well founded. A regime which places no obligation on a bank to take any steps to ascertain whether, in the presence of circumstances suggesting a non-commercial aspect to a guarantee, the party offering the guarantee may not be fully and freely entering into same, gives insufficient protection to potentially vulnerable sureties. While not necessarily accepting that the precise parameters, identified in Etridge, are those which give rise to an obligation on the bank to inquire, and thus represent the law in this jurisdiction, I am satisfied that the general principle, which underlies Etridge, is to the effect that a bank is placed on inquiry where it is aware of facts which suggest, or ought to suggest, that there may be a non-commercial element to a guarantee. That general principle, at a minimum, goes far enough to cover the facts of this case where the bank was, for reasons set out, aware of the personal relationship between Ms. Buttimer and Mr. Roche and was also aware that Ms. Buttimer had no direct interest in the company (other than being a director) and was, indeed, in those circumstances, in a less secure position than a spouse or, in the modern context, a civil partner who has at least certain potential legal rights in the assets or income of the other spouse or partner. The potential for undue influence against a partner, such as Ms. Buttimer, who has very limited legal rights indeed and who has no interest in the company whose debts it is sought that she should guarantee, seems to me to be well on the side of whatever threshold might ultimately be fixed for determining the point at which a bank is placed on inquiry.
5.15 In those circumstances I am satisfied that the bank was on inquiry on the facts of this case.
5.16 That leads to the second question which is as to what a bank must do when placed on inquiry. I have already cited the position in the United Kingdom as per Etridge. Again, under this heading, nothing which I say should be taken as necessarily implying that the full rigours of the regime which applies in the United Kingdom represents the law in Ireland. However, I am satisfied that a bank which is placed on inquiry is obliged to take at least some measures to seek to ensure that the proposed surety is openly and freely agreeing to provide the requested security. As Ulster Bank, in this case, took no such steps it is, in my view, unnecessary to consider the precise level of steps which a bank must take.
5.17 In those circumstances it seems to me that Ms. Buttimer is entitled to rely on the undoubted undue influence which Mr. Roche exercised over her by virtue of the failure of Ulster Bank to take any steps to seek to ensure that she was acting freely in circumstances where, for the reasons which I have sought to analyse, Ulster Bank was, in my view, placed on inquiry.
6. Conclusions
6.1 For those reasons it seems to me that Ulster Bank’s claim must fail.
6.2 I leave it to another case to deal with any different set of circumstances either as to when a bank is put on inquiry or the steps which a bank must take when put on inquiry
Moyles v. Mahon
[2000] IEHC 197 (6th October, 2000)
Delivered extempore by the Honourable Mr Justice Thomas Smyth on 6th October 2000
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1. The Plaintiff is now aged 80 and lives in an old person’s home in Birr, Co. Offaly. He is a widower, his wife having predeceased him in September 1994. There were a number of children of the marriage, which seems to have been unhappy, the eldest of whom is the Defendant Mrs Mahon who married in 1968 and who is now a widow, her husband having died in March 1995.
2. The Plaintiff lived at Kinnitty, Birr, for many years. His mother apparently bought the house in 1935 for him and he moved in there in 1940.
3. In opening the case Mr Maguire described the family as fractious and the evidence certainly bore that out.
4. In the differences between the Plaintiff and his deceased wife the Defendant, while not wishing to cut off her mother, tended to side with the Plaintiff in such rows as occurred. The Defendant’s home appears to have been a haven from the turmoils of Kinnitty for the Plaintiff where he was made welcome and treated with that degree of affection which a dutiful and affectionate daughter could be expected to show to a parent. The Plaintiff went to live with the Defendant in 1991.
5. In 1991 things came to a head in Kinnitty. From a situation of having a regular routine of Christmas dinner and Sunday lunch at the Defendant’s and intermittent visits as a respite home, things changed to a structured position of residence. This came about as a result of matrimonial proceedings between the Plaintiff and his wife. The proceedings in the District Court concluded in a barring order being made in or about October 1991. The Plaintiff was naturally very upset
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about this as it meant him having to leave Kinnitty which (notwithstanding that he and his wife lived in separate sections of the house to the extent that there were two front doors) he felt was his home. He contacted the Defendant and did not turn to her in vain. He found accommodation with her in her home. Later, because of some rather unsocial habits (coming in in the early hours of the morning after a night of playing cards; putting on the television; smoking in his bedroom; coughing and making some noise) the Defendant became worried and anxious for the peace and good order of her home. Eventually the Plaintiff’s accommodation was to change to what has been variously called a shed and an apartment, being some form of outhouse or out-building altered and adopted for residential use. At all times the Plaintiff’s meals, other than breakfast on frequest occasions, and his laundry were looked after by the Defendant.
6. Very shortly after the barring order was made and when the Plaintiff was residing with the Defendant he transferred ten-and-a-half or eleven acres of land the subject of Folio 8511 County Offaly, which Mr Enright, the auctioneer called on behalf of the Plaintiff, valued at £16,000 as at 1991 and in respect of which Mr Shepherd’s valuation this morning was considerably lower.
7. The transfer of 27th November 1991 of this land is sought to be set aside for a variety of reasons set out in the pleadings but which were confined at the hearing to (1) the improvidence of the transaction; (2) the absence in the deed of a revocation clause or a right of maintenance and support or a right of residence; (3) the lack of independent legal advice.
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8. Other than the time sequence referred to, the circumstances were that the Plaintiff presented himself with the Defendant to Mr James Lucey, solicitor. Mr Lucey had been his solicitor in the matrimonial proceedings and knew the Plaintiff quite well and got on well with him. Mr Lucey described the Plaintiff as well versed in the ways of the world, placid but determined and an experienced businessman (the Plaintiff had been a butcher for years and dealt in cattle and sheep; he had bought and sold property and helped to the extent of some £70,000 his son Eddie, elsewhere described as £50,000, to buy a property at Mount Bolus; he had given sums of money, machinery and sheep to various members of the family who were grown up and either married or independent).
9. Mr Lucey tried to dissuade the Plaintiff from disposing of his land because a Will would have been quite sufficient. Mr Lucey thought that the Plaintiff wished to reward the Defendant or show her loyalty as she was his sole family ally in the matrimonial dispute. He also thought that the Plaintiff may have wanted to get back at the other members of the family. Mr Lucey was absolutely clear that the Plaintiff unreservedly wanted to transfer the land without reservations and was adamant that he wanted to give the land to the Defendant.
10. Mr Lucey gave the Plaintiff careful and considered advice. Notwithstanding the absence of a written record, I am satisfied that Mr Lucey advised the Plaintiff against proceeding to divest himself of the property and that the concerns pleaded to and advanced in court were properly put to the Plaintiff.
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11. Having carefully considered the evidence of Mr Lucey, I was left with the clearest impression of a sound and sensible man who, no matter what advice he was given, was going to do what he wanted to do. Mr Lucey knew the Defendant with whom he did not have a particularly easy relationship due to an outburst by her in the District Court during the Plaintiff’s matrimonial proceedings (in the events that later occurred in 1992 Mr Lucey came off record and refused further instructions). The Defendant was not a client of Mr Lucey and his only knowledge of her appears to have been as I have indicated.
12. On the basis of Mr Lucey’s evidence I am satisfied that the advice given by him was of an independent character.
13. Elsewhere in his evidence Mr Lucey described the Plaintiff as a pragmatist, genial, very resilient and very determined but calm; that he had considered that he had taken care of the whole family; that he had in the past sold a schoolhouse in Kinnitty for about £4,000, a transaction with which the Defendant may have been involved. Mr Lucey knew the Defendant but never acted for her.
14. Notwithstanding the foregoing, Mr Lucey felt that the Plaintiff should have further legal advice as the transaction was a voluntary conveyance. Accordingly, he gave the Plaintiff a list of about six local solicitors from which the Plaintiff, not the Defendant Mrs Mahon, chose Mr Tom Dalton. The Plaintiff and the Defendant having left Mr Lucey’s office, Mr Lucey inquired by telephone if Mr Dalton would be prepared to advise the Plaintiff on the transaction, which Mr Dalton duly did. Mr Dalton very briefly reported to Mr Lucey and the transaction
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proceeded to a conclusion.
15. Mr Dalton went to meet the Plaintiff at the house of the Defendant where he was living at the time. Mr Dalton had once acted for the Defendant when she purchased a property in Galway. Mr Dalton spoke to the Plaintiff for about half an hour in the absence of the Defendant. He received the deed from the Defendant on his arrival and gave it back to her at the conclusion of the meeting. Mr Dalton was quite clear that the Plaintiff was not under any duress. Furthermore, notwithstanding explaining to the Plaintiff the finality of the transaction and advising him on the question of revocation, maintenance and residence (I accept that the question of residence may have been tangential because there was no residence on the land) the Plaintiff was simply not interested in all this advice and that all the Plaintiff wanted was for the Defendant to have the land with no strings attached. Mr Dalton was clear that the Plaintiff knew what he was doing and acted independently and freely of his own accord.
16. Mr Dalton may not have made exhaustive inquiries as to all the assets and liabilities of the Plaintiff’s estate but I have no doubt that he was acutely aware of these as, according to Mr Lucey, the District Court order in the matrimonial proceedings was under appeal by both parties at this time. In the circumstances I think that it would have been both inappropriate and perhaps unprofessional for Mr Dalton to inquire into matters which were outside the scope of the limited duty undertaken by him and when the Plaintiff had his own solicitor. I am satisfied and find as a fact that the deed is that of the Plaintiff and resulted from an exercise of his own free will.
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17. As Mr Lucey had come off record in the Plaintiff’s matrimonial proceedings the Plaintiff consulted Ms Bernadette Owens, Solicitor, in or about March 1992. Miss Owens never had anything to do with the 1991 transaction. Her instructions were to prosecute the appeal in the Circuit Court. Between March and November 1992 Ms Owens came to deal with at least the five following items of business for the Plaintiff: 1. The matrimonial proceedings in the Circuit Court. At one stage Ms Owens went to the office of J. J. Kennedy, solicitors, in Birr where she had arranged to meet the Plaintiff to go through all the various assets and liabilities of the parties to the matrimonial action. 2. A dispute concerning the key to a gate associated with a hairdressing salon, a separate part of the property at Kinnitty. 3. The question of an assault by Percy Moyles on the Plaintiff and the Defendant. 4. A dispute concerning the issuing by Canada Life of a cheque or draft in respect of the redemption of what appears to have been a joint entitlement in a single name. 5. A Will for the Plaintiff on his instructions at that time. At this time he wanted to know his rights as the surviving spouse.
18. The outcome of the matrimonial proceedings was that the court sanctioned the division of the Kinnitty property into two separate and segregated units, one for the wife and one for the husband. Now that finality had been arrived at (if finality can ever be said to exist in matrimonial disputes) the Plaintiff was anxious to go back to Kinnitty. When he attempted to return, however, he found that the section of the property that had been allocated to him had been ransacked and was uninhabitable, which quite naturally upset him. The rancour that seems to be part of the Kinnitty property and the cost of restoration, seen
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cumulatively with his relative comfort at the Defendant’s premises, seem to have convinced the Plaintiff after a brief interval that he was better off living with the Defendant in Banaher.
19. While accepting that there may be some self-interest in the depiction by the Defendant of the life of the Plaintiff, she was not seriously challenged that the Plaintiff was a genial sociable man, fond of cards and interested in hurling and that most weeks he was out six out of seven nights. Ms Owens does not appear to have had any dealings with the Plaintiff between November 1992 and September 1994.
20. Immediately after the death of his wife in early September 1994 the Plaintiff called on Ms Owens at her office. Both he and the Defendant were not recognised in the death notice in the newspaper, presumably arranged by other family members. When the Plaintiff and the Defendant called on Ms Owens on the day after the funeral the Defendant simply brought her father to the office. The Plaintiff was upset that the house at Kinnitty had been stripped of many items of furniture and effects, items that had been regarded as either bought or as family possessions. On the following day Ms Owens wrote to the solicitors for the deceased. Ms Owens stated that the Plaintiff said that he wanted a third of his wife’s estate in or about this time or shortly thereafter.
21. At no time during the various transactions in 1992 or in September 1994 was the question of a transfer of lands mentioned or discussed by the Plaintiff. He had, as Ms Owens said, left the Kinnitty property to the Defendant in his 1992 Will. Ms Owens said that her first note
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about the transfer of the house in Kinnitty is dated 7th October 1994. When the matter was put to Ms Owens by Mr Maguire, her evidence was that she said to the Plaintiff that he need not be in any hurry about it because he had made a Will in favour of the Defendant. The Plaintiff was alone with Ms Owens when she was giving him advice concerning this transaction. The Defendant was not present during the time devoted to that element of advice and had not been present at a later stage when the transfer was being read over to him. Ms Owens also said that the Plaintiff understood and agreed with its contents. While Ms Owens did not have a very detailed note of her consultation, I am fully satisfied and find as a fact that she advised the Plaintiff about the finality of the deed, explained to him the various ‘reservations’ that he should consider in his own interest, that is a revocation clause, a clause providing for maintenance and support, and advised him that there was no need for him to transfer the property at that time because there was a Will in place to that effect. Ms Owens clearly understood that the Plaintiff, notwithstanding her advice and attempts to dissuade him from going ahead with the transfer, wanted and was determined to have finality. The Plaintiff’s determination was perfectly understandable in view of the unhappy history of the Kinnity property and the shameful family events of the previous month.
22. A considerable time was spent in cross-examining Ms Owens who had a very detailed knowledge of the Plaintiff’s affairs through dealing with the matrimonial proceedings. It was put to her forcefully that she was acting for both parties. Ms Owens said that she did not know the Defendant, save perhaps by sight, had never acted for her or advised her in relation to this transaction or any other transaction
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and did not know much about her, Ms Owens, who was so clearly a truthful witness, said that if she had known that the transaction had the type of bargain contended for, that is, that in addition to natural love and affection the Plaintiff would live with the Defendant for the rest of his life and that the Defendant would look after him, she would not have let the Plaintiff sign the deed but would have tried to defer it if she had known that the Defendant would not keep such a bargain.
23. However, I am satisfied and find as a fact that there was no such bargain; if there was, it was not expressly conveyed to Ms Owens. She may have surmised, as Mr Lucey did, that there may have been some amicable family understanding as between the Plaintiff and the Defendant. As in the case of Mr Lucey in the 1991 transaction, the Plaintiff knew what he wanted to do and did it.
24. When the deed was typed up it was read over to both parties who understood it and signed it. Some two weeks later both parties called back to Ms Owens on 25th October 1994. When she read over and explained to the Plaintiff in the presence of the Defendant the contents of both the Declaration of Insolvency and the Family Home Declaration, the Plaintiff, she says, understood them. The Defendant agreed to discharge the fees and stamp duty on the transaction. Ms Owens was left with the clear impression that the Plaintiff was content to have brought finality to the business, and I find as a fact that it was a free act of the Plaintiff.
25. There was much evidence concerning events which occurred after the execution of both deeds,in particular in 1996. The issues arising
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from this part of the evidence seem to me to be largely irrelevant to the question of the validity of the deed. If, as alleged by the Plaintiff, the Defendant failed to fulfil the alleged bargain to look after the Plaintiff for the rest of his days, this of itself would not affect the validity of the deed. On the other hand, if the deed is invalid, then no matter for how long and how well the Defendant looked after the Plaintiff after the execution of either deed would not of itself render them valid. However, since the issue of the allegation to honour an alleged bargain has been raised, in general I accept and prefer the account of the Defendant.
26. As to the Plaintiff’s dealings with the 11 acres post-1991 (referred to at page 50, question 448 of the Plaintiff’s own evidence) and his post-1994 conduct regarding the house, the indication is that, notwith-
standing the Defendant’s ownership, she allowed him dignity, a sense of usefulness, of having choice and a sense of interest and involvement, and I find such as a fact.
27. I realise that I would wish to be more firm in reaching this view but as at July 1999 the Plaintiff was, unfortunately, regarded as so infirm as to be unable to come to court and his evidence was taken on commission. Accordingly, I did not have the opportunity of assessing the Plaintiff as a witness. I am unimpressed, however,by his refusal or failure to answer a considerable number of questions during the course of his evidence in July 1999, in particular questions 301, 302, 383, 385, 419, 420, 425, 426 and 456. His failure of recollection in other matters of five or eight years earlier is understandable.
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28. Neither party impressed me with the evidence regarding the sums of money. In my view it is an unproven and unsustainable claim.
29. The submissions on behalf of the Plaintiff were as follows:
(1) There is a position of undue influence presumed for the following reasons:
(a) the special relationship of the parties;
(b) the apparent improvidence of the transactions;
(c) the absence of a revocation clause;
(d) the absence of any consideration having regard to the overall assets of the Plaintiff.
(2) There was no independent legal advice, the question arising being whether the transactions were free and independent acts of a man having full advice. Was he emancipated?
(3) Shortly before the execution of the transfers the relationship between the parties was such as to raise a presumption that the Defendant had influence over the Plaintiff. The transfers should be set aside unless the court is satisfied that the gifts in the transfers were the spontaneous free acts of the Plaintiff in circumstances which enabled him to exercise an independent will and which justifies the court in holding that the gifts were the result of a free exercise of the donor’s will. It is submitted that the court should hold on the evidence that a deemed-to-be-coerced situation existed because (a) the Plaintiff did change his mind from time to time; (b)that if, as suggested by the Defendant, the Plaintiff was susceptible to influence by his son Eddie, so also he should be regarded as susceptible to influence by the Defendant.
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(4) The decision of the Supreme Court in Carroll v Carroll [2000] 1 ILRM 210, in particular the passages from the judgment of Denham J. at page 223 dealing with the public policy dimension of deemed undue influence and also her consideration at pages 224 and 225 of the presumption of undue influence are applicable in the instant case.
(5) The nature and quality of the legal advice was deficient because of (a) the absence in both deeds of the safeguards of clauses of revocation; (b) the adequacy of clauses of revocation, maintenance and support and a right of residence; (c) adequacy is not necessarily an expression of free will; (d) Mr Dalton’s evidence disclosed that (i) his recollection was inaccurate in that he did not remember taking an attendance and (ii) he was unaware of the Plaintiff’s general circumstances; (iii) he was not independent because he had in the past acted for the Defendant who, on the occasion of his visit, gave him the actual deed.
(6) All the solicitors said what they would have advised but none had a note to this effect. If notes existed of their attendances on the Plaintiff saying that, the notes did not disclose all they said they would have done, in particular the distinction in character and effect of the deed as opposed to the element of revocability.
(7) In particular, Ms Owens when acting for both parties was wanting in documentary evidence as to the nature and extent of the advice which she gave to the Plaintiff. In the circumstances there must be documentary evidence to corroborate the advice stated in evidence to have been given.
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(8) When the transactions took place in 1991 and 1994 the occasions of vulnerability of the Plaintiff should have been most particularly guarded against.
30. The submissions on behalf of the Defendant were as follows:
(1) The case is distinguishable on its facts from the several cases relied upon in opening by Mr Maguire.
(2) McCormack v Bennett [1973] ILT 127 is still applicable and is the case most closely analogous to the facts in the instant case and should be followed and applied.
(3) The decision of the Supreme Court in Carroll v Carroll , particularly the judgment of Barron J. at pages 231 and 232 of the report, indicates not the position contended for by the Plaintiff but one in which the position is on a case-by-case decision on facts based on the legal principles enunciated in Carroll v Carroll and in the earlier cases therein referred to.
(4) The quality of the legal advice in all instances was quite adequate and sufficient. Mr Lucey and Ms Owens both fully understood the Plaintiff’s circumstances. While Mr Dalton may not have done so, the position is that his advice was still adequate in all the circumstances.
(5) The Plaintiff was well versed in dealing with property and had dealt with other members of the family and looked after them as he considered appropriate, which is borne out by the evidence of Mr Lucey.
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(6) The Plaintiff was not an innocent abroad, as borne out by the evidence not merely of the Defendant but of the various other witnesses, particularly the evidence of the solicitors all three of whom had met the Plaintiff at different times in different places and in different circumstances. All considered him to be a man of calm deliberation but very determined.
(7) The departure of the Plaintiff from Banaher was not as stated by him but as contended for by the Defendant.
(8) The position about the moneys was unconvincing and there was no vouching. To the extent that amounts could be established, other members of the family did receive moneys in or about the same time and of the same order as the Defendant.
31. In summary, my findings are as follows:
(1) Neither the 1991 nor the 1994 deed was executed as a result of undue influence or duress on the part of the Defendant.
(2) The Plaintiff had no mental or physical infirmity which prevented him from understanding the nature and consequences of either deed.
(3) The Plaintiff had the benefit of independent advice from the solicitor of his choice and that advice was fully and carefully made available to him.
(4) The possibility of a clause of revocation was explained to the Plaintiff. The desirability of making a revocable disposition of his property was urged upon him.
(5) Both deeds are on their face improvident in that the Plaintiff disposed of his entire interest or estate in the properties without
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valuable consideration.
(6) Mr Lucey did surmise and Ms Owens had a general understanding that the Plaintiff was executing the deed in favour of the Defendant for looking after him or would look after him.
(7) If there was, as contended for by the Plaintiff, a bargain in the terms alleged, same was not fully expressed to any of the solicitors -Mr Lucey, Mr Dalton and Ms Owens.
(8) The preliminary letter dated 20th March 1997 from the Plaintiff’s solicitor contains no mention of any deal, agreement or bargain.
(9) There was no deal or bargain or arrangement made between the Plaintiff and the Defendant that in consideration for looking after him for the rest of his life or that in consideration for going to live with the Defendant he would transfer either property.
(10) The Plaintiff executed both transfers in his expectation and belief, not induced by the Defendant, that he would secure or reinforce what he believed to be the genuine loyalty and affectionate attention of his daughter the Defendant.
32. It seems to me that the concluding remarks of Finlay J. in McCormack vBennett [1973] ILT 127 at page 131 are apposite:
‘I accept and adopt as applicable to this case the reasoning of Mr Justice Budd in the case of Gregg versus Kitt reported in 1956 Irish Reports at page 183. In particular I would adopt and repeat the portion of his judgment at page 196 where he says “Where the relations between the donor and another person raise a presumption that that other person had influence over the donor and the evidence shows that the third party is both closely related to the donee and was closely associated in action and interest with the donee at the time of events leading to the transaction it would seem to be on principle that the onus in such circumstances must be likewise thrown on the donee to establish that the gift resulted from the free exercise of the donor’s will. The presumption may of course be rebutted either by showing that the donor has had competent independent advice and acted of his
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own free will or in some other way.”
‘As Lord Hailsham says in Inche Noriah versus Shaik Allie Bin Omar “The most obvious way to prove that the gift was the result of the free exercise of independent will is to establish that the gift was made after the nature and effect of the transaction had been fully explained to the donor by some independent and qualified person so completely as to satisfy the Court that the donor was acting independently of any influence from the donee and with full appreciation of what he was doing.” If that method of rebutting the presumption is adopted and it is not the only method open the advice relied on must in the words of Lord Hailsham be given with a knowledge of all relevant circumstances and must be such as a competent and honest adviser would give if acting solely in the interests of the donor.
‘The ignorance by Mr Wallace at the time when he was advising the late James Seery of the promises made by Mrs Bennett in respect of a transfer of the land meant that he was not a person with knowledge of all relevant circumstances. If to defend this deed and to discharge the onus which is in my view upon her the defendant must rely only on the independent advice of Mr Wallace she must therefore fail. However, from the passage which I have quoted that Mr Justice Budd was of the view and in this I am in full agreement with his judgment that the presence of full and satisfactory independent advice is not the only way of proving that a voluntary deed even though it may be on the face of it improvident resulted from the free exercise of the donor’s will. I am satisfied that James Seery in October 1967 himself was particularly concerned to make an out and out transfer of these lands by deed to his daughter Mrs Bennett. I am satisfied that that idea for practical purposes originated with him and certainly did not originate with the defendant Mrs Bennett. His reason for making such a transfer instead of a will which would have been revocable was I am satisfied that he wanted a permanency and finality with regard to the disposition of his affairs. I think it is a reasonable inference from the evidence which I have heard that he was a sufficiently astute man to know that no form of bargain or commercial transaction concerned with his land was likely to secure for himself and his wife what they really needed and that was personal care and attention granted largely through affection and kindness by a member of their family. I believe therefore that James Seery when he executed this deed did so in the expectation and belief which was his own and not induced to them that by so doing he would secure or reinforce what he believed to be the affectionate attendance of his daughter for both himself and his wife. In these circumstances I conclude that there is evidence before me which I accept other than and in addition to the evidence of the independent advice which James Seery received before executing the deed which satisfies me that the deed was his own act and resulted from an exercise of his own free will. In these circumstances as I understand the legal principles applicable I must uphold this deed even though it may on the face of it appear improvident and even though events which occurred after its execution may have made James Seery in his lifetime dissatisfied with it.’
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33. I now proceed to deal with the submissions of the Plaintiff in reply:
(1) There was indeed a situation which would give rise to presumed influence because of the relationship of the parties. The transaction, as I have already held, is improvident. There is no revocation clause and there are no rights reserved. Mr Lucey (who drafted the first deed and gave advice against proceeding) and Ms Owens (who drafted the second deed and gave advice against proceeding) both had full knowledge of the affairs of the donor. Mr Dalton did not. That does not in any way diminish the fact that Mr Dalton was consulted at the behest of Mr Lucey.
(2) Was this man emancipated? The answer to that is an unequivocal yes.
(3) Was the relationship between the parties shortly before the execution of the deed such as to raise the presumption that the Defendant had influence over the Plaintiff? There is certainly some evidence of a sense of dependency. However, I am quite satisfied that the Plaintiff’s decisions were made in each instance to bring to an end the unhappy circumstances in which he found himself and that he was the originator in each instance. There is no evidence that he was prompted, cajoled or induced to take either of these courses. In my view the Plaintiff exercised a spontaneous act of free will in both instances, and that is taking into account the submissions very properly put and skilfully argued by Mr Maguire of the deemed-to-be-coerced situation. I do not believe that the Plaintiff’s change of mind indicates a man of fickleness. Changes were made at different times in different circumstances for what appeared to be good and valid reasons. His susceptibility to influence, as suggested, is part of the peripheral dimension to this case which has not surfaced in court and which is
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clearly rumbling in the background. At the time he was dealing with these two transactions the Plaintiff was not, in my opinion, susceptible to influence. I am quite satisfied that the solicitors gave the Plaintiff time, assessed him, and knew what they and he were about. I do not believe that he was susceptible to influence in any way.
(4) The principles in Carroll v Carroll are still applicable and germane. In Carroll v Carroll the facts are totally distinguishable. In this regard I totally agree with Mr Abbott’s submission. In Carroll v Carroll Mr Joyce acted for Mr Carroll Junior who literally brought his father along by the hand at a time when he was devastated by his wife’s death, unlike the situation here, where Mr Carroll had told his daughters who were coming up and down to Dublin that there would always be a home for them there and who, when Thomas Junior came to running the business, assisted him. The whole series of circumstances until the daughters fell out with their sister-in-law is quite different and quite unrelated to the circumstances in the present case.
34. The nature and quality of the legal advice clearly differed because the times, circumstances and knowledge of the different solicitors varied. However, the two solicitors acting for the Plaintiff, Mr Lucey and Ms Owens, knew about his affairs and had plenty of opportunity of sizing him up. Mr Dalton, who met the Plaintiff once, was satisfied that he was a man with his wits about him and knew what he wanted to do. Having acted in the past for the Defendant Mrs Mahon, I do not think that Mr Dalton coloured the advice given to the Plaintiff. He clearly did not know all the circumstances.
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35. Whatever Mr Lucey told Mr Dalton was not explored. His recollection of not taking an attendance of a once-off half-hour visit does not make the rest of his recollection improbable or unreliable. Part of the gravamen of the Plaintiff’s case is that the advice stated to have been given was not of such a quality as to fully inform the Plaintiff, as the solicitors themselves were not fully informed. I am satisfied that Mr Lucey himself was fully informed. Mr Dalton was fully informed within his remit. But I am equally satisfied that the situation is not to be discounted because there is no note or memorandum (to satisfy the Statute of Frauds!). I know that that is drawing the analogy a bit too far but I do take on board what Mr Maguire said. It is certainly desirable that there should be a fuller note than exists in this case.
36. In that regard I must make a judgment of the witnesses – their integrity, sense of togetherness, sense of directness and their understanding and demeanour. I am satisfied that all three solicitors gave their evidence truthfully, fully and unequivocally and did advise as they stated. I do not think it is necessary to have attendances to corroborate what they said they would have done. It is certainly desirable to have an attendance but it is not a mandatory requirement. If one of these solicitors had died, there might be grave difficulty in certain circumstances without a contemporaneous note.
37. While it is true that in 1991 and in 1994 the position of the Plaintiff may have been vulnerable, he showed himself to be determined and resilient. Without commenting on his intended return to his home in Kinnitty, he showed the signs of a man who was not readily put down. As a businessman, I am satisfied that the Plaintiff made his decisions
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in circumstances where he considered them correct and appropriate and that they were of his own volition.
38. In the circumstances I do not think I need comment on the Defendant’s submissions as they seem to have been borne out by the facts that emerged during the evidence.
Prendergast & Anor -v- Joyce & Ors
JUDGMENT of Mr. Justice Gilligan delivered on the 13th day of February, 2009
1. These proceedings centre around a series of banking transactions which occurred on the 21st January, 1998, in the Bank of Ireland and Allied Irish Bank branches in Claremorris, County Mayo, when the late Monica Joyce, transferred into joint accounts with the defendant Dermot Joyce, the sums of IR£94,974.22, IR£17,853.63 and IR£63.01 to a total of IR£112,890.86 being €143,341.82. That sum has since increased to approximately €157,000 through the accrual of interest.
2. The persons involved are the late Jack and Monica Joyce, Evelyn Prendergast, who is Monica Joyce’s niece and the plaintiff in the proceedings [pursuant to order of this Court dated 29th July, 2008, made pursuant to O. 15, r. 37 of the Rules of the Superior Courts], and Dermot Joyce, the defendant herein who is a nephew of the late Jack Joyce. The second and third defendants have been permitted to withdraw from these proceedings on their undertaking to abide by the ruling of this court.
3. Jack Joyce (Jack) was born in 1919 and his wife Monica Joyce (Monica) in 1928. There was no issue of their marriage and in the 1950s Jack Joyce ran a small petrol station at Hollymount, which is located midway between Ballinrobe and Claremorris in the County of Mayo. The business was doing poorly and Jack and Monica emigrated to the United States of America where they remained until they returned to Ireland in 1973. Initially, they lived in a mobile home adjacent to the petrol station in Hollymount. In or about 1993, Jack and Monica constructed a house which was approximately eight miles from the garage premises, in Ballinastanford, Claremorris, County Mayo where previously they had had a second mobile home. It is clear that Jack and Monica Joyce were a very close couple and that Monica was effectively totally dependent on Jack.
4. The petrol business was not very successful earning approximately IR£500 gross per week. It appears that in the mid 1990s Monica became forgetful and when the new house had to be furnished in 1993, it was necessary for Mrs. Patsy Dalton, a family friend who met the couple daily on an ongoing basis, to undertake the work. She recalls, in evidence, that Monica did not always remember her name. She noticed from 1993 onwards that Monica’s situation got progressively worse. Around Christmas time 1997, there was an incident when Monica was alone in the mobile home at Hollymount adjacent to the garage and Mrs. Dalton found her in a completely exasperated and agitated state. She had two gas rings on without them being lit and when Mrs. Dalton arrived she could not remember who she was. Mrs. Dalton recalled that she was annoyed with Jack because she had a serious concern that the mobile could have gone on fire. She had a discussion with Jack and he intimated to Mrs. Dalton that Monica did not know what she was doing. Her overall view was that between 1993 and 1997, Monica had deteriorated rapidly.
5. Jack was taken into hospital in early January, 1998, and suffered a heart attack after his admission. It was initially anticipated that he should go on to make a recovery but unfortunately, he died on 14th January, 1998. Mrs. Dalton described Monica at her husband’s funeral as being in a state of complete shock. She appeared to be unaware that her husband had died and asked on a number of occasions as to where he was. At that time, Monica and Jack had moved to his niece Annie Walsh’s house and Mrs. Dalton was very concerned that something should be done about looking after Monica.
6. As regards Monica’s mental capacity, Mrs. Dalton, who had worked in the retail business all her life, stated that she would not at that time have let Monica look after the till in any of her shops. Monica was in her opinion “doolally” or out of her mind. From about the end of January, 1998, Monica was receiving 24 hour care from members of her family. By February she had commenced attending Ballindine Respite Home for people suffering from Alzheimer’s disease.
7. To the best of Mrs. Dalton’s knowledge, the only monies Monica had available to her were her social security pension which was approximately US$500 per month. Mrs. Dalton indicated that she never saw the defendant in the vicinity of Jack Joyce’s petrol station.
8. Evelyn Prendergast, the plaintiff in these proceedings, and the niece of Monica Joyce, gave evidence that she lived just outside Claremorris. Kevin Prendergast was her uncle. She visited Jack and Monica over the years on a very regular basis. By 1997/98 Monica had become very forgetful. She remembers calling over one Friday in 1994/95 and she found Monica generally in a bad way. She was panicking, and did not remember what day it was.
9. The plaintiff attended at both the removal for Jack and his funeral, and said that Monica Joyce did not appear to realise what was going on. By the end of January or early February, 1998 Monica was receiving 24 hour care from her surrounding family. She had initially been staying with Annie Walsh and then went back to her own house for a few days, and then went to live for the rest of her life with her sister, Marian Prendergast, until she died on 5th January, 2005. It was necessary for the entire family to rally around her. Evelyn Prendergast confirms that within a short time of Jack’s death Monica was attending at Ballindine Respite Home for people suffering from Alzheimer’s disease.
10. The plaintiff recalled that the only monies which Monica had access to was the sum of US$500 per month, which came to her by way of a United States social security pension. She never saw the defendant working in Jack’s garage. She was of the view that Monica was always anxious when left on her own, but when she was with Jack she was alright.
11. Seamus Hughes, an electrician by occupation, was a neighbour of Jack and Monica Joyce. From 1993 onwards, he was of the view that “Monica was not with it”. She used to go to the shop and forget the articles which she wished to purchase. Kevin Prendergast used to work the pumps at the petrol station for Jack and while he did see the defendant in the vicinity of the petrol pumps from time to time, he appeared to be there to carry out repairs to his car and the like. Mr. Hughes never saw him dealing with customers. When the defendant came down from Dublin he stayed at the Rectory and Mr. Hughes was the caretaker and had the keys to the Rectory and his view was that the defendant used to come down every couple of months. He never saw him as such, working the petrol pumps. Mr. Hughes often had tea and sandwiches with Jack and Monica in the mobile home and on these occasions Jack used to do all of the preparation.
12. Ms. Catherine Burke was a tax adviser to Jack Joyce and completed his VAT returns every two months. In essence, she says that she was friends with Monica and Jack and every time Jack came to her for the purpose of doing the VAT returns, Monica accompanied him. This would have been a continuing situation from 1989 onwards. However, in 1995/1996, Ms. Burke became aware that Monica used to stay out in the car, while Jack came in to her with the books. On occasions when Ms. Burke used to go out to the car, she became aware that Monica did not realise what was going on. She often did not call Ms. Burke by her name and Jack indicated to her that he could not leave Monica alone at home. She attended at Jack’s funeral and was of the view that Monica was in a daze.
13. The defendant gave evidence that he was a nephew of Jack Joyce’s on the Joyce side. He enjoyed a close relationship with his uncle, his father having arranged an apprenticeship for Jack as a mechanic and having assisted him financially in the construction of the garage. The defendant lives in Sandymount, Dublin and is a retired stock controller by occupation. He describes Jack’s business as being the sale of petrol, diesel, gas and agricultural diesel. He used to visit him very regularly and at weekends helped him with the pumps and he used to tidy up the showroom and he says that he also brought food for Jack and Monica. Since the early 1990s, he described how he could be down in Hollystown at the petrol pumps for twelve weekends during the summer. Some of the visits were simply to see how Jack and Monica were getting on and others were for the purpose of helping out with the petrol pumps. He says that he often took a week’s holiday to let them get away and that on one occasion in 1994, he was on holidays in Morocco and he came back early to assist them. He describes how Jack and Monica used to come to Dublin to visit him and would often stay for a week to ten days.
14. At a time in the mid 1990s, Jack and Monica had the idea of buying an apartment in Sandymount to be close to him and they came to Dublin and stayed for a week, but then changed their minds, indicating that they would not be interested in leaving home. The defendant described how Jack used to indicate to him that he was better than a son to them. He described how, in the mid 1990s, Monica was forgetful. In 1996, Jack had asked him for information in relation to Alzheimer’s disease and to post it on to him without any markings on the envelope. There was a reference to St. John of God’s in Stillorgan, Co. Dublin and that Jack was anxious to get Monica to a doctor, but subsequently the defendant understood that Jack had brought Monica to the doctor and that it had been indicated that everything was okay.
15. He says that he never expected any payment for the work he did and that he did it because he wanted to help his uncle Jack. Around 1996/1997, Jack advised him that he had two accounts in the Bank of Ireland and Allied Irish Bank (AIB) in Claremorris, which contained approximately IR£112,000, and that he wanted the defendant to have this money. He says that Jack told him that nobody knew about the accounts, other than the two bank managers and that his intention was that the money would be transferred into the defendant’s sole name.
16. The defendant indicates that in October, 1997 he was visiting again with Jack and Monica for a weekend and Jack told him again that he wanted him to have the monies in the joint accounts and that they must go to see Mr. Mellett in the Bank of Ireland in Claremorris, but this never actually happened.
17. The defendant spent New Year’s Eve of 1997 with Jack and Monica and then returned to Dublin on Thursday 1st January, 1998. On Wednesday 7th January, 1998, he got a call from Michael Flynn to say that Jack was in hospital. He checked the situation and was advised that Jack was alright and on Friday 9th January, 1998, as he was driving down to see Jack, he was advised that he had suffered a heart attack. Subsequently, however, Jack appeared to be alright and the defendant stayed with Monica in The Traveller’s Friend Hotel and visited Jack in hospital. On Friday 9th January, 1998, Jack asked him to stay behind at the hospital and said to him, “You have proved yourself”. The defendant recalls Jack telling him that Monica would not need the money, as he had insurance with the ‘Knights of Columbanus’. He says that Jack told him to go to the Bank of Ireland on Monday and see Séan Mellett and that he, Mr. Mellett, knew the arrangements and that Jack wanted the money put into the defendant’s sole name. He says that he indicated to Jack that he did not want the money in his sole name, but either with Jack and Monica or with Monica and himself.
18. The following Monday, he went to the Bank of Ireland in Claremorris and met with Seán Mellett, who was already aware of Jack’s wishes. He advised Mr. Mellett that he would prefer the account in the names of Monica and himself and Mr. Mellett agreed and indicated that he would telephone the defendant back the next day. A meeting was then arranged for the following Thursday 15th January, 1998. The defendant says that this had also been discussed the previous October with Monica, and Jack had said, in her presence, that these monies were to go to the defendant, and Monica was in agreement. He says that Jack had previously asked him to arrange his funeral and that he wanted to be buried with his mother and the previous October he had gone with Jack to the graveyard and checked out the grave where he was to be buried. Unfortunately, Jack died on Wednesday 14th January, 1998, and Mr. Mellett rang cancelling the meeting planned for the 15th. The meeting was rearranged for 21st January, 1998. The defendant attended the funeral, which he and Kevin Prendergast arranged. The removal was on 16th January and the funeral itself was on 17th January, 1998. He describes Monica as having been in a state of shock and at that stage she was staying with Annie Walsh. He says that Jack wanted Monica to be looked after by Annie Walsh. The only change he noticed in Monica at Jack’s funeral was that she was shocked.
19. On 19th January, 1998, the defendant went to see Dr. William O’Connor, a medical doctor practising in Hollymount, Claremorris, County Mayo, who was Jack and Monica’s General Practitioner. He says he went there to find out about getting a death certificate and as to how Monica was.
20. On Tuesday 20th January, 1998, following on Jack’s instructions, he went to see Catherine Clancy, the manager of AIB in Ballinrobe. He lodged approximately IR£11,500 of Jack’s money to a current account and he says that he was aware that Jack had previously told Ms. Clancy that he wanted the defendant to have everything. Subsequently, on 21st January, 1998, he brought Monica into the Bank of Ireland in Claremorris, and there were interviews with Joe Daly of Bank of Ireland Lifetimes from Eyre Square, Galway. He says that Monica was in agreement that the money in the joint account be transferred into another joint account with him and invested in a Lifetimes Bank of Ireland product. The paperwork was filled out and completed and the meeting lasted approximately an hour.
21. He then took Monica for lunch and then went to the AIB in Claremorris where they met with a Mr. Glynn, and the monies in the joint accounts as held by Jack and Monica in AIB Claremorris, were transferred into a new joint account in the names of Monica and the defendant. As in the case of the Bank of Ireland transaction, the account could not be accessed by one signatory alone; the signatures of both were required to withdraw funds. The defendant says that Catherine Clancy asked that Mr. Glynn of the AIB in Claremorris would give her a ring when he and Monica went in to the Bank to complete the transfer and this was done. The transaction lasted approximately half an hour and then the defendant brought Monica to see the solicitors Maguire and Brennan in Claremorris about Jack’s will and then he brought Monica back out to Annie Walsh’s. His view was that while Monica was forgetful, she understood what she was doing, both in the Bank of Ireland and in AIB. Monica was only following Jack’s instructions and, in particular, Jack had indicated that he did not want the monies in these accounts to go to the Prendergast side of the family. He says that Monica went into both banks freely with him and was only doing what Jack had said to her the previous October.
22. The defendant did not see much of Monica after the monies were transferred into their joint names. He was of the view that Jack wanted him to have everything regardless of Monica and accepted that Jack could have done this by way of a will. He was of the view that Jack had made an alternative will, but this had never been located.
23. He accepts that Jack cared very deeply for Monica and was concerned for her. He also accepts that Monica, after Jack’s death, never had the use of any of the money in the three joint bank accounts and derived no benefit therefrom. He accepts that the transfers of money on 21st January, 1998, were hugely important transactions for Monica. He was not able to offer any explanation as to why he had not explained to Dr. O’Connor what he was about, when he went in to see him on 19th January, 1998. He was unable to offer any clear explanation as to why the AIB joint accounts were not revealed until February, 2001 other than that he was following his uncle Jack’s instructions, Jack having expressed a wish that the accounts should remain a secret.
24. The defendant states that he would not have brought Monica into the two banks if he had thought she was vulnerable. His view was that she was in a fit condition and was fine on the day. He was of the view that a person could not be described as elderly at seventy years of age. His own view was that somebody would be elderly when they were 80 to 85 years of age.
25. Ms. Clancy, the manager with AIB in Ballinrobe, told the court that the late Jack Joyce had two accounts with her: a business account and a deposit account. The business account was constantly under pressure. She did not have any significant dealings with Monica, but she did meet the defendant on two occasions, approximately four years before Jack died, in Jack’s company in AIB bank in Ballinrobe. She recalled that Jack indicated that he wanted the defendant to have everything when he passed away. Ms. Clancy accepted that it happens that people indicate in her presence that they want someone else to inherit their estate, but that is not always the way it works out.
26. Seán Mellett told the court that he was the manager of the Bank of Ireland in Claremorris for six years from 1994 to 2000. He recalled Jack vividly and described him as an entertaining man. He used to talk a lot and Mr. Mellett recalled that any dealings with him always took a lot of time. He met Monica with Jack, possibly two or three times. Between the years 1996 and 1998, he was clear in his recollection that Jack wanted the money in the joint account to go to the defendant. The account was in joint names and either could withdraw the cash at any time. Jack had intimated to him that the defendant would look after Monica and that he wanted him to be the beneficial owner of the money. He did not want members of the Prendergast family to benefit from the money and was of the view that the defendant would look after Monica after he passed on. Mr. Mellett was aware that Jack and Monica were a very loving couple and that Monica agreed with whatever Jack said. On occasion when he met with Monica, he found her to be forgetful and accepted that she appeared to have memory problems.
27. When the defendant came to see him on 12th January, 1998, he indicated that he was not totally satisfied about having the money in his own name. The joint account was effectively dormant and Mr. Mellett accepts that he probably did not have any written instructions. Following his consultation with the defendant, he had been in touch with Joseph Daly from Bank of Ireland Lifetimes in Galway and a meeting was set up for the following Thursday 15th January, 1998, to discuss the product. Mr. Mellett confirmed that he had never previously met the defendant, and the first time he met him was when he came in to see him on 12th January, 1998. He understood that he had Jack’s verbal instructions to discuss the account with him.
28. He accepts that he did not know Monica at all and from the banking perspective he would accept that she could fairly be described as being elderly and he also accepted that, four days after having buried her husband, she was vulnerable. Mr. Mellett accepted that the transaction was completely improvident from the point of view of Monica, that there was a very substantial sum of money involved and that looking back on the situation it “looks bad”.
29. Dr. William O’Connor was the first witness to give evidence and he did so on the plaintiff’s behalf. In or about 1995, he describes Monica from the medical aspect as being very frail, depressed, severely anxious, suffering from poor concentration and memory, a person who was dependent on her husband for support. As early as March, 1995 he expressed the view in his medical notes that Monica might be senile. She was taking Prozac for depression, had attended a psychiatrist, and was taking Valium and sleeping pills. This situation generally continued between 1995 and 1998, with no improvement. In his opinion, she was a person who was not well physically or mentally, and following the death of her husband she made an unbelievable decline. In his view it is doubtful that she was capable of understanding the impugned transactions on 21st January, 1998, though he did not examine her on that date.
30. Dr. O’Connor remembered the defendant coming to see him on 19th January 1998, and he was of the view that he had come to discuss Monica’s affairs, and there was a discussion about the necessity for ongoing care for Monica. His recollection of that meeting is that he felt uncomfortable about it. He had a discussion on 5th February, 1998, with Kevin Prendergast, and he advised Kevin that medically, Monica was not fit to live alone or make any decisions about her future. Subsequently, he got a call to visit Monica who was, at this stage, staying with Kevin, and he found her disturbed and anxious, agitated and generally unwell, and he was satisfied that she had had an anxiety attack. Around the time of the funeral and as of 5th February, 1998, Monica would not have had the capacity to transact business. On 17th February, 1998, Dr. O’Connor, following an examination, declared Monica unfit to understand a legal document or execute a will.
Wills
31. Both Jack and Monica made wills. Jack’s will was made on 15th August, 1977, and he left everything he would die possessed of, or entitled to, to Monica, absolutely. Should Monica pre-decease him, and in that event only, he left his property at Ballinastanford to Monica’s nephew, Gerard Prendergast, and left his property at Hollymount to his nephew, the defendant. The balance of the estate was to be divided equally as tenants in common between eight parties, being his nephews and nieces on both the Joyce and Prendergast sides of the family, not including the defendant. In respect of this latter devise, it was specifically set out that this was only to take effect if Monica pre-deceased him. He appointed Monica and her brother, Kevin Prendergast, as joint executors.
32. Monica made her last will on 10th July, 1979, and she left everything she would die possessed of, or entitled to, to Jack, absolutely. In the event of Jack pre-deceasing her, and in this event only, she left her entire estate to be divided between the same eight nephews and nieces, not including the defendant, as set out in Jack’s will and she appointed her husband, Jack, and her brother, Kevin Prendergast, as joint executors.
Submissions of the parties
33. The plaintiff contends that there was a total failure of consideration in relation to the transfer. Further, the relationship between donor and donee, coupled with the substantial benefit obtained, gave rise to a presumption of undue influence. The defendant’s evidence did not rebut that presumption. The transaction was improvident. It was not based on adequate legal or other advice and the donor was elderly and vulnerable at the time.
34. The defendant contends that the presumption of undue influence does not arise. His relationship with Monica was not sufficiently close to give rise to the presumption, and there was no evidence of actual undue influence. Even if the presumption arose, however, it was rebutted by independent advice and by evidence consistent with an explanation other than undue influence as the basis for the transfer. The defendant had not acted improperly or unfairly since he had only accepted a transfer into a joint account with the donor. Jack Joyce had intended him to have the money in his sole name, and Monica probably would have agreed. The gift was motivated by natural love and affection, as well as by a desire to recompense the defendant for his work and assistance from 1989 to 1997. In addition, he had taken monies arising from Jack’s business from Annie Walsh’s house, where Jack and Monica had been staying, and had used them to discharge the overdraft on Jack’s business account, rather than misappropriating them for his own use. In view of these considerations, the plaintiff could only succeed if it could be established that the defendant held the monies on a resulting trust for his aunt. Such a conclusion would run contrary to her stated intention.
Joint accounts
35. Before the court goes on to consider the issue of undue influence, it should first be recalled that the money transferred to the defendant came from the joint accounts of Jack and Monica Joyce. A question arises as to whether the money transferred was in fact hers to give at the time she transferred it. In Lynch v. Burke [1995] 2 IR 159 the deceased had made a will leaving all her property to the plaintiff, her sister. Two months later however, she opened a joint deposit account with the first defendant, her niece, and lodged sums to it. The deposit book for the account was endorsed with the words “Payable to Frances McFadden [the deceased] only or survivor” (emphasis in original).
36. The Supreme Court held that the contract between the deceased and the bank concerning the joint account had the effect that during her lifetime only the deceased could make withdrawals from the account. After her death, however, the first defendant would become entitled to the balance on the accounts. While there was a presumption that she held that sum on trust for the estate of the deceased, that presumption could be rebutted by proof of a contrary intention on the part of the deceased. Because on the evidence she had intended the first defendant to have the beneficial interest in the money, that presumption was rebutted. By her presence and signature the first defendant had become a party to the contract between the bank and the deceased. She had acquired a legal interest in the money either by virtue of that fact or because it constituted a gift to her subject to the contingency of her aunt’s death.
37. In the instant case similar principles fall to be applied. Legal title to the chose in action represented by the balance in the accounts would have passed to Monica on her husband’s death by survivorship in accordance with the contracts governing the accounts. Furthermore, unlike the situation in Lynch, she had the same rights of access to the accounts as her husband, being able to withdraw funds from them without his consent. In those circumstances, although the court does not have evidence before it on the question, it is probable that she was a party to the contracts with the banks concerning these accounts, making the banks liable to both account holders. In any event, the defendant has properly conceded that the sums held in the accounts devolved to Monica as surviving joint account holder on Jack’s death.
38. Even if she acquired the legal interest on Jack’s death subject to a resulting trust of all or part of the monies in favour of his estate, Monica was the sole beneficiary under his will, inheriting everything he died possessed of or entitled to. Accordingly, despite the evidence to the effect that Jack Joyce had expressed a desire that his nephew, the defendant herein, should have the sums of money in the accounts, Monica was entitled to them on Jack’s death. Evelyn Prendergast is therefore entitled, in her capacity as administrator of the estate of Monica Joyce, to challenge the transfer to the defendant. No argument was addressed to the court on behalf of the plaintiff as to the presumption of advancement and, in the light of Monica’s clear entitlement to the monies, this aspect need not be considered.
Does the presumption of undue influence arise?
39. In determining whether the transaction in this case should be set aside for undue influence, the court must first consider whether the circumstances are such as to justify a presumption of undue influence. This issue was addressed in Carroll v. Carroll [1999] 4 I.R. 241, in which Denham J. (with whose judgment Lynch and Barron JJ agreed) quoted with approval (at pp. 253-254) the following passage from the judgment of Cotton L.J. in Allcard v. Skinner (1887) 36 Ch. D. 145 at p. 171:-
“The question is – Does the case fall within the principles laid down by the decisions of the Court of Chancery in setting aside voluntary gifts executed by parties who at the time were under such influence as, in the opinion of the Court, enabled the donor afterwards to set the gift aside? These decisions may be divided into two classes – First, where the Court has been satisfied that the gift was the result of influence expressly used by the donee for the purpose; second, where the relations between the donor and donee have at or shortly before the execution of the gift been such as to raise a presumption that the donee had influence over the donor. In such a case the Court sets aside the voluntary gift, unless it is proved that in fact the gift was the spontaneous act of the donor acting under circumstances which enabled him to exercise an independent will and which justifies the Court in holding that the gift was the result of a free exercise of the donor’s will….In the second class of cases the Court interferes, not on the ground that any wrongful act has in fact been committed by the donee, but on the ground of public policy, and to prevent the relations which existed between the parties and the influence arising therefrom being abused.”
40. The categories of relationship to which the presumption applies are neither closed nor rigid (McGonigle v. Black (Unreported, High Court, Barr J., 14th November, 1988)). In McGonigle the presumption applied in the context of a friendship between the lonely and vulnerable donor of the land concerned, who could not cope well without support and had resorted to alcohol abuse, and a friend who lived nearby, who had frequent contact with him and provided him with some home comforts. In the context of the instant case, it is appropriate to recall that the presumption has been applied in the context of a relationship between an aunt and her nephew by marriage (Inche Noriah v. Shaik Allie Bin Omar [1929] AC 127) and even as between a man and his great nephew (Cheese v. Thomas [1994] 1 W.L.R. 129). This is not to suggest that it would apply in all such relationships: leaving aside those categories of relationship which, by their nature, automatically raise the presumption of undue influence, the question of whether the presumption applies depends on the particular circumstances of the case. As Budd J. said in Gregg v. Kidd [1956] I.R. 183 at p. 195:-
“The influence may arise or be acquired in many ways, such as through disparity of age or the mental or physical incapacity of the donor or, indeed, out of a mere dependence upon the kindness and assistance of another. To bring the principle into play it must be shown that the opportunity for the exercise of the influence or ascendancy on the donor existed, as where the parties reside together or meet frequently. While close family relationship creates a situation where influence is readily acquired, mere blood relationship is not sufficient of itself to call the principle into play; it must be shown that the actual relations between the parties give rise to a presumption of influence.”
Furthermore, as Denham J. observed in Carroll at p. 249:-
“Counsel for the defendant, in oral submissions, on the issue of undue influence quite correctly accepted that the relationship between Thomas Carroll senior and Thomas Carroll junior and the circumstances in which Thomas Carroll senior found himself were such as to raise the presumption of undue influence.”
41. It is clear from the passages quoted that the presumption arises from the actual relationship between donor and donee at or shortly before the time of the impugned transaction, coupled with the circumstances of the parties relevant to the acquisition of a position of influence, including the age, position in life, state of health and other particular vulnerabilities of the donor. This is probably because these and other vulnerabilities can give rise to a degree of influence over the donor in a relationship where no such influence would arise if both parties were of the same capacity and in the same position to protect their interests.
42. The transaction occurred within close proximity of the funeral of Monica Joyce’s husband, with whom she had enjoyed a very close relationship and on whom she had depended very greatly. She was described as having been in a state of shock at the funeral. In the immediate aftermath of her loss she was clearly vulnerable. That, however, is only part of the picture. Her vulnerability was compounded by the progressive deterioration of her mental condition. From 1993 onwards those who had contact with her noticed that she was becoming forgetful. The evidence discloses that in the years that followed she experienced periods of confusion and agitation. She became unable to care for herself even before her husband’s death. Within a short time thereafter she needed 24-hour care. The full extent of the deterioration in her health is reflected in the fact that she began to attend a respite home for sufferers of Alzheimer’s disease shortly after Jack Joyce’s death.
43. In addition, she was 70 years of age at the time of the transfer. The defendant did not consider this to be elderly, although Mr. Mellett, the bank manager, took a different view. In my view, at 70 her age is not as weighty a factor as it would be if she were 75 years or older, but it is a factor that has to be borne in mind. Significant disparities in age have, in combination with other factors, contributed to the conclusion that a presumption of undue influence arises (see for example In re Craig, deceased; Meneces v. Middleton [1971] Ch 95). In Cheese Sir Donald Nicholls V-C, with whom the other members of the Court of Appeal agreed, noted at p. 133:-
“It was common ground that the relationship between the two of them was of a fiduciary character: they were close, Mr. Thomas was considerably younger, and he had business experience and a degree of actual influence over Mr. Cheese. Undue influence was therefore to be presumed.”
44. In view of Monica’s age and state of health she was undoubtedly vulnerable to exploitation, in particular at the hands of persons she was close to. I do not accept that the defendant’s relationship with her and Jack was as close as the defendant maintained, but there was an ongoing family relationship between Jack and his nephew, the defendant, and this is evidenced in the will of the late Jack Joyce wherein, in the event that Monica pre-deceased him, he left his property at Hollymount to the defendant, but only in the event that Monica pre-deceased him. I am satisfied that the defendant did keep in reasonably regular contact with his uncle Jack, and that he did visit for weekends, but I am not satisfied apart from a very infrequent occasion that he helped out by manning the sales in the business in Hollymount. He may well have been around the premises from time to time, but the evidence of Patsy Dalton, Evelyn Prendergast and Seamus Hughes satisfies me that he did not, as such, regularly help out with the sales aspect of Jack Joyce’s business. Further, I do not accept that he visited his uncle as regularly as indicated by him: such visits were probably on an infrequent basis. I do not accept the evidence of the defendant that Jack and Monica Joyce went to Dublin in the early 1990s with the intention of buying an apartment in Sandymount, Dublin, or that Jack and Monica Joyce would visit Dublin and stay for periods in the region of ten to twelve days. The defendant did travel some distance to visit his uncle during his illness and arranged his funeral with Kevin Prendergast. All the circumstances taken together are consistent with the view that he occupied a position of trust in relation to his uncle. I accept the evidence that Monica was inclined to agree with everything Jack said. It seems reasonable to infer from this that she would tend to repose trust in those in whom her husband trusted, provided that she herself was familiar with them. Further, the defendant was a nephew of the couple and was well known to them.
45. Monica’s state of health should also be borne in mind. I am satisfied that from in or about 1993 or 1994, she was beginning to fail healthwise, both mentally and physically, and that this was a cause of concern to Jack. In particular, I am satisfied to accept the evidence of Dr. William O’Connor that by 1995, Monica was very frail, depressed, and severely anxious, and suffered from poor concentration and memory. She was taking Prozac for depression, had attended a psychiatrist and was taking Valium and needed sleeping pills to assist her with sleep. I am satisfied that her husband had to accompany her most places when she left the family home and that she was reliant on his support and he was reluctant to leave her on her own.
46. Her state of health exposed her to potential exploitation by those in a relationship of trust with her. The impairment of her mind can only have made her more subject to exploitation and less capable of defending her own interests. In these circumstances I am satisfied that the nature of the relationship between the defendant and his aunt, and her position and condition at the time of the transaction, were such as to give rise to a presumption of undue influence.
47. I appreciate that the presumption is inapplicable in a case in which the full facts are known to the court (Carroll at pp. 263-264, per Barron J. (with whose judgment Lynch J. agreed)). However, in that case Barron J. held, at p. 265, that the presumption applied because the evidence adduced left
“a clear doubt as to whether the donor knew what he was doing and also as to what was his real intention.”
I do not consider the court can be satisfied that all the relevant facts are known in the present case, in light of the fact that the donor Monica is now deceased and was at the time of the transaction suffering from a progressive and serious deterioration of her mental faculties such as to call into question her capacity to understand the transaction at issue. A clear doubt of the kind referred to in Carroll therefore exists. As Barron J. made clear in that case, at p. 264, the presumption still has a function to perform where an element of doubt is present:-
“when all the facts are known surrounding the execution of the impugned document and these show that the donee exercised no influence over the donor then there is no ground to set the deed aside.
In the ordinary way, the person seeking to set aside a voluntary deed does not know all the circumstances surrounding the execution of the document. Accordingly, where the relationship between the donor and donee suggests that the deed might have been procured by undue influence, a presumption arises and the onus of rebutting it is placed upon the donee….The presumption is important when all the facts are not known. It cannot be rebutted until all the gaps in the evidence are filled and the evidence then denies the existence of any undue influence.”
48. An objection was raised to the application of the presumption in the present case on the basis of the following passage from the judgment of Lord Scarman in National Westminster Bank Ltd. v. Morgan [1985] AC 686 at 704:-
“In my judgment, therefore, the Court of Appeal erred in law in holding that the presumption of undue influence can arise from the evidence of the relationship of the parties without also evidence that the transaction itself was wrongful in that it constituted an advantage taken of the person subjected to the influence which, failing proof to the contrary, was explicable only on the basis that undue influence had been exercised to procure it.”
The court is satisfied however that this passage does not correctly state the law in this jurisdiction. It posits that the presumption can arise only where the transaction “constituted an advantage taken of the person subjected to the influence” (emphasis added). This statement calls to mind the argument on behalf of the defendant in Carroll that, because the evidence did not establish that the donee had acted improperly, the presumption had been rebutted. Denham J. rejected this contention, noting that it seemed to confuse the concepts of actual and presumed undue influence. It is clear from the judgment of Denham J. in Carroll (in the passage quoted in the paragraph below herein) that the existence of the relationship, combined with the conferring of a substantial benefit, gives rise to the presumption without more. The judgment of Barron J. in that case is also instructive in this regard, wherein he states at p. 265:-
“In the present case, the defendant relies essentially on three matters. The first is that the plaintiffs accept that their brother did not do anything improper. That alone is insufficient. As I have already indicated the evidence does not show clearly why the donor did what he did, that he knew what he was doing, and that it was the free exercise of his will.”
Furthermore, as Denham J. noted at p. 257:-
“In this case, the presumption existing, it was then necessary to conduct a careful analysis of the facts. On the facts it was a matter of determining if the donee, Thomas Carroll junior, had taken advantage of his position or had been assiduous not to do so. This was not a case where the issue was whether Thomas Carroll junior had taken advantage of his position expressly. Rather it was a case where in the circumstances assiduous care should have been taken not to take advantage of the position of Thomas Carroll senior” (emphasis added).
The transaction was set aside on the ground of undue influence in that case even though it was expressly accepted by the plaintiffs that their brother had not exercised any improper pressure. Returning to first principles, the definitive statement of Cotton L.J. in Allcard on the classes of undue influence is to the same effect: the presumption arises as a matter of public policy and to prevent such relationships from being abused. It achieves this objective by placing a burden on the donee to prove that the transaction did not result from the exercise of undue influence. It seems wholly contrary to the decision in Carroll, and detrimental to the public policy objective stated in Allcard, to adhere to the reasoning of Lord Scarman. The passage quoted from his judgment seems to impose an additional requirement that it be proved that the transaction was procured through misconduct, a requirement not endorsed in Carroll. Accordingly I do not propose to follow National Westminster Bank Ltd. v. Morgan.
In the particular circumstances of this case, for the reasons as set out, I am satisfied that the presumption of undue influence arises.
Has the presumption of undue influence been rebutted?
49. In Carroll Denham J. approved and applied at p. 254 the following passage from Delany, Equity and the Law of Trusts in the Republic of Ireland (1st Ed., Dublin, 1996) at p. 482:-
“Once a relationship giving rise to a presumption of undue influence is established, and it is shown that a ‘substantial benefit’ has been obtained, the onus lies on the donee to establish that the gift or transaction resulted from the ‘free exercise of the donor’s will’. As Dixon J. put it in Johnson v. Butress, the evidence must establish that the gift was ‘the independent and well-understood act of a man in a position to exercise a free judgment based on information as full as that of the donee’. The manner in which this presumption may be rebutted relates to two main issues; first, the question of whether independent legal advice has been received and secondly, whether it can be shown that the decision to make the gift or transfer was ‘a spontaneous and independent act’ or that the donor ‘acted of his own free will’.”
50. In the present case the defendant has received a substantial benefit and the presumption of undue influence applies. Accordingly, the defendant carries the onus of proof referred to in the above quoted passage. There is evidence to suggest that Jack Joyce had conversations with third parties concerning the transfer of monies and/or his estate to the defendant. Jack Joyce may well have had discussions with him to the effect that he wanted him to have the monies in the joint accounts. However, up to the time of his death no actual transfer took place. On the balance of probabilities, I doubt that Jack would have deprived Monica of the use of the monies in the joint accounts because to do so would have denied her access to the great majority of the funds available to her exactly at the time when she found herself without the assistance and support of her husband on which she relied so heavily. I am fortified in this view because on the evidence of Seán Mellett, the Manager at Bank of Ireland, Claremorris, the manner in which the joint deposit account had been set up allowed for either person to withdraw any amount, including the entire amount, from the account. Accordingly, Jack Joyce could, at any stage during the 1990s, have signed the necessary withdrawal docket and simply given the defendant a portion of or the entire of the monies in the joint deposit account with Bank of Ireland. There was, in fact, no need to advise Monica as to what he was doing, and yet he never took such a step. Furthermore, when he was ill in hospital shortly prior to his death, he must have known, as was the factual situation, that he could have directed Monica to go to the bank and sign the appropriate withdrawal form so as to transfer part of or the entire of the monies in the joint deposit account to the defendant, and there is no evidence that any such discussion occurred and it was, at all times, open to Monica to have gone to the Bank of Ireland with the defendant, on 12th January, 1998, and to have met with Seán Mellett, the manager, and signed the necessary documentation. It is furthermore clear from the last will and testament of Jack Joyce, particularly in the manner in which the will is worded, that he wished to leave everything he died possessed of to Monica absolutely.
51. Accordingly, I find, as a fact, that while Jack Joyce may have indicated to Seán Mellett of the Bank of Ireland, Claremorris, and to Ms. Clancy, the manager of AIB in Ballinrobe, that he wished the defendant to have everything when he passed away and/or that he wished him to have the entire of the monies in the joint deposit accounts, he did not mean what he was saying because, in fact, he had every opportunity to do so in respect of the joint accounts and never availed of that opportunity and insofar as his last will and testament is concerned, he left no bequest to the defendant other than his property at Hollymount in the event that Monica pre-deceased him, which did not occur.
52. However, even if I had taken the view that Jack had harboured such an intention, that could not be such as to rebut the presumption because Jack Joyce was not the donor of the monies involved. Although Monica may have confirmed her agreement to the transfer some three months prior to her husband’s death, for a number of reasons I do not consider any real weight can be attached to such a situation. The evidence establishes that she tended to agree with everything Jack said, at least insofar as business and banking affairs were concerned. In addition, she could not speak freely on this occasion. The intended beneficiary, the defendant, was actually present when the point was raised, and Monica was not being invited to give her assent in any way or by any means which could be such as to bind her. It would be patently unfair to hold her to an assent given in such circumstances. Furthermore there is no evidence available to suggest that Jack ever directed Monica at any time to transfer the monies in the three joint accounts to the defendant.
53. Although I consider this sufficient to dispose of the assertion that Jack and Monica had expressed an intention to transfer the monies to the defendant, it should be added that Monica’s mental impairment was already well advanced by October 1997, and, for the reasons stated below, the court does not accept that she had had the benefit of independent advice.
54. A contrary submission was advanced on behalf of the defendant, who asserted that Mr. Mellett of the Bank of Ireland had provided the requisite independent advice. A year or two prior to the impugned transactions, he had discussed with Jack and Monica the proposal to transfer the monies into the sole name of the defendant. The transaction was also explained to Monica by Mr. Mellett on the day the transfer was effected.
55. In the context of a person in Monica’s state of mental health, I am unable to conclude that on the balance of probabilities she would recall the content of a discussion that took place a year or two prior to the transactions. Even if she did, neither that discussion nor the explanation Mr. Mellett is said to have given her on the occasion of the impugned transaction would have been sufficient to satisfy the requirement as to independent advice. In Inche Noriah at pp. 135-136, Lord Hailsham L.C., delivering the judgment of the Privy Council, stated:-
“It is necessary for the donee to prove that the gift was the result of the free exercise of independent will. The most obvious way to prove this is by establishing that the gift was made after the nature and effect of the transaction had been fully explained to the donor by some independent and qualified person so completely as to satisfy the Court that the donor was acting independently of any influence from the donee and with the full appreciation of what he was doing; and in cases where there are no other circumstances this may be the only means by which the donee can rebut the presumption. But the fact to be established is that stated in the judgment already cited of Cotton L.J., and if evidence is given of circumstances sufficient to establish this fact, their Lordships see no reason for disregarding them merely because they do not include independent advice from a lawyer. Nor are their Lordships prepared to lay down what advice must be received in order to satisfy the rule in cases where independent legal advice is relied upon, further than to say that it must be given with a knowledge of all relevant circumstances and must be such as a competent and honest adviser would give if acting solely in the interests of the donor.”
56. Denham J. quoted this passage with apparent approval in Carroll. The judgment of Barron J. in that case is also instructive. He stated at p. 265 that it was clear from Gregg that:-
“(1) a solicitor who acts for both parties cannot be independent of the donee in fact; and
(2) to satisfy the court that the donor was acting independently of any influence from the donee and with the full appreciation of what he was doing it should be established that the gift was made after the nature and effect of the transaction had been fully explained to the donor by some independent and qualified person. Further, the advice must be given with a knowledge of all relevant circumstances and must be such as a competent advisor would give if acting solely in the interests of the donor.
Accepting these principles, there can have been no independent advice given by Mr. Joyce since at best he was acting for both parties. In any event his evidence was lacking in two important respects:-
(1) he did not have knowledge of all the relevant circumstances; and
(2) he did not give advice, he merely set out to carry out the donor’s instructions.”
57. I am not to be taken as suggesting that Mr. Mellett acted otherwise than bona fide in relation to this transaction. However, his intervention in the present case was not sufficient to comply with the principles established by the above authorities. He had a financial interest in the transaction, in that he had targets to meet in regard to the number of transactions he oversaw. The defendant argued that this was immaterial, since he would have benefited in the same way if Monica had transferred the monies into a product in her sole name. No doubt that is so, but the argument presumes that there was a possibility such an alternative transaction might take place. It may well be that there would have been no investment in the financial product at issue, and indeed no transaction of any kind, if the impugned transfer had not gone ahead as planned. It has not even been suggested that the proposal to invest the money in a financial product came from Monica. Even if she had been fully aware of the nature of what she was doing I see no reason to believe that she would have contemplated entering into a transaction which left the money in her name but in a different form. Had she been advised to consider keeping the money in a financial product in her own name I consider it probable that she would not have transferred the money from her account at all. Mr. Mellett’s understanding of the reason for the transaction was that it was intended to benefit the defendant, and he had no reason to suppose that the donor would have considered an alternative transaction wholly inconsistent with that intention if recommended. Accordingly, it seems probable that no alternative transaction would have occurred, and this would have impacted adversely on Mr. Mellett’s business targets. Again I do not wish to call his motives into question, but in circumstances where the purportedly independent advisor has an interest in the transaction, his advice cannot be said to meet the criteria of independence referred to in the authorities.
58. In addition, Mr. Mellett was aware of the supposed intention of Jack Joyce that the money should pass to the defendant. When pressed in cross-examination as to why the transaction had proceeded even though the money had passed to Monica, he indicated that it was Jack Joyce’s intention that the defendant should have the money in the joint account. I do not think I am being unfair to him in suggesting that, having discussed it with Jack and the defendant, he approached the matter with a preconception that the transaction should go ahead. It would appear that he saw his role in this context as helping to give effect to the expressed intention of Jack Joyce. Considering that this was the objective he had in view, the court is not satisfied that he gave sufficient consideration to the interests of the donor.
59. In addition, he did not know Monica beyond having met her briefly on just a few occasions. He does not appear to have known or inquired into the nature or extent of her other assets, nor was he aware of the extent of her mental impairment and her consequently greater need for advice and protection in financial matters.
60. It should be noted that the focus in this regard is on ensuring that the particular donor fully appreciates the quality of the transaction. This means that greater care must be taken to ensure that persons who are particularly susceptible to exploitation, such as those who are aged, or suffer from ill health, or are vulnerable, genuinely understand the nature and effect of the transactions into which they enter, particularly when those transactions are of substantial value. The advice must also be such as a competent advisor would give if acting solely in the interests of the donor. In my view a person in such a position vis-à-vis Monica Joyce would of necessity have cautioned her about the gravity of what she was doing. The evidence does not establish that this was done in the present case and indeed it has not been suggested that it was. I am not satisfied on the evidence that Monica Joyce received adequate independent expert advice to give her a full appreciation of what she was doing at the time she gave effect to the transfer.
61. The courts do not demand “absolute disproof” of undue influence in order to rebut the presumption (Provincial Bank of Ireland v. McKeever [1941] I.R. 471). The defendant argued that, in all the circumstances of this case, the court should find that the presumption has been rebutted.
62. It was submitted that Monica Joyce was mentally fit to carry out the transfer on the date in question. Both the defendant and Mr. Mellett were satisfied of this, and no-one else had given evidence as to Monica’s mental state on the particular day of the transfer.
63. In my view this suggestion seeks to isolate that particular day from the overall context of the lengthy and progressive deterioration of her mind. It is a fallacy to suggest that she was mentally fit to give effect to the transfer when the circumstances surrounding it are considered. Dr. O’Connor gave evidence that, in his professional opinion, it is doubtful that Monica was capable of understanding the transaction she entered into on 21st January, 1998. Much was made of the fact he had previously stated that he could not “express a categorical opinion” in that regard, since he had not seen her on the day of the transaction. However, it does not follow that he could not express an opinion on the balance of probabilities, based on his knowledge of Monica since 1995 as her doctor. Furthermore, he examined her on 3rd February, 1998, and concluded that she was incapable of living alone or making her own decisions, a conclusion he later expressed to her brother Kevin Prendergast. On 17th February he conducted a mental state examination and concluded she was unfit to understand a legal document or execute a will. The defendant pointed to the gap of two weeks between the transaction and the doctor’s conclusion, and the 27 days between the transaction and the mental state examination.
64. In context however these periods are very unlikely to have had any real bearing on her condition. The mere fact that it was not formally pronounced upon until a short time after the transaction does not mean that the impairment of her mind was not present at the relevant time. Viewed against the background of her illness, such short periods of time are of little relevance. The donor had been suffering from a mental impairment at least since 1993, a condition which progressively deteriorated over the years that followed. It was suggested she could not be left in charge of a till or a kettle by the beginning of 1998, a conclusion which seems consistent with the expert evidence of her regular doctor. Like Budd J. in Gregg, I am inclined to give more weight to the opinions of her regular doctor than those of persons who were not sufficiently familiar with her circumstances to correctly evaluate her mental state.
65. In Gregg, Budd J. was concerned with a deed executed by a man who suffered from a disease of the mind that left him with occasional periods of lucidity. Budd J. observed at p. 197:-
“I believe that his capacity to make rational decisions was by the autumn, definitely impaired and that his capacity to resist influence and suggestions was very slight and easily overcome. At times, I think, he might have been fit to make a simple officious will or simple disposition of his property if uninfluenced and properly advised, but it would, in my view, have been difficult to discover just when he was in that condition and equally difficult to bring him to a full understanding of the transaction. Someone well acquainted with him would obviously be the best person to make the attempt, but even such a person would require to exercise care and patience in examining him before coming to a conclusion as to his capacity. Even if he could be shown to have had the capacity to bring a reasoning mind to bear on such a disposition there would still remain the formidable difficulty of ascertaining and ensuring that his mind was emancipated from the influence and dominion of others alleged to have existed.”
66. The same considerations apply in the context of the donor’s state of health in the present case. The defendant was the only person well acquainted with her who had the opportunity to observe her mental state on the date of the transaction. It has not been suggested that he undertook a patient and careful examination of her to ascertain whether she was fit to proceed, albeit that he, like Mr. Mellett, thought she understood what it entailed. The evidence of her doctor however, together with the long progression of her illness over the preceding years and the effect on her mental state of the recent death of her husband, leads to the conclusion that the donor was on the balance of probabilities incapable of fully understanding what she was doing on 21st January, 1998.
67. I do not overlook the letter of 15th June, 1998, from Maguire & Brennan, solicitors for Monica Joyce, to the Bank of Ireland. That letter states that the solicitors received instructions from Monica Joyce and Kevin Prendergast to the effect that the money should be placed in an account in the sole name of the former. That letter was a response to Mr. Mellett’s letter of 27th March, 1998. Accordingly, it is said that at some point between those two dates Monica must have been capable of giving instructions. I accord little merit, however, to this matter when weighed against the cogent and persuasive evidence given as to her mental state nearer to the time of the transaction, in particular the evidence of Dr. O’Connor. It may be that when these instructions were given to her solicitors, she had enjoyed at least some amelioration in her condition, perhaps due to the intervention of the respite home and the period that had elapsed since the death of her husband. While this is speculative, I mention it only to indicate that there are alternative explanations for the giving of these instructions, and that it cannot be deduced from the donor’s apparent capacity to give instructions at that time that she was so capable on the date of the transaction, four days after her husband’s funeral.
68. It was contended that the donor carried out the transfer in exchange for the services rendered by the defendant to her and to Jack. I cannot avoid the conclusion that this suggestion as to the motivation for the transfer is incorrect. The evidence of friends of Jack and Monica Joyce indicates that the defendant did not assist at the garage as often or as productively as he contends.
69. Alternatively it was suggested that the transfer was carried out in consideration of natural love and affection. However I do not consider that this submission affords a plausible explanation for the transfer. Although the relationship between donor and donee in this case was sufficiently close to raise a presumption of undue influence, I am mindful of the fact that Monica had other relatives in a closer relationship to her. Some of them went on to assist and care for her in the years following the death of her husband. It is difficult to understand why she would have made greater provision for the defendant, a nephew by marriage, than she would for those who were closer to her both in family ties and in the care they showed for her. The explanation proferred might conceivably be acceptable if the defendant were in particular need of financial assistance, but there is nothing to indicate that was the case at the time of the impugned transfer. Even then it would have been difficult to conclude that such a large sum, representing such a substantial portion of the donor’s assets, should have been given to her husband’s nephew in consideration of natural love and affection.
70. It follows from the foregoing that the defendant has not established that the gift “resulted from the ‘free exercise of the donor’s will’”, constituting “the independent and well-understood act of a man in a position to exercise a free judgment based on information as full as that of the donee” (Carroll at p. 254). Accordingly, the presumption has not been rebutted and the transactions should be set aside for undue influence. For the sake of completeness I will also consider the aspect of alleged improvidence.
Improvidence
71. Before considering this question, the court must address an objection on behalf of the defendant to the effect that this issue was not argued at the hearing. As the defendant acknowledges however, it is specifically pleaded at para. 11 of the statement of claim that the transfer was grossly improvident, and denied in the defendant’s defence at para. 4. In addition, it was clearly understood that the legal argument in this case would be by way of written legal submissions. The plaintiff was entitled to raise the ground of improvidence as she did. The point having been raised, the defendant had the opportunity to respond to it in written submissions and very properly did so.
72. The jurisdiction to set aside a transaction for improvidence was recently considered in the High Court in Carroll v. Carroll [1998] 2 ILRM 218. In that case Shanley J. (at p. 230) quoted with apparent approval the following passage from Hanbury and Martin, Modern Equity (4th Ed., London, 1991) at p. 821, concerning the criteria for setting aside a transaction on this ground:-
“First, that one party was at a serious disadvantage to another by reason of poverty, ignorance, or otherwise, so that circumstances existed of which unfair advantage could be taken; secondly, that the transaction was at an undervalue; and thirdly, that there was a lack of independent legal advice.”
Both the High and Supreme Courts applied those principles in Carroll.
73. The defendant submits that this jurisdiction extends only to setting aside improvident or unconscionable bargains, in the sense of a transaction for value. In support of this proposition reliance was placed on Langton v. Langton [1995] 2 F.L.R. 890, a decision of A.W.H. Charles Q.C. sitting as a deputy High Court judge. However, it has been pointed out (Capper, “Undue Influence and Unconscionability: A Rationalisation” (1998) 114 L.Q.R. 479 at p. 492) that this view was expressed obiter and that it is inconsistent with two decisions of the High Court of Australia. In Wilton v. Farnworth (1948) 76 C.L.R. 646 the court set aside a deed on the ground of unconscionability where no value was given in exchange for it. The judgments of Latham C.J. (at p. 649) and Rich J. (at p. 655) expressly refer to the transfer of the plaintiff’s share in his wife’s estate to his stepson as a gift. Again, in Louth v. Diprose (1992) 175 C.L.R. 621 the court set aside a gift of a house on the ground of unconscionability. The decisions of our courts support the view that the doctrine extends to gifts. In Noonan v. O’Connell (Unreported, High Court, Lynch J., 10th April, 1987) the court set aside a gift of a half share in the plaintiff’s farm on the ground of improvidence. The court noted (at pp. 8-9) that the consideration of 50 pence could be disregarded as it did not constitute any real consideration for the purposes of determining whether the transfer was improvident, and that although the plaintiff and defendant might have agreed that the defendant should support the plaintiff and carry out work for him, there was no mention of this in the deed. Accordingly, the court in effect treated the transfer as a gift and set it aside for improvidence. In McGuirk v. Branigan (Unreported, High Court, Morris J., 9th November, 1992) a gift of much of the plaintiff’s garden was set aside as improvident. While the agreement provided for some consideration, there was no evidence that it had been paid or genuinely envisaged, and the court attributed its inclusion in the agreement as a mere device to evade special requirements in a conveyance for natural love and affection. Accordingly, the transfer being set aside was in fact a gift. Similarly, the judgment in Grealish v. Murphy [1946] I.R. 35 at p. 50 indicates that the doctrine extends to gifts.
74. It has also been suggested in a series of cases (Hart v. O’Connor [1985] AC 1000; Alec Lobb (Garages) Ltd. v. Total Oil (Great Britain) Ltd. [1983] 1 W.L.R. 87; Louth v. Diprose (1992) 175 C.L.R. 621) that to have a transaction set aside for improvidence, it must be established that the defendant acted in a manner which involved some element of moral turpitude. I am satisfied that this proposition does not represent Irish law. In Carroll, Shanley J. noted at p. 223:-
“there is no suggestion from them [the donee’s sisters, who were also the plaintiffs] that their son [Sic] in any way bullied or cajoled their father into transferring the property to him.”
75. As noted above, the plaintiffs in that case expressly rejected the idea that their brother had acted wrongfully toward their father in relation to the transaction, and it was common case that he was mentally alert at the time. Of course, the absence of express undue influence does not rebut the presumption. However, if some form of misconduct were to be regarded as an essential element of the doctrine of improvident transactions, it would not have been held in such circumstances as those which prevailed in Carroll that the gift was liable to be set aside for improvidence. Indeed, both the High and Supreme Court in that case reached the conclusion that it was a clear case of improvidence, without any suggestion that the defendant had acted improperly or that impropriety in his conduct would have to be present. Denham J. noted at p. 250, but did not accede to, the submission that some unconscientious use of power by the stronger party against the weaker had to be shown. Similarly, in Noonan no presumption of undue influence arose and “there was no express undue influence of any sort by the Defendant” (at p. 7). The court did not attribute any moral wrongdoing to the defendant. Indeed, the proposal for the transfer of half of the plaintiff’s interest in his land had come from the plaintiff himself. He had originally suggested he should transfer all his lands to the defendant. The defendant had dissuaded him from doing so. The court nonetheless set aside the transfer on the ground of improvidence.
76. It is clear then that the court enjoys jurisdiction in equity to set the transfer aside once the three criteria identified by Shanley J. in Carroll have been established:-
(1) that one party was at a serious disadvantage to another by reason of poverty, ignorance, or otherwise, so that circumstances existed of which unfair advantage could be taken;
(2) that the transaction was at an undervalue; and
(3) that there was a lack of independent legal advice.
77. In the present case the donor was at a serious disadvantage to the donee owing to her mental impairment, the then very recent loss of her husband and her advanced age. I have already indicated that I regard as unreal the proposition that her mental impairment was somehow absent at the time of the impugned transfer. Accordingly, the circumstances were such as to enable unfair advantage to be taken, whether or not such advantage was in fact taken. For the reasons as set out it need not be shown that the donee in fact took advantage of the donor’s vulnerability.
78. The transaction was at an undervalue. As was properly conceded on behalf of the defendant, the donor was entitled to the monies transferred following the death of her husband. I appreciate that she had the benefit of her husband’s will, and funds available to her in the form of a monthly pension of approximately US$500 together with death benefits of £34,017.63. However on the basis of the evidence adduced the will was only read to her after she had completed the impugned transactions. The sum transferred represented the great majority of her liquid assets. The effect of the transfer was to divest her of that money. While it was placed in an account in the joint names of herself and the defendant, she could not access it without his assent. At a stroke she deprived herself of these monies in exchange for no benefit immediately following the loss of a husband on whom she had become almost totally dependent. The evidence in this regard discloses a clear case of improvidence.
79. Finally, for the reasons already outlined the court finds that the donor did not have the requisite independent advice. In a passage approved by Denham J. (with whose judgment Lynch and Barron J.J. agreed) in Carroll at pp. 258-259, Gavan Duffy J. stated in Grealish at p. 49:-
“Equity comes to the rescue whenever the parties to a contract have not met upon equal terms, see Lord Hatherley’s judgment (dissenting on facts) in O’Rorke v. Bolingbroke; the corollary is that the Court must inquire whether a grantor, shown to be unequal to protecting himself, has had the protection which was his due by reason of his infirmity, and the infirmity may take various forms.”
80. Having regard to her age, state of health, and shocked state very shortly after her husband’s funeral, Monica Joyce was in my view unequal to protecting herself and was suffering an infirmity for the reasons as set out and did not have the benefit of independent advice such as to ensure she understood the nature and effect of the transfer.
81. Accordingly I am satisfied that the transactions should be set aside for improvidence.
Danske Bank A/S trading as National Irish Bank PLC -v- Madden
[2009] IEHC 319 (03 July 2009)
JUDGMENT of Mr. Justice Brian McGovern delivered on the 3rd day of July 2009
1. The plaintiff’s claim is for monies lent by the plaintiff to the defendant at his request. The parties are in agreement that if the defendant is indebted to the plaintiff, the amount due on foot of the loan agreement as of the date of commencement of the trial is €1,359,392.97.
2. The plaintiff is a bank. At all material times, the defendant was the principal of John Madden Car Sales and he resided at Lucan in County Dublin.
3. The claim arises out of a Loan Agreement entered into by the plaintiff and the defendant on 12th December, 2005, pursuant to which the plaintiff agreed to make available to the defendant a loan facility in the sum of €1,330,000.00. The terms on which the loan was granted were set out in a facility letter dated 8th December, 2005, and which was accepted and signed by the defendant on 12th December, 2005.
4. The agreement states that the purpose of the facility was “to invest in further property acquisitions”. The security offered was a
“Letter of undertaking over Legal Mortgage and Deeds of property at 23, Coldwater Lakes, Saggart, County Dublin.
Any security held now or at any future time shall be security for all your liabilities to the Banks (actual or contingent) and whether as principal or surety.”
The property specified is one and the same as that described elsewhere as No. 8, Tassagard Drive, Citywest, Saggart, County Dublin. A letter of undertaking was given by the defendant’s solicitor, Mr. Thomas Byrne.
5. The granting of the loan followed upon a meeting that took place on 10th November, 2005, when the defendant attended with his solicitor at the bank’s premises for the purpose of making a loan application. At that meeting, the bank officers outlined the requirements that had to be met in order to proceed with the application. The defendant had been introduced to the bank by Mr. Thomas Byrne, who had personal borrowing with the bank and was in the course of opening his practice account with the bank at that time. The defendant was described to Mr. Gordon Bothwell of the plaintiff bank as a client of Mr. Byrne’s firm, Thomas Byrne & Co., as well as being a business associate. When the parties met on 10th November, 2005, Mr. Bothwell and Mr. David Doyle represented the bank and the defendant attended with his solicitor, Mr. Byrne. It is accepted by Mr. Bothwell and the defendant that Mr. Byrne did most of the talking.
6. There is a disagreement between the parties as to what was the purpose of the loan. The defendant maintains that the loan was to enable him to purchase the property at No. 23, Coldwater Lakes (“the property”) from Mr. Byrne to compensate him in respect of losses suffered due to Mr. Byrne not completing an earlier property deal in which he and the defendant were involved. The plaintiff maintains that the clear purpose of the loan was as stated in the facility letter, namely, “to invest in further property acquisitions.” As evidence of this, the plaintiff says that the defendant furnished a Schedule of Assets which included the property which was described as No. 8, Tassagard Drive, Citywest, Saggart, County Dublin (“the property”). This statement of affairs had been furnished to the bank by the defendant’s solicitor. The defendant says that he did not see the statement of affairs before it was furnished and it now transpires that the defendant did not own the property even though it was offered as security for the loan as can be seen from clause 5 of the facility letter.
7. In the course of his evidence, Mr. Bothwell, on behalf of the bank, stated that he was never told that the loan was for the purpose of purchasing the property being offered as security. I accept that evidence. The defendant admitted, under cross-examination, that he did not tell the plaintiff that he was acquiring the property from Mr. Byrne. Following the meeting on 10th November, 2005, the defendant’s solicitors sent to the bank the statement of affairs which included the property and in the credit application dated 6th December, 2005, the following appears:
“The purpose of this submission is to request sanction for a twenty-five year term loan for €1,330,000.00. This is based on 70% LTV on unencumbered property at 23, Coldwater Lakes, Saggart, County Dublin, which will be held as security. The proposed funding will be used to invest in other property.”
This corroborates what was ultimately stated in the letter of sanction and the evidence of Mr. Bothwell as to his understanding of the position. The defendant concedes that he did not state anywhere, in his replying affidavit to the summary summons, that he had told the bank that he was buying this house. He accepted, under cross-examination, that Mr. Bothwell would have been under the impression that the loan was “to invest in other property” as stated in the facility letter and the credit application.
8. The solicitor’s undertaking dated 22nd December, 2005, is given in respect of the property, and on the same date the defendant signed an authorisation to his solicitor to give that undertaking. On the same date, the defendant made a statutory declaration that the property was not a family home. In his evidence, he said that he did not sign this in front of the Commissioner for Oaths, contrary to what appears in the declaration. While this raises an issue of great concern, it was not possible to make contact with the Commissioner during the course of the trial to establish whether this assertion was contested. I cannot reach any conclusion on this evidence in the absence of hearing the Commissioner. However, it is not necessary for me to ascertain the true position in order to resolve the matters in issue between the parties. What is clear, beyond doubt, is that the defendant signed the declaration. The loan was drawn down on 23rd December, 2005, and the defendant accepts that he made payments on foot of the loan.
9. It appears, from the evidence, that the loan was paid to the defendant’s solicitor at the defendant’s request, but that it was never, in fact, passed on to the defendant. The defendant was given the keys of the property and took up occupation, believing he was the owner of it. Approximately six months later, he decided to sell the house but his solicitor suggested that a better option would be to re-mortgage the property with Irish Nationwide Building Society (“the building society”). The defendant accepted this suggestion and instructed his solicitor, Mr. Byrne, to proceed and arrange a re-mortgage of the property with the building society. He borrowed a sum of €1,400,000.00 from the building society which was drawn down by his solicitor. He understood that the money was being used to discharge what was owing to the plaintiff. The defendant subsequently learned that his solicitor had retained that sum of money for his own benefit and had mortgaged the property with another lending institution without reference to the defendant. When making the application for the refinancing loan, the defendant had to state his financial commitments and did not name the property at No. 23, Coldwater Lakes, as a property on which he had any commitments. He offered the property as security for that loan.
10. Between July 2006 and October 2007, the defendant made a number of payments to the building society on foot of the loan, but became aware that money was still being drawn down from his account with the bank and he received reminders from the bank about his failure to keep up payments. The defendant says that he then contacted his solicitor, Mr. Byrne, who said he would sort everything out, but he admits he never told the bank that he had taken out a refinancing loan with another financial institution in order to discharge the loan. It seems surprising to me that if demands were being made of him by a bank (the plaintiff) at a time when he understood the loan had been paid off, he was not, at the very least, indignant, and did not explain to the bank that the loan had been paid off as far as he was aware. But it seems that he never did this nor did he tell the bank that he had refinanced the loan. No satisfactory explanation has been given for this.
Issues
11. The plaintiff says that this is a simple, straightforward case of a claim on foot of a loan agreement. The defendant has raised a number of issues by way of defence to the claim. He contends that he entered into the loan agreement while acting under the undue influence of his solicitor, Mr. Thomas Byrne, and/or that he entered into the loan agreement under a fraud and deception practiced against him by his solicitor. He claims that the plaintiff had constructive notice of the fraud and that he was not the owner of the property, and that the plaintiff did not make reasonable enquiries before giving the loan. Although he did, at one point, rely on common mistake and the doctrine of non est factum, he withdrew reliance on those matters at the trial of the action.
12. I will deal with each of these defences as they arise.
Undue influence
13. The relationship of solicitor and client is one in which it has been held that undue influence will be presumed. It is necessary, therefore, to examine the evidence to see whether this presumption has been rebutted in the present case.
14. There is no evidence to show that the defendant was either a vulnerable or dependent person. He was an established businessman and retained Mr. Byrne as his solicitor in the usual way. While they appear to have cooperated in at least one property transaction (which was not completed), I find no evidence that the advice being received by the defendant from Mr. Byrne was not “independent legal advice” as that expression is normally understood. The usual meaning of such advice is that it is advice obtained by the party himself from a lawyer retained by him and not advice coming from the legal advisor of a third party with whom he is entering into a legal relationship. There was no evidence of any conflict of interest on the part of Mr. Byrne in this transaction that was apparent, or ought to have been apparent, to the bank, in circumstances where he was advising the defendant with regard to the loan agreement. If there was an issue on the question of Mr. Byrne acting for the defendant in what was, in effect, the transfer of his interest in the property to the defendant, that was a matter between the defendant and his solicitor and did not concern the bank. Insofar as the issue of “independent legal advice” was relevant, it was in the context of ensuring that the defendant was not receiving legal advice from the bank’s solicitors in relation to a loan being offered by the bank.
15. Because there is a presumption of undue influence in the relationship of a solicitor and client, there has to be some positive evidence to rebut that presumption. I find that evidence in the testimony of the plaintiff himself, as stated in the witness box and in his witness statement, which he adopted. The plaintiff described how he had found a suitable site in Naas, County Kildare, on which to operate his car dealership business. He reached an agreement with the vendor to purchase the property for €1,333,000.00 and a ten per cent deposit was to be paid. Apparently, the defendant and his solicitor agreed that they would enter into the deal as partners and would pay the deposit on a 50/50 basis. Subsequently, the defendant found out that Mr. Byrne had not paid the deposit or returned the contract and the vendor sold the property on to another party at auction at a price of €3,750,000.00. The defendant was annoyed with his solicitor because he had lost the deal and suffered a potential loss as the property had risen substantially in value. He threatened to report Mr. Byrne to the Law Society or to sue him, and as a result of that, he claimed the solicitor agreed to sell him the property at No. 23, Coolwater Lakes, at a price of €1,333,000.00, although it was worth in or around €2.5 million and he had a formal valuation of €1,900,000.00. This evidence clearly establishes that the defendant was not in any way overborne by his solicitor. Sadly, what does emerge from the evidence is that the defendant was the victim of a fraud perpetrated on him by his solicitor. But this is quite a separate matter from undue influence. Furthermore, in entering the loan agreement, the defendant was getting what he wanted, namely, the advance of a substantial sum of money.
16. In referring to the meeting of 10th November, 2005, at the bank, the defendant says, in his statement, “my recollection of the meeting was that Thomas did most of the talking as regards what was intended and I was happy to let him do this”. Again, this tends to negative the presumption of undue influence. Accordingly, I do not accept that the defendant was the victim of undue influence in this case at a time when he entered into the agreement.
Actual/constructive knowledge
17. I accept the contention of the plaintiff that where a party is seeking to set aside a contract on the basis that it was procured by the fraud or undue influence of a third party, it is necessary that the party seeking to enforce the contract had actual or constructive notice of the fraud or undue influence. The onus is on the defendant to establish that the plaintiff had actual or constructive knowledge of the fraud or undue influence. The defendant contends that he entered into the loan agreement while acting under the undue influence of his solicitor, Thomas Byrne, and/or that he entered into the loan agreement under a fraud and deception being practiced against him by Mr. Byrne. He claimed that the officials of the plaintiff who attended the meeting on 10th November, 2005, were well aware that the property was owned by Thomas Byrne and that he was selling it (or that he had already sold it) to the defendant. He claims that it was possible for the plaintiff to discover that the defendant was not in fact the owner of the property by means of a search in the Registry of Deeds, and that such a search is an enquiry that an ordinary purchaser or mortgagee would have made had he been acting reasonably. He argues that by failing to make such an enquiry, the plaintiff is fixed with constructive notice of the facts and that had it carried out reasonable enquiries, it would have established the following matters: –
(a) that the defendant was not the owner of the property;
(b) that the property was owned by Thomas Byrne and subject to a prior mortgage in favour of Ulster Bank Limited;
(c) that the representations made by Thomas Byrne at the meeting on 10th November, 2005, were false;
(d) that the purported statement of affairs prepared by Thomas Byrne was materially incorrect;
(e) that the solicitor’s undertaking given by Thomas Byrne was given fraudulently;
(f) that the property could not be used as security for the loan to the defendant;
(g) that Thomas Byrne was not an appropriate person to offer independent legal advice to the defendant;
(h) that, in fact, the defendant did not have any independent legal advice in relation to the transaction;
(i) that it was imprudent to transfer the loan monies to the client account of Thomas Byrne;
(j) that the transaction was a sham orchestrated by Thomas Byrne for his own benefit.
18. The defendant claims that the plaintiff failed to carry out any investigation of the title to the property at No. 23, Coldwater Lakes, and failed to ascertain that Mr. Byrne was the owner of the property and was purportedly acting on behalf of both the vendor and purchaser of the property and was not capable of giving the defendant independent legal advice in relation to the loan transaction. The plaintiff claims that it made all enquiries and inspections as could reasonably have been expected of it. It required the defendant to attend an interview with his solicitor during which the defendant’s solicitor represented that the defendant was the owner of the property and the defendant himself did not demur. The defendant’s solicitor provided a signed statement of affairs, listing the assets of the defendant. The defendant says he had not seen that statement of affairs but in the context of what transpired at the meeting, and the other documents signed by the defendant, I do not think it would be reasonable to expect the bank to look behind the statement of affairs. One might argue that they should have made further enquiries if it were not for the other documents which were signed by the defendant and, in particular, the family home declaration. Although that declaration did not specifically say he was the owner of the property, the whole basis on which it was offered was that he was the owner of the property and the undertaking given by the solicitor clearly purported to suggest that the defendant was in a position to offer that property as security. The plaintiff maintains that it was acting in accordance with ordinary banking practice to rely on the statement of affairs and the solicitor’s undertaking. There is no contrary evidence offered by the defendant. If he was to discharge the burden of proof on him concerning that issue, he should have called an expert in banking matters to give evidence on the inadequacies of the practice adopted by the plaintiff. He failed to do so. The defendant represented to the plaintiff, both by himself and through his solicitor, that he owned the property. Counsel for the plaintiff asserted that the doctrine of constructive notice regulates the interests of competing innocent parties.
19. In Bank of Ireland v. Rockfield [1979] 1 I.R. 21 at 37, Kenny J., in the Supreme Court judgment, stated:
“There is strong authority that the doctrine of constructive notice is not to be extended to commercial transactions. In Manchester Trust v. Furness, Lindley J., a great authority upon Company Law, said at p. 545 of the judgment:
‘. . . as regards the extension of the equitable doctrines of constructive notice to commercial transactions, the Courts have always set their faces resolutely against it. The equitable doctrines of constructive notice are common enough in dealing with land and estates, with which the court is familiar; but there have been repeated protests against the introduction into commercial transactions of anything like an extension of those doctrines, and the protest is founded on perfect good sense. In dealing with estates in land, title is everything, and it can be leisurely investigated; in commercial transactions, possession is everything, and there is no time to investigate title; and if we were to extend the doctrine of constructive notice to commercial transactions, we should be doing infinite mischief and paralysing the trade of the country’.”
The case of Northern Bank Limited v. Henry [1981] I.R. 1, relied on by the defendant, can be distinguished from the present case on the facts. In that case, a couple had separated and the husband was the legal owner of the family home but had purchased the leasehold title with money advanced by his wife. His wife commenced proceedings in the High Court, seeking a declaration that she was entitled to the leasehold interest in the family home. On the same date, her husband mortgaged the house to the plaintiff’s bank to secure monies owed by him to the plaintiff. Apart from making a search in the Registry of Deeds, the bank made no investigation whatever of the husband’s title to the property. The wife claimed that the bank was on constructive notice of her claim to the house and sought to resist well charging proceedings brought by the bank. She was successful in her application. Those facts are very different to the present case where the defendant applied for a loan, signed documents in support of the application, and permitted his solicitor to make representations for that purpose, and subsequently drew down the loan to the extent that it was paid to his solicitor by his consent. In those circumstances, I do not accept that the bank had any obligation to go further than they did before granting the loan and taking steps to secure it.
20. In the absence of special circumstances, a person will be bound by their signature. The defendant signed a number of formal documents in order to obtain the loan from the plaintiff but claims that he did not read these documents. By signing these documents, he gave his assent to their contents. He cannot simply repudiate these documents by saying he did not read them. If the courts were to permit this to happen, it would lead to chaos in the day-to-day workings of commercial life.
21. Regrettably, in this case, the defendant was the victim of a fraud and deception by his solicitor, Mr. Byrne. But he is, in my view, liable to the plaintiff for the sum claimed.
O’Siodhachain & Anor v. O’Mahony & Anor
[2002] IEHC 175 (31 October 2002)
JUDGMENT of Mr. Justice Kearns delivered the 31st day of October, 2002.
This sorry saga has its origins in the desire of the defendants to sell all or portion of farmlands jointly owned by them and comprising about 70 acres at Ballybeg, Co. Kerry. The farm contains a dwelling house, a number of outhouses and sheds, various fields and is also in part bog land. The events giving rise to the present dispute between the parties arose following an unsuccessful public auction to sell the farm which took place on the 14th day of August 1998.
The defendants are a married couple with two young children who married in 1988. The first named defendant was born in or around 1966 and his background was in farming. He left school at 16 years of age. The farm had previously been in the ownership of Sean O’Mahony’s family, but had been transferred to the defendants, subject to a right of residence in favour of Sean O’Mahony’s parents. Prior to the auction in 1998 arrangements had been agreed between the defendants and the O’Mahony parents whereunder the O’Mahony parents would waive their right of residence if the farmhouse was sold, subject to being relocated at the defendants expense.
Following their marriage, the defendants had initially lived in the O’Mahony farmhouse at Ballybeg, but in 1992 moved to the nearby village of Gneeveguilla, where, up to and including the time of the auction, they lived in what had formerly been Geraldine O’Mahony’s family home, which in addition had a small grocery shop and a number of petrol pumps.
Sean O’Mahony had been involved in a road traffic accident in 1983, following which he found it difficult to carry out farming work on the farm at Ballybeg. He also had some visual disability. In 1998, he and his wife were keen to sell off the farm and to move out of the area altogether. It was their intention at the time to place the proceeds of sale of the farm in an investment property in Dublin.
At the auction, the property was offered in different parcels, but neither the farm as a whole or the different parcels attracted any offers or any worthwhile interest. Later that evening, however, and without prior appointment, the plaintiffs arrived at the farmhouse and there spoke with Sean O’Mahony’s father, indicating some degree of interest in the property. On that occasion, Mr. O’Mahony Snr. showed the plaintiffs around the farmhouse, and the yard and outhouses. A phone call was made to the defendants at Gneeveguilla to inform them that the plaintiffs were on the property and some days later the first meeting between the plaintiffs and the defendants took place.
The plaintiffs jointly operate as Paralegal Technical Allied Services, which was set up in the mid 1990s to provide assistance to people with legal difficulties. The services consist not merely of giving assistance in getting litigation organised and assembling paper work for that purpose, but in counselling clients and providing assistance to people and families with social or other problems. The evidence in the case indicates that during the period from August 1998 to March 2001, the plaintiffs were involved in investigative work in Donegal, were assisting various litigants in court cases both in Dublin and at different country locations and were also engaged in litigation on their own account.
Apart from his paralegal and litigation activities, the first named plaintiff is a political activist and author and producer of cultural and other works. He is a well known figure in the Kerry area.
The second named plaintiff was born and educated in Scotland and obtained a BA Honours degree in Paisley. She read for an MA in England. She qualified as a secondary school teacher and came to Ireland in 1982 where she did a FAS retraining programme in UCC. Thereafter she worked with AnCO, teaching people how to set up in business. She became interested in legal work following the breakdown of her marriage in 1986 which led to frequent court appearances for which she could not get legal aid. She started a BCL course in UCC in 1998 and was conferred with a BCL degree in September 2001. She completed her LLB studies in September of 2001 and sat entrance examinations for the Law Society in April/May, 2002.
In August 1998, the plaintiffs were living in rented accommodation in Scartaglen, Co. Kerry, a property which they had to vacate by April of the following year. Mrs. Herron was also the owner of a terraced house at Sunday’s Well in Cork, which had been vacant for a number of years and which was owned subject to a mortgage in favour of Cork Corporation. There are also other burdens affecting this property to which I shall later refer.
While Mr. O Siodhachain was distantly related to Sean O’Mahony, and while Mr. O’Mahony knew of Mr. O Siodhachain by reputation, the parties were not directly or previously acquainted until they first met some days after the abortive auction.
As much of the subsequent events, and in particular the intent and motivation of the parties, is hotly contested, I propose at this stage to confine myself to a narrative of the matters which are common case and deal with the conflicts in the course of my review of the evidence given by the witnesses.
In the days and weeks following the auction, it is not in dispute that the plaintiffs called to the defendants’ shop at Gneeveguila where discussions of a general nature took place about the possible sale of portion of the farm to the plaintiffs. The plaintiffs interest was mainly focused on the farm house, its curtilage and outhouses, and a number of adjoining fields, which together formed a parcel of about 40 acres.
The plaintiffs took the view at a very early stage that the O’Mahony’s were a dysfunctional family, and that Sean O’Mahony in particular was very much dominated by his parents, who very quickly appeared to have formed a dislike of the plaintiffs and were extremely unhappy at the prospect of the defendants selling the farmhouse to the plaintiffs. Mr. O Siodhachain encouraged Mrs. O’Mahony to develop more independence on her own account and gave her books on practical philosophy and psychology to assist her in this regard. He encouraged her to attend a course in philosophy in Killarney, which she duly did. Mrs. Herron for her part formed a friendship with Geraldine O’Mahony and the two women commenced confiding in each other.
As the relationship between the parties developed, the plaintiffs offered their expertise to the defendants in relation to what might be done with the proceeds of sale of the farm at Ballybeg. At different times, the plaintiffs brought the defendants to view properties as far away from each other as Athlone and Tarbert. Projections and drawings were prepared and supplied by the plaintiffs, such as might put the plaintiffs in the best possible position to apply for loan facilities from a lending institution. Amongst the various proposals under consideration at different times were the extension of the shop premises at Gneeveguilla, the opening of a business in Tarbert and a supermarket project in Rathmore, Co. Kerry, which latter option the defendants ultimately opted to pursue in 2000. Apart from one set of drawings, for which a sum of £200 was paid to Mr. O Siodhachain, these services were rendered as a “gift” by the plaintiffs to the defendants.
Again, it is not in dispute that the plaintiffs took a very pro-active role in the defendants lives. Nor is it in dispute that Mr. O Siodhachain advised and arranged for Mr. O’Mahony to seek and obtain psychological help and counselling to help him overcome problems identified by the plaintiffs. In particular, Mr. O Siodhachain recommended that Mr. O’Mahony consult with Dr. Kinsch in Tralee, advice which was taken by Sean O’Mahony. It appears that a number of counselling sessions did take place in late 1998 or early 1999, following which Dr. Kinsch paid a visit to the defendants home at Gneeveguilla for further consultation and discussion with both defendants.
Shortly before Christmas, 1998, the defendants spent an evening with the plaintiffs at Scartaglen where a discussion took place about the viability of purchasing a property for letting purposes by creating apartments. It appears to have been on this particular occasion that Mr. O Siodhachain produced figures and projections in relation to Mrs. Herron’s property in Cork, which suggested that that property, if renovated and set in flats, might produce a better income then some of the other options under consideration, including the investment property in Dublin. The Sunday’s Well property was close to UCC and thus suitable for students.
Following this discussion, Mr. O’Mahony, apparently on his own initiative, went to inspect the property in Cork as did his wife. A number of visits to Sunday’s Well took place, but no surveyor, architect or engineer was ever retained on behalf of the defendants for the purpose of assessing what renovations might be necessary to the Sunday’s Well property or the likely cost of same. Nonetheless, the defendants, and in particular Mrs. O’Mahony, were enthusiastic about pursuing further the idea of acquiring the Cork property, which in turn led to discussions between the parties of a “back to back ” arrangement whereby the property in Cork might be transferred to the O’Mahonys in exchange for the defendants 40 acre parcel of land at Ballybeg, including the dwelling house, subject to some allowance for renovations to the Cork property..
Lengthy discussions then ensued between, in particular, Mr. O Siodhachain and Mr. O’Mahony, to see if mutually satisfactory terms could be arrived at These discussions also involved what use Mr. O’Mahony would make of the lands at Ballybeg even if transferred to the plaintiffs, and there were also lengthy discussions about machinery, use of outhouses and a penumbra of related issues.
On the 10th April 1999, the plaintiffs wrote to the defendants to say that unless the proposed purchase of Ballybeg was completed within 14 days, the plaintiffs would be obliged to rent accommodation elsewhere (their time at Scartaglen having expired) and would hold the O’Mahonys to account for any rent which they might incur in so doing.
There then followed an all night discussion between the parties at Gneeveguilla on the 23rd April 1999 which led directly to the execution of the written document which is the subject matter of these proceedings and which is hereinafter referred to as “the first contract”. This document was drawn up and prepared by the plaintiffs. It is not in dispute that the defendants obtained no independent legal advice prior to executing the same.
Under the first contract, the defendants agreed to purchase the plaintiffs property at Sunday’s Well in Cork and the plaintiffs agreed to purchase the farmhouse, outbuildings and about 40 acres of land, the property of the defendants at Ballybeg. The purchase price for the Sunday’s Well property was £374,000 and the purchase price for the lands at Ballybeg was £214,000. In addition, the defendants were to get the benefit of a sum of £95,000 to be spent on renovations on the Sunday’s Well property. The document further provided that purchase and sales contracts should be signed and exchanged as soon as practicable but in any event not later than the 8th December 1999.
In view of the dispute which subsequently arose between the parties, it is appropriate to set out verbatim those provisions of the document which related to the use and occupation of the lands at Ballybeg prior to the completion of any contract for sale. Firstly, the “preamble ” to the document recites the following:
This document is to set out the terms and conditions as agreed between all parties on Saturday April 23,1999 at Gneeveguilla, Rathmore regarding the sale and transfer of properties between both parties and such interim arrangements as are required to allow all parties the use and benefit of the properties and security for their interests in same prior to the signing of the sales and purchase contracts on or before the &11 December 1999, at which time this agreement will cease to have effect “
The document later provided:
10. “to facilitate the renovation work in Sunday’s Well and to protect the interest of the purchasers and the moneys expended in the reconstruction, the vendors as set out in (1) of the foregoing will lease to the purchasers as set out in (2) of the foregoing the property in Sunday’s Well for a 15 year period.
11. To facilitate the occupation and renovation of Ballybeg the vendors as set out in (2) of the foregoing will lease the property as set out in (4) of the foregoing to the parties as set out in (1) of the foregoing.
12. The 15 year leases as set out in (10) and (11) of the foregoing will come into effect with the signing of this agreement and will remain in
force until superseded by the contracts as set out in the preamble.
13. It is agreed by all parties that the contracts for the sale and purchase of Sunday’s Well in Ballybeg properties be exchanged between the parties solicitors as soon as the renovations of the main residence of Sunday’s Well is complete or in any event not later than 5* December
1999.
17. Both parties agreed that this document will cease to have effect on the signing of the contract for both properties on or before the 8? December 1999.”
Following the execution of this document, the first named defendants’ parents were prevailed upon to vacate the dwelling house and move into rented accommodation. The plaintiffs moved into occupation of the defendants’ farmhouse in May 1999 and have remained there since. They have paid neither rent nor purchase moneys to the defendants.
In the months that followed, no work by way of renovations to Sunday’s Well was carried out, nor was any schedule of works prepared or agreed, nor was any expert or qualified professional retained to advise the defendants in any way in relation to Sunday’s Well.
In November 1999 the defendants asked the plaintiffs to be relieved of their obligation to proceed with the transaction insofar as the acquisition of the Sunday’s Well property was concerned. The plaintiffs agreed to this request. Without objection from the defendants, the plaintiffs continued to reside at Ballybeg. No renovations or works were carried out at Ballybeg.
In February, 2000, the defendants instructed their solicitor, Mr. Terence Casey, to prepare a contract for the sale of the farm at Ballybeg to the plaintiffs to the sum of £214,000. It was the agreed background position between the parties that a £1,000 deposit would be sufficient, it being recognised that the plaintiffs were not in a position to offer more at that particular time. The contracts were duly sent out and returned with a draft for £1000. This contract is hereinafter referred to as “the second contract”. This contract provided for a closing date some six months from the lllh February 2000. When on the return of the contracts signed by the plaintiffs Mr. Casey noted that a deposit of only £1,000 had been paid with a six month closing period he advised the defendants against proceeding further. For that reason that sale did not proceed and that document is not of itself an issue in these proceedings.
Throughout 2000, the plaintiffs made efforts both in Ireland and in the United Kingdom to raise the necessary funds to purchase the defendants’ farm. The defendants for their part remained willing to sell the farm to the plaintiffs, notwithstanding the history to that point. By mid 2000, the defendants had opted to purchase a supermarket premises in Rathmore and were themselves coming under increasing financial pressure to marshal the necessary funds both for the acquisition of the property and for the setting up of the business in Rathmore. The unchallenged evidence of Mr. O’Mahony was that the defendants paid the sum of £260,000 for the shop in Rathmore in which context they applied for and obtained loan advances of 20% of the purchase price from Anglo Irish Bank to buy, stock, and fit out the supermarket for business purposes.
Following this acquisition, the defendants instructed Mr. Casey to draw up another contract for the sale of Ballybeg to the plaintiffs (hereinafter referred to as the “third contract”). In this contract the purchase price for the defendants property is stated to be £220,000 with a deposit of £22,000 payable by the plaintiffs. This contract provided that the sale should be closed on or before the 15th March 2001. It further provided that the contract would not be binding on the vendors until such time as it was signed by them and that no contract for sale should be otherwise construed.
This contract was in turn sent back in amended form to Mr. Casey through the plaintiffs’ solicitors with a deposit of £100. Mr. Casey called the defendants into his office and advised them strongly against entering into the contract. While the second named defendant was keen to proceed, Mr. Casey said he would not act for the defendants if they insisted on going ahead. It is not in dispute that executed contracts were never returned to the plaintiff’s solicitor.
In early March, 2001, the plaintiffs called, without the knowledge of the defendants, to Mr. Casey’s office in Killarney. They sought an extension of the closing date in the third contract from the 15th March, 2001 for at least one month as they believed they could still sell the Cork property. Mr. Casey, who only agreed to the discussion on an “off the record” basis, felt a longer period of time would be required if no purchaser was immediately available, and there was no such purchaser, and invited the plaintiffs through their solicitor to write to him requesting an extension of time. It is not in dispute that at the particular meeting, the plaintiffs offered to waive their entitlement to enforce any claim they might have to the 40 acre farm if they got the dwelling house and yard. Following this meeting, Mr. Casey received a letter from the plaintiff’s solicitor and called his clients in for a meeting.
In the course of his discussions with his clients, he voiced his suspicions as to whether or not the plaintiffs were in a position to sell the property in Cork. He advised his clients to seek possession of their farm at Ballybeg and to move to eject the plaintiffs.
A notice to quit dated the 5th April, 2001 was served on the plaintiffs requiring them to deliver up possession on or before the 13th April, 2001.
District Court ejectment proceedings were commenced on the 30th April, 2001.
The proceedings and the issues
The present proceedings were commenced by Plenary Summons issued on the 29th August 2001.
In these proceedings, the plaintiffs claimed an injunction prohibiting the defendants from proceeding with the ejectment proceedings pending the determination of the present proceedings. An interlocutory injunction was also sought to restrain the first named defendant from harassing the plaintiffs or interfering with the Plaintiffs in their possession of the premises at Ballybeg pending the determination of the proceedings. The summons further sought a declaration that the document or agreement entered into by the plaintiffs and the defendant on the 28th April 1999 was a lawful and valid lease.
A statement of claim was delivered on the 5th September 2001, on which date the plaintiffs issued a Notice of Motion for an Interlocutory Injunction to restrain the first named defendant as hereinbefore stated.
A replying Affidavit of Sean O’Mahony was sworn on the 11th September 2001, following which Donal O Siodhachain swore an affidavit on the 26th September 2001, to which was added a supplementary affidavit of Patricia Herron on the 1st October 2001.
The matter came before this Court on the 22nd October, 2001 when the controversy between the parties was outlined in some detail. I decided that, in the interest of having all matters disposed of at the same time, to injunct the continuance of the District Court proceedings and to set rigid timetables for pleadings and discovery so as to facilitate the earliest possible plenary hearing of all issues.
Thereafter a defence and counterclaim were delivered on the 12th November 2001.
Before that time, Mr. Terence Casey, who had been named in the proceedings as a third named defendant, successfully brought an application before Murphy J. on the 2nd October 2001 for an order striking out the proceedings against him. This order was the subject matter of an appeal to the Supreme Court which dismissed the appeal of Mr. O Siodhachain and Mrs. Herron on the 6th December 2001.
Affidavits of discovery were sworn by Mrs. Herron and by Sean O’Mahony, including a supplemental affidavit of discovery sworn by Mrs. Herron on the 31st May, 2002.
On the 10th May, 2002, Mrs. Herron brought a further Motion for Discovery seeking further and better discovery as per her letter to Mr. Casey dated 13* March 2002. While this matter had been adjourned in the Master’s Court to a date subsequent to the commencement of the hearing before this Court, the same was dealt with during the course of the hearing before the Court as appears from the review of the evidence. On the 10lh May, 2002, the proceedings appeared in a list to fix dates before Kelly J. Having heard Mrs. Herron on that occasion, Kelly J. directed that the proceedings be listed for hearing on Tuesday the 18lh June 2002. The plaintiffs appealed the order of Kelly J. to the Supreme Court.
On the 18* June 2002 when the matter was listed before Kelly J., the plaintiffs again unsuccessfully applied to adjourn the matter and the plaintiffs then immediately moved an application in the Supreme Court by way of appeal, from the order of Kelly, J., which said application was refused by the Supreme Court.
The application for adjournment was renewed to this Court on the 18* June and was also refused.
Further applications for adjournments were made by the plaintiffs to this Court during the hearing of the proceedings before this Court. One application which was premised on a medical indisposition affecting Mrs. Herron was granted. Further adjournment applications, sought for the purpose of initiating proceedings against me as the trial Judge in the case, together with other defendants, was refused.
As appears from the Affidavit of Patricia Herron sworn herein on the 10* May 2002, the case had been put in to the list to fix dates first on the 11* January, 2002. At that time, it was put back to the next list to fix dates in March, 2002 when Mrs. Herron indicated to the Court that a date for hearing in April or May would not suit her as she had law exams during those months. As already stated, Mrs. Herron, notwithstanding this adjournment, sought the further adjournment refused by Kelly J. on the 10* May, 2002. As is acknowledged by Mrs. Herron in her Affidavit, the time limits specified by me when injuncting the continuance of the District Court proceedings included the requirement that the case should go into the list of fix dates in January 2002.
During the course of the hearing, I invited the parties to identify the real issues in the case. As appears from the Statement of Claim delivered by the plaintiffs, certain reliefs sought are in contradiction of each other. In the course of submissions, Mrs. Herron indicated to the Court that the plaintiffs were not placing any form of reliance on the second contract. They were however asserting their right to occupy and remain in occupation of the defendants’ farmhouse and lands at Bailybeg under and by virtue of the document dated 28th April, 1999, as varied by an alleged oral agreement between the parties made thereto when the defendants withdrew from the purchase of the Sunday’s Well property. In the alternative, the plaintiffs contended that a concluded and valid contract was made between the parties in October 2000.
Taking in to account the defence and counterclaim delivered in the case, the issues to be determined are as follows:-
(a) Is the document dated 28th April, 1999, effective to create a valid lease for the stated period of fifteen years or otherwise?
(b) If so, was the execution of the document in question procured by undue influence, or was the making of the agreement attended by
circumstances of oppression or unfairness which would require the Court to intervene to set it aside?
(c) Was there a concluded and valid contract made between the parties in respect of the lands at Bailybeg in September/October 2000?
(d) Are the defendants entitled to an Order for possession of the farmhouse and lands at Bailybeg?
The Evidence
The execution of the first contract not being in dispute, the Court ruled that the defendants should first give evidence in support of their contention that the making of the first contract was procured by undue influence or was otherwise attended by circumstances of oppression or unfairness which would warrant the intervention of the Court.
In reviewing the evidence, the Court will not again refer to those undisputed matters and events already outlined which were established in the course of the evidence, but will rather concentrate on those areas where conflicting evidence was given.
Sean O’Mahony told the Court that in 1998 the defendants had decided to sell their 70 acre farm with a view to raising money for investment purpose. He also had in mind moving out of the area altogether.
He only knew Mr. O Siodhachain by repute although he accepted there was a family connection. From the outset, Mr. O’Mahony felt the plaintiffs were trying to win over the trust of his wife and himself and from an early stage, he said, the plaintiffs virtually lived with them on a constant basis, offering all sorts of services, including the preparation of financial projections and plans for various business ideas in which they sought to interest the O’Mahonys. Mr. O’Mahony informed the Court that he was led to believe that the plaintiffs could do any legal work in respect of any sale of the property for nothing if the property was sold to them.
After a while, aspects of the relationship with the plaintiffs began to disturb Mr. O’Mahony. He felt they were driving a wedge between himself and his wife, saying, for example, that Sean should be operating the pumps outside the shop operated by his wife at Gneeveguilla, rather than sitting around while his wife did such work. The plaintiffs, according to Mr. O’Mahony, suggested openly that Sean was very manipulated by his parents.
Mrs. Herron suggested to Mr. O’Mahony that there were unhappy differences between Mr. O’Mahony and his wife which had led in 1992 to Geraldine leaving their home in Ballybeg without him to go back to her family home at Gneeveguilla with her baby. Mr. O’Mahony stated that they had both gone to Geraldine’s family home with their child in 1992 because her father was extremely ill at the time and required care and support. He did however accept that part of the reason was that Geraldine did not get on too well with his parents. Mrs. Herron pressed Mr. O’Mahony to accept that he was a person prone to depression, that he spent days on end in bed, both before and after the time when she and her co-plaintiff met with him. Mr. O’Mahony agreed that his parents interference did get him down at times, but not to the point where he ever needed to spend time in bed or require medical or psychiatric help. He accepted suggestions from Mrs. Herron that his parents demanded to know the reason on every occasion where Sean sought to use the family car and required him to account for the mileage.
Mr. O’Mahony stated that he had received psychiatric counselling from Dr. Matt Kinsch in Tralee some months after first meeting the plaintiffs. This was Mr. O Siodhachain’s idea. He had also seen some other counsellor whose name he could not recall. The psychiatric advice he had received was to have no further dealings with Mr.O Siodhachain.
He was challenged on his assertion that the plaintiffs “lived” with the O’Mahonys, that the plaintiffs were away a lot of the time on other unrelated business. Mr. O’Mahony agreed that this was so, but pointed out that he and his wife had travelled to Donegal with the plaintiffs and visited a number of properties with them.
Mr. O’Mahony stated that some months after first meeting with the plaintiffs, they indicated they had a property in Cork that might be a more suitable alternative investment opportunity. He wasn’t interested, but felt his wife Geraldine was very much won over. Some time after Christmas 1998 he went to look at the property which was located in Sundays Well in Cork. He felt it was in a very poor condition having been vacant for a long time. He said that Mr. O Siodhachain had suggested swapping the farm at Ballybeg for the plaintiffs property in Cork, subject to some allowance for renovations to the Cork property. This was with a view to making the Cork property fit for letting in flats. Mr. O’Mahony told the Court that he wished to have an accountant, engineer and solicitor look at the proposal, but the plaintiffs, having initially agreed to this approach, changed their minds and suggested instead that they would put the O’Mahonys in touch with solicitors of their nomination. In the event no surveyor, architect or engineer ever looked at the property on their behalf.
Mr. O’Mahony went on to describe the events which took place in the dwell inghouse at Gneeveguilla on the night of the 23rd April 1999. On that night, he said that without prior arrangement the plaintiffs called and the parties then sat up all night discussing the proposed deal to be made. His recollection of the leasing arrangement was to the effect that Mr. O Siodhachain had mentioned a 99 year lease as being effective as a means of avoiding tax. There had been no mention of any rent in respect of leases on either property. However, when the plaintiffs later that same day came back with a written document in which there was reference to a 15 year lease he asked about it and was told not to worry, that it was for “tax purposes” only. He told his own counsel that it was his understanding that if contracts were not exchanged by the 8lh of December 1999, then the whole transaction would fall through. He also said that Mr. O Siodhachain had often said to him that the document wasn’t worth the paper it was written on. He did not accept in cross examination that the document was only signed by the parties on the 28th of April 1999. He further stated that when it was signed on Sunday 24lh, he was told by the plaintiffs not to discuss the document either with Mr. Casey, the O’Mahonys solicitor, or anyone else. He denied that the document had been left with himself and his wife for some days for their careful consideration or that they had been advised to discuss the entire matter with his solicitor, or some other solicitor.
The first written version of the document was seen by him on Sunday evening. It was then when he signed it and he recalled changing the figure in respect of renovations on the Cork property from £75,000 to £95,000.
When the document had been executed, he arranged for his parents to move out of the dwellinghouse to rented accommodation. Under the new arrangements worked out with the plaintiffs, he retained use of certain outhouses and a workshop on the lands. Mr. O Siodhachain worked some of the fields, cutting and baling hay which, according to Mr.O’Mahony, was left in the fields and needed to be removed by Mr. O’Mahony. Later by agreement, Mr. O’Mahony, let the fields and the plaintiffs occupation of the disputed property was confined to the house and surrounding curtilage.
Before the year was out, Mr. O’Mahony told the Court that his wife and he had decided they no longer wished to proceed with the purchase of the Cork property, because they wished to purchase a supermarket in Rathmore. The plaintiffs had no objection to their withdrawal, because at that time no renovations had been carried out to the Cork property and Mr. O Siodhachain said that the Cork property was now more valuable than it had been at the time of the execution of the document in April 1999.
Despite the fact that the original transaction was now at an end as far as Mr. O’Mahony was concerned, he nonetheless went to see his solicitor, Terence Casey, in January or February 2000 to get him to draw up a contract for the sale of the farm at Ballybeg to the plaintiffs for the sum of £214,000. He told the Court he did not inform Mr. Casey about the document which had been executed in April 1999. However, at another point in his evidence he stated that he may have mentioned the April 1999 document before December of that year when Mr. Casey asked for details of the title to the Sundays Well property. In any event, the second contract fell through when Mr. Casey advised against proceeding further.
In the year 2000, Mr. O’Mahony stated that he and his wife were keen to purchase a supermarket premises in Rathmore. They were still willing to sell to the plaintiffs, who kept promising they would come up with the money. They were dealing with Anglo Irish Bank in relation to the financial arrangements for the acquisition in Rathmore. He borrowed 220% of the purchase price of £260,000 for the property. This involved monthly repayments to the bank of £5,000 – £6,000 which was a huge financial burden for them. It was at this time that the third contract came into being. Mr. O’Mahony accepted that before it was drawn up he and his wife had first asked the plaintiffs for a letter of intent to purchase the farm at Ballybeg in the hope that the letter might be sufficient to persuade some financial institution to advance money. However, Anglo Irish Bank was not content to accept the letter. The third contract was then issued by Mr. Casey at the defendants suggestion. This provided for an additional £6,000 to the purchase price which, according to Mr. O’Mahony, was to reflect the increase in value in the farm, and had nothing to do with rent for use or occupation, as was suggested to him by Mrs. Herron. He denied that he had signed or executed this document, or that it was used by way of collateral or security for the Anglo Irish advance. Mr. O’Mahony stated that, apart from the supermarket title itself, various sites on his farm had been offered as collateral to Anglo Irish. The purchase of the supermarket and the move to Rathmore took place in November 2000.
Mr. O’Mahony said he was aware that in March 2001 the plaintiffs had gone directly to their solicitor with a view to extending the closing date on the third contract to the end of May. However, the problem was the plaintiffs were never able to come up with the necessary moneys to close. When the third contract came back with a deposit of only £100, Mr. Casey would not accept that they should proceed.
Mr. O’Mahony was also cross examined by Mr. O Siodhachain who suggested that Mr. O’Mahony had a great deal of experience in assessing building projects and dealing with tradesmen and other business people. Mr. O’Mahony agreed. Mr. O Siodhachain suggested that Mr. O’Mahony was perhaps not as incompetent or helpless as he had made out before the Court.
Geraldine O’Mahony told the Court that from the time of the first meeting with the plaintiffs that the plaintiffs virtually “lived with them” in Gneeveguilla. Mr. Ó Siodhachain was interested in buying the dwelling house on the farm and had all sorts of plans for extensions to the house which would accommodate his published works and legal cases. She described in some detail the months which led up to the all night meeting in April, 1999. In the talks which took place between the parties, Mr. O Siodhachain gave her to understand that she was been manipulated by her husband and that she had no control in the family unit. He also came up with the idea that Sean her husband should go for counselling. There was a first counsellor and then Dr. Kinsch, both of whom were nominated by Mr. O Siodhachain. She was asked if she had told Mr. O Siodhachain that Dr. Kinsch had advised her husband to “grow up “. Mrs. O’Mahony stated that the advice given to her by Dr. Kinch was that her husband should side more with his wife, even though he was an only son. She added that Dr. Kinsch had also advised that the O’Mahonys should altogether eliminate the plaintiffs from their lives.
She told the court that Mr. O Siodhachain had advised her to, “wake herself up “. She said that Mr. O Siodhachain advised her that both he and Mrs. Herron had come into their lives as “a sign from God” that they were there to help them. Mr. O Siodhachain led her to believe that if she did as he urged, everything would be fine in their lives. She believed everything he said and the extent to which Mr. O Siodhachain’s advice was followed caused a rift between her and her husband which was a mistake she would regret for the rest of her life. Mr. O Siodhachain pressed the witness about the visit paid by Dr. Kinch to the O’Mahony family home. Mrs. O’Mahony stated that the plaintiffs had in advance listed questions for her to put to Dr. Kinch about her husband, but denied the suggestion that, in the aftermath, of the visit, she told Mr. O Siodhachain that her husband had been left with “no cover” and would have to do whatever was suggested of him at that stage.
Both plaintiffs challenged Mrs. O’Mahony on her assertion that they virtually “lived” with the O’Mahonys. It was put to the witness that Mr. O Siodhachain and Mrs. Herron were either in Dublin for litigation purposes or in Donegal during the months in question between the auction and the signing up of the first contract in April, 1999. It was also put to the witness that Mr. O Siodhachain was busy during these months in political activity on behalf of Martin Ferris of Sinn Fein in Kerry. Mrs. O’Mahony accepted that the plaintiffs were actively involved in these different ways, but they still found lots of time to be calling on the O’Mahonys. She gave an example of how this might operate. On occasions where Mr. O Siodhachain might be in Dublin for one of his court cases, he could still call to the shop later on the same day. He often came with stories of court cases which he felt were designed to put the fear of the law into herself and her husband so that they would be afraid to such a degree that they could never stand up in court against the plaintiffs. She told the Court that Mr. O Siodhachain claimed to her that he could control the Court process by getting cases adjourned again and again and that he could “put a judge in his place “. As his cases were so often adjourned in this way, he could be back in Mallow by train in the afternoon, following which he would turn up at the defendants home.
In relation to the first contract, Mrs. O’Mahony recalled a particular evening in April 1999 when the all night discussions took place. On this occasion, the plaintiffs arrived without prior arrangement and were very business-like and brisk. Contracts were produced, she said, “out of the blue,”. Although there had been much talk of selling the farm, neither she or her husband were ready for this and both stated that they needed their solicitors advice and that they would not sign without it. However, the discussions went on all night and the contracts were eventually signed, as far as she was concerned, at 6 o’clock on Sunday morning. Again, as far as Mrs. O’Mahony was concerned, the contracts, whether in draft or typewritten form were not left with herself or her husband for even one day.
She told the Court that later that year, following a consultation with their accountant in Killarney, the O’Mahonys decided not to buy the property in Sundays Well. She continued to hope that the plaintiffs would come up with the necessary funds to buy the farm at Ballybeg by selling Sundays Well themselves. In the meantime, the plaintiffs kept coming up with new plans and projects for the O’Mahonys as suitable investment vehicles for the proceeds of any sale. Some of these plans and projections were drawn up by way of gift, others she paid for at £200 a time. At one point, she said, Mr. O Siodhachain wanted 1% of the overall figure if moneys were advanced from the bank in respect of the supermarket project at Rathmore.
In relation to the second contract, Mrs. O’Mahony stated she had already given cash to Mrs. Herron, out of which she believed the £1,000 deposit was paid. She had advanced moneys to Mrs. Herron, because she believed the plaintiffs did not have any money at that particular point in time.
When the opportunity to buy the supermarket in Rathmore came up in 2000, she was still of the view that she would give the plaintiffs a chance to come up with the money to buy the farm at Ballybeg. This was the reason why the third contract was sent out in October 2000. At this point, Mrs. O’Mahony told the Court, that she and her husband were desperate for money, that they were being pressed by suppliers and banks, all calling for payment.
Asked why she would give £1,000 towards a deposit to purchase her own property, Mrs. O’Mahony stated that in fact over the term of her acquaintance with Mrs. Herron between 1998 – 2000, she had in fact given to Mrs. Herron sums of money amounting to about £30,000.
Despite the collapse of the second contract, Mrs. O’Mahony told the court she still wanted to give the plaintiffs a chance to come up with the money even though she had begun to distance herself from the plaintiffs because of her worries about their difficulty in completing the purchase. She accepted the third contract came into being because Anglo Irish Bank would not accept a letter of intent to purchase the farmhouse from the plaintiffs. The bank required a signed contract. She did not recall any discussion about the amount of the deposit on this occasion. Her belief was that the contract specified a 10% deposit, something around £22,000. She denied that she had agreed that a deposit of £100 would suffice. She equally confirmed that she did not sign the third contract, that Mr. Casey would not permit it. This document was never produced or offered to Anglo Irish Bank by way of security. Instead, other sites from the O’Mahony farm were provided, along with the title deeds to the supermarket premises in Rathmore, as security for the loan which was advanced. Mrs. O’Mahony further stated that she had informed Mrs. Herron that the third contract had not in fact been signed by the O’Mahonys, although she kept hoping the plaintiffs might find the money to complete the transaction. Mr. O Siodhachain had told her they hoped to get it from England. However, from the time they moved to Rathmore in November, her husband had been pressing Mr. O Siodhachain for the purchase moneys all to no avail. When the third contract fell through, Mr. Casey was only then informed about the document executed in April 1999.
It was put to Mrs. O’Mahony that the ejectment proceedings only began when Mr. O Siodhachain wrote a letter threatening legal proceedings to injunct her husband from threatening behaviour and conduct. The witness disagreed, although confirming they had received such a letter. She did not accept that her husband regularly fought with tradesmen and staff in their supermarket, or that he had a problem dealing with people. She accepted the suggestion put to her that her husband was not intellectually incapacitated in anyway.
Mr. Casey told the Court that he was the defendants solicitor. Some weeks after the auction he heard that people wanted to buy the farmhouse. In February 2000 he was told by the O’Mahonys to draw up a contract for sale. He was advised at that time that the purchasers might not be able to pay the full deposit, so when drawing up the contract, he inserted the purchase price of £214,000 but left the amount of the deposit blank.
The contracts came back with a draft for £1,000 from the plaintiff’s solicitor Mr. Enright. Because there was a six month closing date and because the deposit was so small, he felt it was very unwise for the O’Mahonys to enter into contracts and so advised them. They took that advice. He later received a letter from the plaintiff’s solicitor stating that his clients were not now entering contracts and to return the deposit which he did.
He had a number of calls from the O’Mahonys saying that the plaintiffs were still keen on buying and had a property in Cork to sell. Through his clients, he passed on request for inspection of the title to the Cork property. He himself was sceptical that the plaintiffs had a property to sell. He was never shown or furnished with the title to the Cork property.
He was asked in October 2000 by Geraldine O’Mahony to draw up a further contract, that Mrs. O’Mahony believed that the property in Cork could be sold and so they wanted to go ahead. He was aware that the O’Mahonys were under pressure for money having just bought the premises in Rathmore, a transaction in which he was involved as their solicitor.
He drew up this further contract, which had a purchase price of £220,000 and 10% deposit.
He later received a telephone call from the plaintiff’s solicitor saying that the deposit was too high and asking if it could it be reduced. He said it could within reason. The contracts came back in amended form with a draft for £100. He called the clients into the office and told them he could not have it on his conscience to allow them enter into these contracts. Mrs. O’Mahony was keen to proceed. He said he would not act. At this point, Mrs. O’Mahony realised how serious the situation was, so they left his office without signing and never did sign. The contracts he said, never left his office, nor were they ever used as security for financial loans.
This occurred in early March.
Very shortly afterwards, the plaintiffs called to his office without appointment. Mr. O’Siodhachain wanted an “off the record” discussion. The plaintiffs wanted an extension of the closing date from the 15th of March, 2001 for one month, as they believed they could sell the Cork property. He asked if they had a purchaser. They had not. He said that if the property could be sold within two months he would ask the O’Mahonys for an extension.
He then got a letter from the plaintiff’s solicitor, Mr. Enright, looking for the extension. However, the letter was not reflective of the conversation he had had in the office with the plaintiffs in that it touched on matters relating to planning permission for the Sunday’s Well property which he had never discussed with Mr. Enright. He called the O’Mahonys in for a meeting and told them that he was suspicious as to whether or not the plaintiffs were making any effort to sell Cork.
In the course of this discussion he learned that his clients had entered some sort of arrangement and signed some document in April, 1999. He was completely unaware of this document until then. As soon as he saw it, he advised his clients to seek possession.
Cross examined as to whether the third contract was used as security for the loan obtained from Anglo Irish, Mr. Casey produced a letter from Anglo Irish Bank setting out the terms for the proposed advance. Mrs. Herron objected that this document had not been discovered. The Court then indicated that this was an appropriate juncture to deal with the Motion for further and better discovery which had been adjourned from the Master’s Court to the present hearing. Having heard submissions from both sides, the Court determined that the plaintiffs were entitled to further and better discovery such as would include production of this particular document. All other reliefs sought in the adjourned Motion for further and better discovery were refused.
He was asked about the meeting which had taken place in his office in March, 2001 attended by the plaintiffs. He was asked if he agreed that the plaintiffs offered to waive their entitlement to enforce their claim to the forty acre farm if they got the farmhouse and yard. Mr. Casey agreed that this suggestion had been made. He further agreed that he had not relayed this information back to its clients because of the confidential nature of the discussion. He had no authority, he said, to vary anything that might have been stated in the contract document.
He was asked if he had returned the £100 deposit and if not, why not? Mr. Casey replied that the draft in question remained uncashed on the file. He was asked if he had any recollection of the lease arrangement being discussed at this particular meeting and said he did not.
He did not think the O’Mahonys had kept the details of the first contract purposely from him. They told him when they did eventually produce it, that they had been told by the plaintiffs that it was “not worth the paper it was written on”.
He accepted that he had not addressed the queries about the title to the Cork premises to the plaintiffs or their solicitor. His concerns had been channelled through the O’Mahonys. His concerns first arose at the time of the second contract, not because of the disclosure of the April, 1999 document of which he then knew nothing, but because his clients kept telling him that the plaintiffs intended closing the sale out of the proceeds of sale of the property on Sundays Well. He wanted to know about the Cork property and subsequently found out that Cork Corporation had the title deeds. In searches which he made in May, 2001 he discovered there were three judgment mortgages affecting the property. The first of these was entered on the 21st of March, 1997 in proceedings between N.I.B. and Patricia Herron in the sum of £2,672. The second was entered on the 25lh of April, 2000 in proceedings between A.I.B. and Patricia Herron in the sum of £9,100 and the third was entered or registered on the 26th of May, 2000 in proceedings again involving A.I.B. and Mrs. Herron, this time in the sum of £20,947. All included in addition sums for costs. The three judgment mortgages were registered on foot of judgments obtained against Mrs. Herron, the first in October, 1996 and the other two in November, 1999.
Mr. Casey was asked about the notice to quit and the procedures that had taken place at that time. As far as Mr. Casey was concerned, the notice to quit was served first, and then followed by a demand for possession. Asked why the notice the quit refers to a weekly tenancy, Mr. Casey said it was impossible to know from the first contract document what the basis of the plaintiff’s occupation of the farmhouse was, other than as permissive occupant. He assumed it was a week to week type of arrangement. He stressed that sites owned by the O’Mahonys were never put up as collateral for the sums advanced by Anglo Irish Bank, but that some of these sites were being sold to reduce the indebtness of the O’Mahonys to Anglo Irish Bank.
He could not recall whether at the meeting the plaintiffs had at one point offered to give up the house at Ballybeg within a reasonable period.
Mr. O Siodhachain gave evidence to the effect that he became aware of the possible sale of this farm from talk in the locality. On the night of the auction, he and Mrs. Herron went to the farmhouse and were shown over the farmhouse and yard by Sean O’Mahony’s father. He indicated he might be interested in the dwelling house and some of the old buildings. Some days later the plaintiffs met with the O’Mahonys. He only visited the farm at Ballybeg two or three times, although they did call to the defendants at their shop in Gneeveguilla. He insisted that a great deal of time was spent by both plaintiffs in Donegal and Dublin over the following months and he rejected suggestions that the plaintiffs virtually lived with the defendants.
He accepted a friendship and relationship did develop between the plaintiffs and the defendants. As part of the work he did with Mrs. Herron, he would get involved in counselling clients. In this instance, both he and Mrs. Herron had recognised there were grave problems affecting the O’Mahonys. Both were complaining about interference by in-laws. Mr. O’Mahony in particular was called to account for virtually everything he did by his parents and was being treated like a 15 year old. He formed the view that Sean’s behaviour was dysfunctional and immature and that he should see a counsellor. He recommended Dr. Kinsch to whom he had referred a number of other clients. He also recommended self help books to Geraldine and gave her guidance in relation to a course in practical philosophy, Which she pursued as a result. He told Mr. Cross that the various interventions he had made in the O’Mahony’s lives were made for altruistic reasons. He accepted he had supplied the name of an accountancy firm to the O’Mahonys and also a particular branch of the Bank of Ireland. He also had advised and arranged for Mr. O’Mahony to see a particular Harley Street specialist in relation to his visual difficulties. He accepted he had also advised the O’Mahonys on how to furnish their home at Gneegevuilla so as to make the best possible impression on any representative of a lending institution that might call out to discuss business with the O’Mahonys.
He accepted that the plaintiffs had prepared background paper work, including financial projections, for a number of projects which they had discussed with the defendants. One night before Christmas 1998 the O’Mahonys came to their home in Scartaglen to discuss a particular project or property. On that particular evening, Mr. O Siodhachain by way of example and illustration as to how an investment property could yield profit, showed to Mr. O’Mahony some projections he had prepared in relation to Mrs. Herron’s house in Sunday’s Well to give the defendants some idea of what might be necessary when approaching a lending institution seeking finance. Some time later he found out that Sean O’Mahony had gone to Cork to look at the property from the outside and was very enthusiastic about it Mrs. O’Mahony did likewise and both O’Mahonys came to the plaintiffs with a proposition that they would buy the Sunday’s Well property if the plaintiffs bought the farm.
In the months leading up to April 1999 discussions began on a back to back arrangement. These discussions took many weeks and at various times he wanted to be finished with the whole discussion because of Mr. O’Mahony’s attitude which kept stringing things out for weeks. Mr. Cross read to him the contents of a letter dated 10th April 1999, suggesting it contained a threat that unless the purchase of Ballybeg was completed within 14 days that the O’Mahonys would be held responsible for rented accommodation elsewhere should the plaintiffs move out of Scartaglen, together with other expenses which Mr. O Siodhachain might incur. Mr. O Siodhachain stated that Mrs. O’Mahony had asked for the particular letter so as to get her husband’s parents out of the dwelling house. They had dug in their heels after the auction and were now demanding a new house. Also, he said, Mrs. O’Mahony was getting hate mail locally. The letter was designed to bring that to an end, because it was something she could show around to her relatives to highlight the difficulty that the O’Mahonys would be in unless the deal went ahead. The only pressure applied arose from the fact that the plaintiffs had to vacate the property at Scartaglen.
Mr. O Siodhachain stated there were at least three longhand drafts of the first contract before the all night meeting at the end of April 1999. On that night, the plaintiffs brought the final draft in longhand with them. He told Mr. O’Mahony at the outset that things were going to be finalised that night or the matter would go no further. He agreed that discussions went on all night because they were discussing matters which were not dealt with in the document, such as plant and machinery and how various EC land schemes would affect the property.
The reference to a lease had been included in the draft and in the discussions, because he was aware from other work he had done that no bank or finance house would give money or grant a loan except on a 15 year lease. He denied that he ever said the document was not worth the paper it was written on, although his own solicitor, Mr. Enright, had told him later that he was not very happy with it.
Some days later a typed version of the document was presented to the O’Mahonys. Sean O’Mahony wanted to change the sum for renovations to the Cork property from £75,000 to £95,000. Mr. O Siodhachain agreed and offered this as the reason why the written amendment appears on the typed version of the document. The document was then left with the O’Mahonys for a few days. Mr. O Siodhachain told the Court that the plaintiffs urged the O’Mahonys to show it to Mr. Casey, but they did not want that. They then suggested to Mr. O’Mahony that he take it to some other solicitor. He told the Court he in fact mentioned the solicitor of a particular trader with whom Mr. O’Mahony had had business dealings with in Portlaoise. He told Mr. Cross, however, that at the time of signing up of the first contract, which he said took place on the 28th of April, he had not checked to see if the O’Mahonys had taken any legal advice in the interim from either Mr. Casey or any other solicitor.
Mr. Cross asked what the purpose of the 15 year lease would be in the context of a sale of the property. Mr. O Siodhachain stated that the first contract was “facilitatory” in the sense that if anything went wrong, both of the parties would be protected by the leases. Mr. O Siodhachain gave as an example the possibility of a car accident happening which might affect one or more of the parties. He also felt it could constitute a form of security to raise funds. It was not written in for tax reasons of any sort.
In November 1999 the O’Mahonys asked to be released from the Sundays Well transaction, something which he and Mrs. Herron were quite willing to do. In the discussions which then took place, a sum was agreed for rent up to the probable closing date. Mr. O Siodhachain stated that this was a round figure to cover the time from the commencement of occupation of the plaintiffs at Ballybeg until the loan which would enable them complete the purchase came through. Apart from this ” variation, Mr. O Siodhachain stated that the O’Mahonys were willing to confirm all the other arrangements in relation to the farm at Bailybeg insofar as the plaintiffs were concerned.
Mr. O Siodhachain stated he was aware the O’Mahonys needed money for their business plans, including the project at Rathmore in respect of which he had helped them with financial projections. Insofar as closing the farm deal with the O’Mahonys was concerned, Mr. O Siodhachain stated that he and Mrs. Herron tried to get funds from lending institutions. However, as neither of them had any conventional income, they could not raise this finance in Ireland. They therefore tried to secure the loan from a company in the UK which specialised in asset based loans. They were for all practical purposes approved for such an advance in 2000, but the foot and mouth epidemic put paid to those arrangements. At a later stage the application for funding from the UK was reactivated, but although the plaintiffs were approved in principle for a loan, the lending institution declined to advance funds in Ireland.
Insofar as the third contract was concerned, Mr. O Siodhachain stated that Geraldine O’Mahony was quite desperate because of financial pressure. She was anxious to have a contract executed for the purpose of obtaining finance. He had asked her if £100 was a sufficient deposit if the plaintiffs assisted in the execution of a third contract and she agreed. Even her own solicitor saw this deposit figure as ludicrous. Mr. O Siodhachain stated that the deposit figure was always intended to be £100 in the third contract, and not 10%, or £22,000, which insertion was amended by his solicitor.
After they executed the third contract, they kept phoning Mr. Enright to see if signed contracts had been returned. Mr. Enright kept saying that they had not come in yet.
Mr. O Siodhachain stated that the plaintiffs were concerned about the financial predicament which were the O’Mahonys were in. The plaintiffs felt they might be able to help the O’Mahonys by releasing the farm portion of the lands from the contract so that the O’Mahonys could in turn sell it and reduce their financial overheads. Against that background, he rang Mr. Casey and asked if he would meet with them, a proposal to which Mr. Casey agreed.
At the meeting, Mr. Casey said that the offer to not purchase the farm was really of no use, that no one would now buy the farm in the middle of a foot and mouth crisis. Mr.O Siodhachain stated that they also offered to vacate the dwelling house within a reasonable time. They also discussed the possible extension of the closing date in the contract, and Mr. O Siodhachain asked for one month beyond the 15th March deadline. Mr. Casey stated that more time would be required and asked if the plaintiffs would have their own solicitors write a letter to him seeking the extension in question.
In 2000, Mr. O Siodhachain stated that Mr. O’Mahony’s attitude changed and he became very two faced. Mr. O Siodhachain therefore stopped calling to Rathmore. After March 2001 Mr. O’Mahony resorted to threatening behaviour and was involved in a number of incidents. He kept opening and leaving open the plaintiffs gates and went through various outhouses and sheds without permission. He brought out the auction sign which had been put away and generally made a nuisance of himself with the plaintiffs. It was against that background that Mr. O Siodhachain had written a letter in early April threatening legal proceedings to injunct Sean O’Mahony from these activities.
Mr. O Siodhachain told Mr. Cross that he didn’t really know in any legal sense what a lease was. He accepted there was no mention of any rent in the first contract, because at that time the O’Mahonys were going to purchase the Cork property in exactly the same way as the plaintiffs were buying the farm at Ballybeg. Once the back to back arrangements ceased to exist, Mr. O Siodhachain accepted that some rent would have to be paid in respect of their occupation of the farm. He could not say why this sum for rent if agreed and identified as such was not mentioned or included in the second contract or described as such in the third contract
Mrs. Herron told the Court that from August 1998 onwards she spent a great deal of time in Donegal, Dublin and Cork. She had three or four cases in progress in Dublin for people she was helping. She also had a Supreme Court appeal of her own in preparation and in October was doing a law course in UCC. In addition, her son was in hospital in March 1999 in Cork and required daily visits from her.
She accepted, however, that she would call on average about twice a week while passing the shop at Gneegevuilla and in this way became very friendly with Mrs. O’Mahony. She confirmed that the O’Mahonys had come with them to Donegal in October 1998 for several days when they looked at a range of properties. At a later point they also looked at a property in Banna, Co. Kerry.
She developed a friendship with Geraldine O’Mahony and noticed on one occasion that she was very upset while Mrs. Herron was present in the house. Mrs. Herron followed Geraldine into her kitchen where Geraldine confided certain matters in her. After that she would also confide in Geraldine and they became friends and remained so until March, 2001. Mrs. Herron told the Court that when the plaintiffs first met the O’Mahonys, it was her impression that they were an entirely dysfunctional family. She did not accept that pressure had been put on the O’Mahonys to sign the first document. The only pressure lay in the fact that the plaintiffs had to quickly find somewhere else to live as their stay in Scartaglen was ending. Mrs. Herron felt they had been strung along for weeks by the O’Mahonys. The purpose of the letter dated 10lh April 1999 was to deal with a situation where the O’Mahonys parents would not move out of Ballybeg. The O’Mahonys had failed to spell out clearly to Sean O’Mahony’s parents that they had to go.
Mrs. Herron insisted that the parties worked from a longhand draft on the 23rd of April during the all night discussion. Thereafter she prepared the typed document from the longhand draft on the 26th and gave it to the O’Mahonys that evening. Everyone signed the document on the 28lh. She had no recollection that Sean O’Mahony changed the figure for renovations from £75,000 to £95,000 on the typed document
On the night of the long discussion, Geraldine and herself had sat away from the two men who were by the fireside. Mr. O’Mahony nit picked through every single item in the agreement. In the end, Mrs. O’Mahony told her husband to give it a rest or conclude it.
She accepted that she put in the preamble by way of addition to the text contained in the draft when preparing the first contract. At that time she knew nothing about land law or property law. It was only when pursuing her LLB course that she learned anything about leases or the Statute of Frauds or such matters.
Mr. Cross pressed Mrs. Herron as to whether or not the question of legal advice had arisen prior to the execution of the first document. Mrs. Herron stated that they had recommended to the O’Mahonys that they get legal advice, but the O’Mahonys did not want to go to Mr. Casey because he was acting for the O’Mahony parents as well. The plaintiffs had suggested that the O’Mahonys go to someone else. However, when the document was signed up on the 28th, Mrs. Herron accepted she did not ask if the O’Mahonys had sought or received any independent legal advice in the meantime.
In relation to the second contract, Mrs. Herron was adamant that the deposit was paid out of her own moneys and produced a draft for the deposit drawn on her own bank, TSB in Killarney. She denied that the money in question had been given to her by Geraldine O’Mahony. She did become aware, when Mr. Casey would not allow the plaintiffs sign the second contract, that Mr. Casey wanted to see the title deeds to her Cork property. She contacted Cork Corporation who had a mortgage over the property, but it took her some considerable time to get the title documents and as she never got a formal request for same from Mr. Casey she decided not to hand them over. When the O’Mahonys pulled out of the Cork transaction in November in 1999, the plaintiffs then offered to pay for the use and occupation of Ballybeg from the time they had moved in up to the probable closing date for the transaction. A sum of £6,000 was suggested by Mr. O Siodhachain and accepted by the O’Mahonys. Other all aspects of the arrangements concluded in April 1999 were confirmed.
When the second contract failed, Mrs. Herron stated that the plaintiffs continued trying to raise funds to complete the purchase of Ballybeg. She confirmed the difficulties as outlined by Mr. O Siodhachain.
In relation to the third contract, Mrs. Herron stated that Geraldine came to her in September 2000 saying she needed a letter of intent to purchase Ballybeg, which the plaintiffs gave her. She later stated that the lending institution was not satisfied with the letter of intent, that she needed a signed contract. Mrs. Herron explained that the plaintiffs did not at that time have the necessary 10% deposit, whereupon Geraldine O’Mahony stated that £100 would suffice and that she would make her solicitor take it. At no stage were the plaintiffs ever told that the O’Mahonys had not signed this third contract.
From 2000 onwards, Sean O’Mahony’s attitude towards the plaintiffs changed, although she remained friendly with Geraldine, often helping her in the supermarket following the O’Mahonys move to Rathmore in November 2000. In the new year of 2001, Sean O’Mahony became markedly hostile. He would make snide and nasty remarks and kept asking if the plaintiffs had the money to close the purchase, stating that the closing date was approaching. Geraldine had told Mrs. Herron that she was under terrible financial pressure.
The plaintiffs called to Mr. Casey’s office in March 2001 in circumstances already outlined by Mr. O Siodhachain. They told Mr. Casey they wanted to help the O’Mahonys. Mrs. Herron said they offered to give up the 40 acres of land and buy only the farmhouse. Mr. Casey said no one would now buy the farm during the foot and mouth crisis. They also offered to give up the house and move out altogether if given reasonable time. Mrs. Herron said that the plaintiffs told Mr. Casey they were awaiting funds, whereupon Mr. Casey suggested extending the closing date. Mr. Casey suggested a longer period than that mentioned by the plaintiffs and suggested that the plaintiffs have their solicitor write to him officially, seeking an appropriate extension. Such a letter was sent by their solicitor to Mr. Casey on the 7th of March 2001.
The 15lh of March came and went Mrs Herron stated the plaintiffs assumed the extension was operating. Mr. O’Mahony continued to be nasty and unpleasant and when he put the FOR SALE sign, which had been in a shed, in a position where it could be seen outside the farmhouse in Ballybeg by passing traffic, they caused a letter to be sent in early April threatening proceedings against him. Notice to Quit was then served on them.
At a late stage in her evidence, Mr. Cross asked Mrs. Herron to put some sort of figure on the moneys which Geraldine O’Mahony had advanced to her during the term of their acquaintance. Mrs. Herron initially stated that she had received loans from Geraldine O’Mahony amounting to somewhere between £15,000 – £30,000 in total. Mr. Cross then put to Mrs. Herron a letter which she had written in May, 2000 acknowledging that as of that date a sum of £35,000 was due in respect of loans advanced by Geraldine O’Mahony to her. Mrs. Herron accepted that this was so and acknowledged her obligation to pay the sum back to Mrs. O’Mahony, whom she described as a very generous person.
Submissions of the Parties
On behalf of the defendants, Mr. Cross contended that the document dated 28th April 1999 was not effective to create a valid lease. Section 4 of Deasy’s Act required that any contract to create the relation of landlord and tenant for any definite period of time, not being from year to year or any lesser period, must be evidenced by note in writing. While the document was executed by all parties, clauses 11 and 12 were those provisions relied upon by the plaintiffs to suggest that a lease had been created. No other documents of any kind whatsoever had been produced to amplify or vary those terms which conspicuously failed to make provision for rent of any kind. Section 3 of Deasy’s Act specifically provided that the relationship of landlord and tenant is founded on contract made between the parties in all cases where there is an agreement by one party to hold land from another in consideration of rent.
While the plaintiffs had argued that upon their release from the Sundays Well agreement, the original agreement of April 1999 had been varied so as to provide for a rent of £6,000, there was no note or memorandum of this amended agreement, if any.
The document in any event was clear that its effect would come to an end on the 8th of December 1999. It was at all times obvious that the “leases ” would remain in force only until superseded by the contracts as set out in the preamble which had to be signed before a specified date, failing which the whole arrangement came to an end. Alternatively, he submitted, the document was self contradictory, and as it was prepared by the plaintiffs, it should be construed against them under the contra preferentem rule. Alternatively, there had been a total failure of consideration in respect of the April 1999 document. The plaintiffs had paid no money of any kind to the defendants. The document relied upon failed to specify any rent for any purported lease.
Secondly, it was submitted that if the document of April 1999 was effective to create some sort of valid lease, it was procured by undue influence or other circumstances of oppression and unfairness which demanded that the Court should set it aside.
Both parties in their submissions were in agreement as to the legal requirements necessary for the court to intervene on this basis. Firstly, it could be established by the claimant that the alleged wrongdoer exerted actual undue influence on the complainant to enter into the particular transaction being impugned. Alternatively, undue influence could be presumed where there was a relationship of trust and confidence between the complainant and wrongdoer of such a nature that it was fair to presume that the wrongdoer abused the relationship in procuring the complainant to enter into the impugned transaction. Once a confidential relationship had been established by evidence, the burden shifted to an alleged wrongdoer to prove that the complainant entered into the impugned transaction freely, for example by showing that the complainant had independent legal advice.
Certain relationships, such as solicitor inclined, raised the presumption as a matter of law. Even where the relationship did not fall into that category, the complainant could still establish the de facto existence of a relationship under which the complainant generally reposed trust and confidence in the wrongdoer, whereupon the existence of the relationship raised the presumption of undue influence. This formulation of the test had been approved by the Supreme Court in Bank of Nova Scotia-v-Hoean [1996] 3 IR 239, 246.
Mr. Cross submitted that the plaintiffs did in fact use actual undue influence on the defendants and on that ground alone the agreement could be set aside. Alternatively, the evidence clearly showed a relationship of trust and confidence reposed by the defendants in the plaintiffs prior to the signing of the document in April 1999 and thereafter, sufficient to shift the burden to the plaintiffs to establish that the defendants entered into the agreement freely and with independent legal advice. The evidence clearly showed that the defendants did not have the benefit of independent legal advice. Further, he submitted, the plaintiffs, and in particular the second named plaintiff, demonstrated in their evidence an understanding of the law far beyond that of a lay person, and certainly beyond that of the defendants. He submitted therefore on this limb of the test, that the plaintiffs had failed to discharge the onus of proof that the agreement had been entered voluntarily.
Mr. Cross further submitted that the agreement was manifestly improvident. The plaintiffs are currently living rent free in the defendants property. They have not sought to enforce any contract for sale, but rather their case is based on a contention that they enjoy a lease under which they are permitted to live at no cost in the plaintiffs property for 15 years.
Finally, in relation to the third contract, Mr. Cross submitted that there was no evidence that this document was ever executed by the defendants. Both defendants denied having executed the document, and this evidence was confirmed by the evidence of Mr. Terence Casey, the defendants solicitor. Furthermore, it was clear from the evidence that contrary to the suspicions held by the plaintiffs, the defendants did not rely upon any third contract, executed or otherwise, to raise finance from Anglo Irish Bank for the Rathmore supermarket.
If the various submissions of the defendants were accepted, Mr. Cross submitted that the court was clearly entitled to make an order for possession in the defendants favour.
Mrs. Herron submitted that there was the necessary note in writing sufficient to satisfy the requirement of Section 4 of Deasy’s Act. The original agreement made in April 1999, was varied orally in November 1999 when the defendants withdrew from the purchase of the plaintiffs property in Sunday’s Well. The variations were to the effect that the plaintiffs would remain in occupation of the defendants property under the 15 year lease, pending their purchase of the property to which the plaintiffs remained committed. The plaintiffs would pay to the defendants the sum of £6,000 for their occupation of the premises, such sum to be paid when the plaintiffs succeeded in selling their own property and closed the purchase of the defendants property.
Alternatively, if the formalities of Deasy’s Act or other legal requirements had not been complied with, the plaintiffs were entitled to an equitable lease under the rule in Walsh -v- Lonsdale [1882] 21 Ch D9. Alternatively, the plaintiffs were entitled to an equitable lease under and by virtue of the doctrine of part performance.
It was submitted that the alteration in the third contract of the purchase price from £214,000 to £220,000 was sufficient to satisfy the statutory requirements as to written form. Par 21 of Mrs. Herron’s written submissions sets out the various grounds relied upon in support of the contention that the amended leasing agreement was fully and adequately supported by part performance.
Mrs. Herron further invited the court not to hold that the April 1999 document created a licence. At par 28 of her submissions she refers to different types of licence, suggesting that the instant arrangements fall into none of the recognised categories. Further, by issuing a notice to quit and ejectment proceedings, the defendants implicitly conceded that a tenancy had been created.
Mrs. Herron’s submission on undue influence, though considerably more detailed than that submitted by Mr. Cross, did not differ as to the essential legal requirements. She submitted that there was no evidence of actual undue influence. She further submitted that there was no exclusive relationship between the parties resulting in the defendants placing trust in the plaintiffs so as to give rise to a presumption of undue influence. Alternatively, Mrs. Herron submitted, the evidence showed that the transaction was a free exercise of the defendants will and, in any event, no substantial benefit was obtained by the plaintiffs under the transaction. (Carroll -y- Carroll [1998] 2ILRM 218). Alternatively, the defendants had forfeited any right to relief by delay and approbation.
In relation to the third contract, Mrs. Herron submitted that there was a concluded oral contract between the parties to sell the property to the plaintiffs in October 2000. It was accepted that the contract to purchase sent to the plaintiffs solicitor contained a clause that no contract would come into existence unless and until the contract to purchase was signed by the defendants. However, the defendants intention to sell their property to the plaintiffs had been their intention since April 1999 and the decision to engage professionals to draw up the contract to purchase was a legal requirement and formality which was not made with the intention of changing the terms of the contract in any way. It had been the plaintiffs belief that the defendants had executed this third contract, but even if they hadn’t, there were sufficient acts of part performance apparent from the evidence to enable the court to hold that it was effective and binding.
Conclusions
The Court has formed the most definite view in this case that the relationship between the plaintiffs and the defendants was at no stage a relationship between equals. On the contrary, the evidence clearly establishes that when the plaintiffs first met the defendants in August 1998, the plaintiffs were an experienced duo specialising in paralegal and litigation work, both on behalf of others and on their own account Mr. O Siodhachain was a well known figure in the locality, both through his political, paralegal work and writings. Mrs. Herron, as both her personal and academic history and indeed her conduct of this case shows, is a woman with not only considerable experience of the law, but also is possessed of sharp mental skills and significant experience in contesting problems over a wide spectrum of issues.
By contrast, Sean O’Mahony left school at 16 years of age and has limited educational achievements. He is also to some degree handicapped as a result of injuries sustained in 1983 and visual difficulties which have left him with impaired eyesight The evidence in the case also satisfied me that Sean O’Mahony is a person of considerable immaturity who, in 1998, had no clear or well thought out concept for his future life and that of his family. He was also clearly very much under the influence of his parents and acted, in the words of the plaintiffs, like a 15 year old. Throughout the hearing, the court had the opportunity of observing the demeanour of all the witnesses both in direct and cross examination. The Court witnessed the emotional collapse of Mr. O’Mahony at one point during the giving of his evidence, an event which required a short adjournment, and was ultimately left in no doubt and I do hereby find that Sean O’Mahony was at all relevant times an immature, emotionally underdeveloped and easily manipulated individual of limited intelligence. Insofar as his wife Geraldine is concerned, the evidence establishes to my satisfaction that she found the interference of her husband’s parents difficult to put up with, that it caused difficulties between herself and her husband at times, that she felt isolated and vulnerable and that these difficulties were all exacerbated following the introduction of the plaintiffs into their lives.
It is not necessary for me to find a particular number of days or dates upon which the plaintiffs visited the defendants during the period August 1998 – April 1999. I am more than satisfied on the evidence and hold that over that period the plaintiffs intervened in the lives of this young couple in a manner which was totally inappropriate for persons who had in mind purchasing the defendants property. I do not accept that these interventions were, as suggested by the plaintiffs, altruistic. They were, in my view, entirely designed to mould the defendants to the plaintiffs intention which was to secure the defendants property at Ballybeg on the best possible terms. In reaching this view, I am paying particular regard to the actions of the first named defendant in advising and recommending that Sean O’Mahony consult a psychiatrist, in arranging a particular psychiatrist whom he should consult with, and in suggesting questions for Mrs. O’Mahony to discuss with Dr. Kinsch. I accept in full Mrs. O’Mahony’s account of Mr. O Siodhachain behaviour during the period August 1998 – April, 1999. I further hold that Mr. O Siodhachain encouraged Mrs. O’Mahony to take steps and adopt life style behaviour with the object and intent of driving a wedge between herself and her husband. I do not say that the involvement of the plaintiffs was such as to amount to “brain washing” of the defendants or either of them, but, during the period August 1998 – April 1999, the plaintiffs infiltrated the lives of the defendants to such a degree, and from such a position of comparative strength, as to further imbalance an inequality of negotiating position between the parties which was present from the outset. In particular, I accept the defendants evidence that when they sought to have professional guidance in relation to the purchase of the Sundays Well property, that they were put off this idea by the plaintiffs. I further find and hold that at no stage up to and including the date of execution of the first document did the defendants have the benefit of independent legal advice. I further hold that on the evidence they were encouraged not to seek such advice and that the first named defendant made the representations described by the defendants as to the “facilitatory ” nature of the first document and that he told them it was not worth the paper it was written on. At the time therefore of the execution of the document in April 1999,1 hold and find that there was a relationship of confidence and trust reposed by the defendants in the plaintiffs, although I will also deal with the issue of actual undue influence in this case in due course.
I will now turn to the issues.
I accept Mr. Cross’ submissions in relation to the document executed in April 1999. It is quite clear that what this document envisaged was an exchange of properties by means of sale within a specified period. I am satisfied the reference to a “lease ” in the document was not designed to create a lease as such but was intended rather to provide some sort of legal basis for occupation of the respective properties between the date of the document and the closing date on the 8th December 1999. It cannot in my view be regarded as a lease, because it fails to specify any rent. Further, I do not accept that this document was varied in any specific way by any agreement in November 1999 when the defendants withdrew from the Sunday’s Well purchase. I find it inconceivable, having regard to the meticulous way in which Mrs. Herron fastens upon and records such matters, that such an agreement, if made, would not be reflected in the second or third contracts, or in some other documentation or correspondence between solicitors. While Mrs. O’Mahony in cross examination may have said that she believed an offer of £6,000 was at some point made in respect of rent, Sean O’Mahony stated that the £6,000 in question was an adjustment to the purchase price to reflect the increase in value of Ballybeg between the date of the original document in April 1999 and October 2000. I prefer Sean O’Mahony’s evidence on this point, supported as it is by the singular absence of any other written record of some such supposed variation of the April 1999 document.
In my view the arrangements between the parties fell through completely as of December 1999, following which the plaintiffs were allowed to remain on as permissive occupants of the property against a background where both sides hoped the plaintiffs would produce the purchase moneys to complete the acquisition of the farm at Ballybeg.
I also accept that where contradictions appear in the document of April 1999, they must be construed against the plaintiffs who prepared them. The plaintiffs in evidence themselves accepted that the document should not be construed as conferring a rent free facility to the plaintiffs to live on the defendants farm for 15 years. In just the same way as the description of a tenancy arrangement as a licence cannot convert a lease into a licence, the converse seems to me to be equally true, namely, that the description under the name of a ‘lease’ of a licence or caretakers agreement cannot operate to convert a permissive occupant into a tenant where all the usual characteristics of a leasing agreement are absent In the instant case, there is no mention in the April 1999 document of even a single covenant, such as would characterise a lease. {Gatien Motor Co -v- Continental Oil Co. [1979] IR 406).
Nor do I accept Mrs. Herron’s submissions that any deficiencies in legal form can be compensated under the equitable doctrine of part performance. The evidence overwhelmingly establishes that at no time were the plaintiffs ever in a position to complete the purchase of the Ballybeg property, nor did they either pay rent or any portion of the purchase moneys. As the evidence shows, a number of judgments have been obtained against Mrs. Herron during the period up to November 1999 which, because they were unsatisfied, led to judgments being registered against her property in Sunday’s Well. She had in addition by mid 2000, borrowed £35,000 from Geraldine O’Mahony, a liability she acknowledged herself in evidence. This inability to at any stage complete the transaction does, in my view, effectively put paid to any suggestion that the doctrine of part performance can be relied upon in any way in this case. Nor in my view do the plaintiffs come to court with clean hands as my findings make clear.
The rule in Walsh -v- Lonsdale seems to me to have no application on the facts as found by me in the instant case. This doctrine was developed to provide for the enforcement of an informal lease for valuable consideration by applying the maxim “equity regards as done what ought to be done “, whereby the parties would be treated in equity as being in the same position from the beginning as if a proper formal lease had been executed. This situation usually arose where there was no adequate note or memorandum in writing of an agreement, but where there were sufficient acts of part performance to take the case out of the Statute of Frauds. However, it almost goes without saying, that the parties must have intended to create a lease, which I have found was not the fact or intention. Even if I am mistaken in this respect, the doctrine is in any event dependent upon the availability of the remedy of specific performance in the particular case, which is a matter within the discretion of the court. If the remedy is not available on the facts of the particular case, the doctrine cannot apply. I have already set out the reasons which coercively persuade the court that it should not exercise its equitable jurisdiction in favour of the plaintiffs in this particular case.
I propose to deal with the issue of undue influence, lest it be held elsewhere that the document executed in April 1999 has the effect contended for by the plaintiffs.
In my view there was actual undue influence in this case. As already mentioned, the court regards it as totally inappropriate for an intending purchaser to have interfered and intervened to such a degree, as occurred in this case, in the lives of the parties from whom it was intended to purchase a farm and property. I am satisfied from the evidence that Mr. O Siodhachain did endeavour to drive a wedge between husband and wife, so as to make Mr. O’Mahony more malleable in the terms he would seek for the sale of the family farm. I am satisfied he completely won over Geraldine O’Mahony, who seems to have followed his every advice and suggestion, to the extent of following practical philosophy courses in Killarney and collaborating with Mr. O Siodhachain in formulating questions to put to Dr. Kinsch about her husband’s behaviour on the occasion when Dr. Kinsch was due to visit the family farm. It is important to note that the making of the agreement in April 1999 was preceded by a letter from Mr. O Siodhachain to the O’Mahonys threatening to make them responsible, not only for rents incurred by the plaintiffs if they could not immediately move into Ballybeg, but holding them responsible also for any other loss of income which Mr. O Siodhachain might suffer as a result. These threats must be seen in context. By this time, the plaintiffs had insinuated themselves into the lives of the defendants over a period of months and I am satisfied were regular visitors to the defendants home at Gneegevuilla. I also accept the description in evidence given by both O’Mahonys as to how the plaintiffs won them over and, in certain respects, instilled a fear into them as regards the possible consequences of non co-operation with the plaintiffs. The letter written on the 10th of April can only, in my view, be seen as the severest form of pressure on the defendants to co-operate with the wishes of the plaintiffs or face those consequences.
I am also satisfied from the evidence that on the night of the all night discussion, the plaintiffs arrived in a brisk and business-like manner, quite determined to conclude matters. There is no dispute or argument about the fact that the parties sat up all night until 6 am before agreement was reached. It is hard to imagine a less satisfactory manner of negotiating to conclusion an important event in the lives of the O’Mahonys than this. The plaintiffs were obviously aware that the defendants did not have the benefit of legal advice in relation to the matters under discussion on the night in question. I do not accept the evidence of the plaintiffs that they recommended to the defendants that they seek and obtain such advice. Instead I prefer the evidence of the defendants that they were advised not to seek legal advice, and that they were content to go along with this based on representations made by Mr. O Siodhachain that the document “was not worth the paper it was written on “.
I think it more probable that in relation to the date of signing by the parties, that the evidence given by the plaintiffs may be more accurate. In other words, I accept that the document had to have been typed up following the all night meeting, that it had to be re-presented to the defendants when that had occurred. However, it seems to me to make absolutely no difference to the issue I have to determine, given the absence of independent legal advice prior to the execution of the agreement.
I am also satisfied that this agreement was an extremely improvident one from the point of view of the defendants, as subsequent events have all too clearly demonstrated. To the extent that the lease may be considered valid, thereby creating a rent free 15 year occupation of the defendants farm by the plaintiffs, it is difficult to imagine more a catastrophic outcome from the defendants point of view. The distress of the defendants, which was all too apparent during the hearing before me, can only have been compounded as increasing financial pressures came on them from banks and other lending institutions while the plaintiffs continued to fob them off with promises of completing the purchase which never materialised. It follows from the findings I have made, that I do not need to consider the alternative basis upon which the court may intervene, namely, that of presumed undue influence. It equally follows that if I am mistaken in my assessment of the witnesses and their evidence on the issue of actual undue influence, it is still open to me to hold, and I do so hold, that the onus of disproving presumed undue influence in the context of a relationship of trust, which I find to have existed, has not been discharged in this case by the plaintiffs.
It was urged upon the court to treat the delay in moving to set aside the April 1999 document as an approbation of the arrangements put in place in consequence. However, I am quite satisfied that the defendants continued under the influence of the plaintiffs throughout 1999/2000, a situation which was compounded by the severe financial pressure which came to bear on them from October 2000 onwards. Even on the plaintiffs own evidence, the defendants were at that stage desperate for money. Nonetheless, they did not, and I so find, disclose to their own solicitor the existence of the April 1999 document until all hope was gone following the passing of the final closing date in the third contract on the 15th day of March 2001. This non-disclosure in my view was a direct result of the influence exerted on the defendants by the plaintiffs.
I turn then to the issue in relation to the third contract, i.e. the contract prepared in October, 2000.
In this regard, I accept fully the evidence of Mr. Terence Casey to the effect that this document was never signed by either of the defendants, or by him on their behalf. I also accept his evidence that this document was never used by way of collateral or security for any lending institution, and in particular, was not used for the purpose of raising finance from Anglo Irish Bank. I accept his evidence that this document never left his office and I accept fully the reasons offered by him as to why that was so. I also accept fully his evidence that he first became aware of the April 1999 document some time in March, 2001, when he called his clients into the office to discuss the situation arising when the third contract was returned with a deposit of only £100. Again, on this point as to when Mr. Casey first learned of the existence of this document, the defendants themselves gave conflicting evidence, Mrs. O’Mahony agreeing with Mr. Casey, but Mr. O’Mahony stating, mistakenly in my view, that he believed this document had been mentioned to Mr. Casey some time in November/ December, 1999. I am satisfied that any error on this point by Mr. O’Mahony arose from the lengthy period which he spent in the witness box and the manifest distress under which he laboured while giving evidence.
Accordingly, I hold against the plaintiffs on this issue also.
This brings me finally to the defendants claim for possession.
When this matter was first aired before me in October 2001,1 acceded to Mrs. Herron’s request to injunct and halt the District Court ejectment proceedings on very specific conditions. Those conditions included requirements that pleadings be exchanged within specified time limits and that discovery equally take place between specified time limits, all with a view to having the case moved forward to a list to fix dates in early 2002. I expressly stated at the time that I was doing so as an exercise in case management and with a view to having all issues determined in a full plenary hearing. Such a hearing has now taken place before this court, extending over a period of 5 days, some 3 days longer than the parties indicated to the court at the outset of the hearing.
In view of my finding that the plaintiffs occupied the defendants farm at Ballybeg as permissive occupants only, that entitlement to remain in occupation terminated following the demand made for possession by the Notice to Quit. While Mrs. Herron makes the point that the Notice to Quit refers to a tenancy from week to week, Mr. Casey explained in evidence that this was inserted merely because he saw it as the most appropriate way to deal with a permissive occupancy. While a very short period only was provided to the plaintiffs to vacate the property, the fact remains that they have not done so and continue to occupy and reside in the property, paying no rent, from May 1999 up to and including the present.
In my view, the demand made was adequate to terminate the permissive occupancy and I accordingly declare that the defendants are entitled to an order for possession of their lands at Ballybeg.
While the court heard evidence that a sum of £35,000 remains due and owing by Mrs. Herron to Mrs. O’Mahony, it was accepted by Mr. Cross that this sum, although undoubtedly due, forms no part of the defendants claim in the present proceedings and I am accordingly making no order in relation to that liability.
Bank of Scotland Plc -v- Hickey
[2014] IEHC 202 (11 April 2014)
JUDGMENT of Mr. Justice Ryan delivered on the 11th April, 2014
By special summons dated 31st May, 2012, the plaintiff seeks a declaration that by virtue of an Indenture of Mortgage and Charge dated 27th September, 2001, made between the plaintiff and the defendant, the plaintiff is entitled to and holds a mortgage and charge over all the lands at No. 19 Pairc Mhuire, Saggart, County Dublin (Folio No. 38788F); a declaration that there is due by the defendant the sum of €155,841.73; judgment in respect of this sum; costs and other consequential orders and reliefs.
By a cross-border merger pursuant to the European Communities (Cross-Border Mergers) Regulations 2008 of Ireland and the Companies (Cross-Border Mergers) Regulations 2007 of the United Kingdom approved by the High Court of Ireland on the 22nd October, 2010 and approved by the Scottish Court of Session on the 10th December, 2010, all of the assets and liabilities of Bank of Scotland (Ireland) Limited transferred to the plaintiff on the 31st December, 2010 and Bank of Scotland (Ireland) Limited was dissolved without going into liquidation.
As the mortgage in this case pre-dated the commencement of the Land and Conveyancing Law Reform Act 2009, this case is considered on the basis of the law as it stood before that legislation came into effect.
1. Background
By letter dated 21st September, 2001, Bank of Scotland (Ireland) Limited entered into two loan facilities with the defendant, Ms. Hickey, and her then partner, Mr. Declan Porter. A loan of IR£212,000 was for the purchase of No.19 Pairc Mhuire, Saggart Village, Co. Dublin and the other, IR£100,000, was to be used to refurbish the neighbouring property, No. 20 Pairc Mhuire.
The defendant and Mr. Porter were required to provide security in the form of first legal mortgages over three properties, including No.19 Pairc Mhuire. These terms were accepted in writing on the 24th September, 2001. The defendant’s then solicitor, Mr. David Walsh, gave an undertaking to the Bank that the defendant would acquire good, marketable title to the property and would put in place a first legal charge over the property in favour of the plaintiff prior to negotiating the loan cheques or proceeds. The defendant completed this action on 27th September, 2001. The schedule to the mortgage described the property as:-
“ALL THAT AND THOSE the dwelling-house and premises at No. 19 Phairc Mhuire, Saggart, County Dublin comprised in Folio 38788F of the Register of Freeholders County Dublin”.
The loan repayment terms were varied by agreement set out in a letter dated 28th November, 2006, which was accepted by the defendant and Mr. Porter on the 30th November, 2006. The loan in respect of the purchase of No. 19 Pairc Mhuire fell into arrears in January, 2009, with the Bank demanding repayment from the defendant and Mr. Porter by letter dated 22nd December, 2009. No repayments have been made since that time and the defendant and Mr. Porter remain indebted to the Bank in the sum of €155,841.73.
The plaintiff has been unable to secure registration of the mortgage on Folio No. 38788F and seeks to rely on the equitable charge which they argue was created in their favour by; (1) the terms of the loan agreement; (2) the provisions of the mortgage which allowed for the creation of security over the property in favour of the Bank; (3) the terms of the undertaking; and, (4) the payment of loan money pursuant to the loan agreement.
The defendant in her replying affidavit dated 8th May, 2013, does not dispute these particulars. She deposes to the following facts as a basis for contending that the plaintiff is not entitled to seek an equitable mortgage and that she has a bona fide defence:-
(i) Although the money was borrowed to fund the refurbishment of No.20 and the purchase of No.19, nothing was spent on No.19 and only a small amount went to No.20.
(ii) Mr. Porter spent the great bulk of the money for his own purposes exclusively.
(iii) The defendant “executed the relevant documents at the behest and direction of Mr Porter.”
(iv) Mr. Porter and the defendant did not have legal advice and she was not advised by the plaintiff or Mr. Porter to get independent legal advice.
(v) Because the funds were drawn down to benefit Mr. Porter solely, any money now due and owing is exclusively owed by Mr. Porter.
The plaintiff’s position is that none of the issues raised constitutes a defence to the reliefs sought nor do they justify the matter being adjourned to plenary hearing. The plaintiff argues that as equitable mortgagee of No.19 Pairc Mhuire, in circumstances where the defendant has failed to repay a demand facility, it is entitled to enforce its security without the requirement for a plenary hearing.
2. The Plaintiff’s response
In an affidavit sworn on the 5th June, 2013, Ms. Ruth Halpin, Assistant Manager, in the Customer Debt Management department of the plaintiff refers to the defendant’s deposition about the use of the funds and deposes that by virtue of clause 6 of the Bank’s General Conditions, the defendant and Mr. Porter undertook that they would only use the loan for the purposes stated in the loan agreement. Further, by the letter of variation of the 28th November, 2006, executed by the defendant and Mr. Porter on the 30th November, 2006, the parties agreed that the loan was subject to the conditions set out in the Bank’s Standard Conditions which provide at clause 8(1)(a) that the borrower undertakes that the loan will only be used for the purpose for which it was granted.
Ms. Halpin argues that the defendant is in breach of covenant insofar as the loan money was not used for the agreed purpose. This deponent says that any other use of the funds borrowed is inconsistent with the loan agreement under which the defendant and Mr. Porter are jointly and severally liable. In respect of the defendant’s claim that she did not have legal advice, Ms. Halpin deposes that Mr. David Walsh was the defendant’s solicitor when the loan agreement was entered into. Ms. Hickey irrevocably authorised Mr. Walsh to act on her behalf in giving the Bank an undertaking in connection with the purchase of No. 19 Pairc Mhuire.
3. Plaintiff’s Argument and Submissions
The plaintiff submitted that O. 3, r. 15 RSC provides that a claim for “sale, delivery of possession by a mortgagor, or redemption, reconveyance, or delivery of possession by a mortgagee, otherwise than under the Land and Conveyancing Law Reform Act 2009” may be commenced in the High Court by special summons. Because the material facts of this case have not been disputed there is no necessity for a plenary trial.
Mr. David Whelan BL, for the plaintiff, argues that there is an entitlement to an equitable mortgage over the property at No. 19 Pairc Mhuire and referred to Wylie’s definition of the three principle methods of creating an equitable mortgage in Ireland; (i) execution of a mortgage by a mortgagor holding an equitable interest in land; (ii) an agreement for a legal mortgage; and (iii) an equitable deposit of the title deed.
In ACC Bank Plc v. Malocco [2000] 3 IR 191, Laffoy J held at p. 204:-
“The true position, in my view, is that by the combined operation of the loan agreement, under which the defendant agreed to give a first charge on the property at Clanbrassil Street to the plaintiff, and the solicitors’ undertaking, including the authority given by the defendant embodied in it, on the 9th July, 1991, an equitable mortgage over the interest of the defendant in the property at Clanbrassil Street was created and the money payable to the plaintiff under the loan agreement became secured on the defendant’s interest in that property.”
Counsel argued that the loan agreement, the solicitors undertaking, the mortgage and payment of the loan money all combine to the effect that an equitable mortgage was created in favour of the plaintiff over the property. Pursuant to s. 62(2) of the Registration of Title Act 1964, a full legal mortgage over registered land will only be created where a charge is executed and registered. Section 62(2) provides:-
“There shall be executed on the creation of a charge, otherwise than by will, an instrument of charge in the prescribed form (or an instrument in such other form as may appear to the Registrar to be sufficient to charge the land, provided that such instrument shall expressly charge or reserve out of the land the payment of the money secured) but, until the owner of the charge is registered as such, the instrument shall not confer on the owner of the charge any interest in the land.”
In ICC plc v. M&J Gleeson & Co. Ltd & Anor. (Unreported, High Court, 18th February 1992), Carroll J concluded that the payment of money on foot of a loan agreement was sufficient to create an equitable charge which enjoyed priority over registered judgment mortgages:-
“In my opinion the payment of the loan moneys pursuant to the loan agreement created an equitable charge which predated the registration of the judgment mortgages. The execution of the instrument of charge did not affect the existence of the equitable charge. When the judgment mortgages were registered they took subject to that equitable charge as it would be contrary to s. 71(4) if they were to have priority.”
Mr. Whelan submitted that the defendant’s claim of undue influence along the lines of Royal Bank of Scotland v. Etridge (No. 2) [2001] 4 All ER 449, in no way comes close to meeting the Etridge (No. 2) criteria. In ACC Bank Plc v. McEllin [2013] IEHC 454, Birmingham J outlined the distinction between the Etridge (No. 2) authorities and cases where co-borrowers acted together in acquiring and using loan money at para. 30:-
“This was a question of individuals coming together, putting a proposal together and borrowing funds to bring the proposal forward. If this was a situation of elderly parents becoming guarantors for an offspring’s commercial debts arising from a business enterprise with which they were not involved, the situation might be very different…
[L]oans were advanced at the request of the three borrowers, the loans were for the purposes of the three borrowers and to advance the interests of the three borrowers. In these circumstances, I cannot see any arguable basis for suggesting that the second and third named defendants are absolved from the obligation to repay the loans that they had borrowed, because they had chosen to be represented by the same solicitor as was representing their son.”
The defendant described herself as a “company director” on the loan documentation and in the facility letter of 21st September, 2001, she confirmed that she was acting in the course of her business or trade. Therefore the loans were advanced to the defendant for a specific purpose to advance her interests, as was the situation with the defendants in McEllin.
It is submitted that the decision of Clarke J in Ulster Bank Limited v. Roche & Anor. [2012] 1 I.R. 765 has no direct application to the facts of this case because of the commerical element of the defendant’s loan application. Clarke J stated at p. 781:-
“…I am satisfied that the general principle, which underlies Royal Bank of Scotland plc v. Etridge (No. 2) [2001] UKHL 44, is to the effect that a bank is placed on enquiry where it is aware of facts which suggest, or ought to suggest, that there may be a non-commercial element to a guarantee.”
While the defendant has not suggested that she did not understand the content of the loan agreement documents, Clarke J in Roche, following Kelly J in Irish Bank Resolution Corporation Limited v. Quinn & Anor. [2011] IEHC 470, held that a person who signs a document which may have legal effect and does so without reading it or understanding it, “must accept the consequences of having signed a commercially binding agreement in those circumstances” and will, prima facie, be bound by what they have signed.
4. Defendant’s Argument and Submissions
Mr. Richard Downey BL, for the defendant, submitted that the defendant parted company with Mr. Porter in 2009, and such was the relationship between them, she required a High Court order preventing him from watching and besetting the family home. He was excluded from Skeagh House in Kildare at that time but since then there has been a reverse in the situation and now Ms. Hickey resides at No. 19 Pairc Mhuire and Mr. Porter at Skeagh House.
Counsel submitted that Mr. Porter was the person in control – he made the defendant sign the documents but he was the beneficiary of the money. The defendant agrees that she signed the documentation but says she did so on behalf of Mr. Porter She did not respond when the plaintiff’s exhibited the documentation with her signature attested by solicitor and with the undertaking given on her behalf but says that was because she did not have legal advice.
Mr. Downey referred to Ulster Bank v. Roche & Buttimer [2012] IEHC 166 in which Clarke J applied the principles enunciated in Royal Bank of Scotland v. Etridge (No. 2) [2001] UKHL 44, which may be summarised as follows so far as is relevant to this case; in a situation where a wife or cohabite offers to stand surety using her interest in the family home for her husband or partner’s indebtedness, or that of his company, her solicitor has a duty to explain the consequences and potential risks associated with the transaction but is not required to be satisfied that she is free from undue influence. In that kind of transaction the lender is placed on enquiry and should ensure the guarantor receives independent legal advice and confirm with her that the situation has been explained in full.
Counsel submitted that this test put an onus on the plaintiff and the issue of constructive notice arises. Mr. Downey submitted that from Roche, the following can be deduced; A bank is placed on enquiry where it is aware of facts that suggest, or ought to suggest, that there may be a non-commercial element to a guarantee. There was no commercial relationship between the defendant and Mr. Porter in this case so therefore the Bank was placed on enquiry;
1) The general principle that a bank should be on enquiry goes far enough to cover where the bank was aware of the existence of a personal relationship. It is obvious from the documentation in this case that the plaintiff was aware of a personal relationship between Ms. Hickey and Mr. Porter;
2) Where there exists a non-commercial setting and a personal relationship between the parties, a bank is on enquiry to ascertain whether there is any vulnerability in the person proffering or providing the security.
In Roche, Clarke J was satisfied that the bank was on enquiry and referred to a level of steps a bank must take in those circumstances. Applying Etridge (No. 2), he found that the bank took no action at all and, for that reason, their claim failed in its entirety against the person who provided the security.
Counsel submitted that in this case the plaintiff took no steps in relation to Ms. Hickey. They were aware that she was in a personal relationship with Mr. Porter and that it was a non-commercial transaction. The defendant is described in the plaintiff’s documentation as a “company director” and while Mr. Whelan inferred that this meant she had some business knowledge, Mr. Downey argued that that is not sufficient – the relationship between the defendant and Mr. Porter was personal and therefore non-commercial.
Counsel submitted that there is a conflict in relation to the facts and that if the court is faced with a difficult legal question at this stage of proceedings, it is acceptable to refer it to plenary hearing as outlined in Danske Bank (t/a National Irish Bank) v. Durkan New Homes & Ors [2010] IESC 22.
5. Discussion / Analysis
The issue before the Court is whether the defendant has an arguable defence. The threshold is low: Aer Rianta v. Ryanair [2001] 4 IR 607. The question is whether the defendant might have a defence assuming that the facts she alleges were to be found in her favour. There is some room for a test of credibility depending on the circumstances of the case but the principle is that if there is any basis of a credible defence, the case must go to plenary hearing. In Aer Rianta, McGuinness J identified the issue “whether the proposed defence is so far fetched or so self contradictory as not to be credible.” Hardiman J asked at p. 623:
“…[I]s 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 Court took the nature and context of the dispute into account. Hardiman J referred to the facts of the cases in the authorities cited and observed that in First National Commercial Bank v. Anglin [1996] 1 IR 75:-
“the indisputable documentation of a commercial transaction rendered the alternative chronology proposed by the defendant quite untenable.”
The Supreme Court endorsed two tests from the English jurisprudence that the Court had previously adopted in First National Commercial Bank v. Anglin [1996] 1 IR 75. In the latter case, Murphy J, delivering the judgment of the Court, said:
“For the court to grant summary judgment to a plaintiff and to refuse leave to defend it is not sufficient that the court should have reason to doubt the bona fides of the defendant or to doubt whether the defendant has a genuine cause of action (see Irish Dunlop Co. Ltd. v. Ralph (1958) 95 I.L.T.R. 70).
“In my view the test to be applied is that laid down in Banque de Paris v. de Naray [1984] 1 Lloyd’s Law Rep. 21, which was referred to in the judgment of the President of the High Court and reaffirmed in National Westminster Bank Plc v. Daniel [1993] 1 W.L.R. 1453. The principle laid down in the Banque de Paris case is summarised in the headnote thereto in the following terms:-
‘The mere assertion in an affidavit of a given situation which was to be the basis of a defence did not of itself provide leave to defend; the Court had to look at the whole situation to see whether the defendant had satisfied the Court that there was a fair or reasonable probability of the defendants having a real or bona fide defence.’
In the National Westminster Bank case, Glidewell L.J identified two questions to be posed in determining whether leave to defend should be given. He expressed the matter as follows:-
‘I think it right to ask, using the words of Ackner L.J in the Banque de Paris case, at p. 23, ‘Is there a fair or reasonable probability of the defendants having a real or bona fide defence?’ The test posed by Lloyd L.J in the Standard Chartered Bank case, Court of Appeal (Civil Division), Transcript No. 699 of 1990 ‘Is what the defendant says credible?’, amounts to much the same thing as I see it. If it is not credible, then there is no fair or reasonable probability of the defendant having a defence.’”
It appears therefore that while the circumstances do not dictate the nature of the test by which the defence is judged, they influence the application of the criteria. In Harrisrange Ltd v. Duncan [2003] 4 IR 1 McKechnie J summarised the Courts’ approach to summary judgment in twelve propositions, of which the following are particularly applicable in this case:-
“(iii) the court should assess not only the defendant’s response, but also in the context of that response, the cogency of the evidence adduced on behalf of the plaintiff, being mindful at all times of the unavoidable limitations which are inherent on any conflicting affidavit evidence;
(xi) leave should not be granted where the only relevant averment in the totality of the evidence, is a mere assertion of a given situation which is to form the basis of a defence and finally;
(xii) the overriding determinative factor, bearing in mind the constitutional basis of a person’s right of access to justice either to assert or respond to litigation, is the achievement of a just result whether that be liberty to enter judgment or leave to defend, as the case may be.”
The Court’s task is not simply to examine the affidavits and exhibits to discover whether there is a conflict of fact on a decisive point. Neither is it to weigh conflicting depositions in the balance to decide which is more probable. It has to apply the above credibility test to the proposed defence. That is what the courts did in First National Commercial Bank and Aer Rianta. In Banque de Paris v. de Naray Lord Ackner said:
“It is of course trite law that O. 14 proceedings are not decided by weighing the two affidavits. It is also trite that the mere assertion in an affidavit of a given situation which is to be the basis of the defence does not, ipso facto, provide leave to defend; the Court must look at the whole situation and ask itself whether the defendant has satisfied the Court that there is a fair or reasonable probability of the defendants’ having a real or bona fide defence.”
It is not a defence for Ms. Hickey to show that most of the money went on purposes other than those for which it was borrowed. Applying the loans to different purposes was in breach of covenant but that is not the essential point for this purpose, which is that a defendant cannot escape liability by using the money for a different purpose than that specified in the loan agreement or by consenting to such diversion. Pursuant to Clause 25.1 of the Bank’s General Conditions, the defendant and Mr. Porter agreed to be jointly and severally referred to as “the Borrower”. It therefore follows that they are jointly and severally liable for the outstanding liabilities now owing to the plaintiff. It does not matter whether it was Ms. Hickey or Mr. Porter who spent the money on the extraneous purposes, the liability to the lender remains for each borrower.
Ms. Hickey says that she “executed the relevant documents at the behest and direction of Mr. Porter” which counsel, Mr. Downey, interprets as a claim of undue influence or domination of Ms. Hickey by Mr. Porter. This is the only evidence put forward to establish that this defendant was not in control of her own destiny in taking out these loans. It is hopelessly inadequate as evidence and goes nowhere near establishing the case. As the plaintiff submitted, the defendant has provided no proof or detail of any fact or circumstance to suggest that Mr. Porter exerted undue influence over her. Moreover, she was at all times represented by a solicitor. No information is provided, no example is given of how the alleged coercion was exercised and it is impossible to deduce from the bald and brief statement the overbearing of will that would be necessary to avoid liability. Taking the statement entirely at face value, it does not amount to coercion or undue influence.
It is clear that the defendant did have legal representation in the execution of the loan and mortgage documents. Any question of seeking separate advice was a matter for the defendant and not for the plaintiff unless there were some circumstances that brought into operation the principles established in Etridge (No. 2). Those principles are briefly set out above and acknowledge that a lender may be under a duty to satisfy itself as to the independent decision making capacity of one borrower in view of the relationship that exists with another. There is however nothing in the circumstances of this case that would attract the obligation recognised in Etridge (No. 2). The loan was for a commercial purpose. This was a case of joint borrowing by a person describing herself as a company director and confirming that she was acting in the course of her business or trade.
The decision of Kelly J in Irish Bank Resolution Corporation Limited v. Quinn & Anor. [2011] IEHC 470 as outlined above also applies. A person who signs a potentially legally effective document without properly considering it or understanding it, will be prima facie bound to accept any consequences which may later arise.
6. Conclusion
In the circumstances, the defendant has not established the existence or potential existence of any defence to the plaintiff’s claim. On this basis I grant the reliefs sought by the plaintiffs.
Governor and Company of Bank of Ireland -v- Cochrane & Anor
[2014] IEHC 605 (09 December 2014)
JUDGMENT of Mr. Justice Barr delivered on the 9th day of December, 2014
1. In this action, the plaintiff seeks summary judgment against the defendants jointly and severally in respect of guarantees furnished by the defendants in respect of two companies owned and managed by the defendants, being Cochrane and Co. (Drapers) Limited and Olivia Danielle Limited. The amounts claimed in the notice of motion come to a total of €571,952.63, comprising the following: (i) the principal sum of €221,180.86 together with continuing interest of an amount of €2,899.96 from 11th April, 2013 to 18th July, 2013, making together €224,080.82; and (ii) the principal sum of €343,369.80 together with continuing interest of an amount of €4,502.03, from 11th April, 2013 to 18th July, 2013 making together €347,871.81. The plaintiff also claims further interest on the said principal sums from 19th July, 2013, at the relevant rates of interest for the time being of the plaintiff to the date of payment or judgment, and the costs of the proceedings.
2. In the grounding affidavit, the plaintiff set out the history of the business relationship between the plaintiff and the defendants. It is common case that the parties had had a business relationship going back over 34 years. In respect of each company, the defendants executed two contracts of Guarantee and Indemnity. On 4th September, 2008, the defendants each furnished a guarantee in respect of Cochrane and Co. (Drapers) Limited in the sum of €241,000. On 16th July, 2010, the defendants executed a further contract of Guarantee and Indemnity in the sum of €217,000. Similar guarantees had been executed in respect of Olivia Danielle Limited in the sum of €320,000 on 4th September, 2008, and €341,000 on 16th July, 2010.
3. It is in relation to these latter guarantees that the dispute arises. In particular, there is a complete conflict between the parties as to the content and atmosphere at the meeting held on 16th July, 2010. The plaintiff states that by letter dated 5th July, 2010, the plaintiff’s Moate branch offered to make available to Cochrane and Co. (Drapers) Limited, the sum of €206,000.00 by way of bridging term loan to assist with the restructuring of the existing facilities (accounts 95526725 and 95526944). The said offer was made on the terms and conditions as set out in the facility letter, as supplemented by the plaintiff’s general terms and conditions which were appended thereto.
4. The plaintiff states that the facility letter dated 5th July, 2010, was accepted by the defendants on behalf of Cochrane and Co. on 16th July, 2010. Bridging loan No. 1 was duly restructured on 24th August, 2010. It was to have been repaid in full within a period of not more than six months from restructure.
5. By letter dated 5th July, 2010, the plaintiff’s Athlone branch offered to make available to Olivia Danielle Limited the sum of €270,000.00 by way of bridging term loan to assist with the restructure of existing facilities (accounts 95524279 and 95524287). The said offer was made on the terms and conditions as set out in the facility letter and as supplemented by the plaintiff’s general terms and conditions which were appended thereto. That facility letter dated 5th July, 2010, was accepted by the defendants on behalf of Olivia Danielle Limited on 16th July, 2010. Bridging Loan No. 2 was duly restructured on 23rd August, 2010. It was to have been repaid in full within a period of not more than six months from restructure.
6. The defendants accept that they signed the contracts of guarantee. However, they claim that the contracts are vitiated due to the fact that they were procured by undue influence on the part of the bank officials at the meeting held on 16th July, 2010. In a replying affidavit sworn on 16th February, 2014, the first named defendant stated that in 2010, the clothing business run by him and his wife, the second named defendant, was going through a very hard time financially. He described their situation as “a perilous financial situation”. He stated that the full extent of their financial circumstances was well known to the bank. When his wife and he attended at the Bank of Ireland, Church Street, Athlone on 16th July, 2010, they understood that the purpose of the meeting was in connection with the draw down of a short term stocking loan facility in the sum of €50,000 in order to fulfil contracts for the purchase of stock for the businesses.
7. The first named defendant states that much to his astonishment, when he and his wife attended at the Athlone branch on 16th July, 2010, they found themselves in a most threatening and unsettling environment. He states that the bank officials knew well of the grave financial difficulties that their businesses were facing and the huge personal and professional impact this was having on his wife and himself. The first named defendant states that the bank officials, with whom they met, threatened that the bank would withdraw financial support for their businesses unless he and his wife would agree to sign and execute a range of documentation there and then in the bank. The first named defendant further submitted that despite a history of good relations between the parties, the tone and demeanour of the bank officials on this occasion was not only extremely unprofessional but was personally intimidating. In all his years in business, and engaging with the Bank of Ireland in particular, he had never been subjected to such severe pressure, intimidation and bullying.
8. The defendants stated that it was in these circumstances that they were effectively compelled by the relevant bank officials to sign a number of documents, including the contracts of Guarantee and Indemnity, including a waiver of independent legal advice. The nature and effect of this documentation was not explained to them. They were not given any opportunity to review the documentation. The bank officials dictated the terms of the waiver of independent legal advice to them, but as they were fully aware, they had no opportunity to obtain independent or indeed any legal advice. The first named defendant further stated that in these circumstances he had no real choice as to whether or not to sign the documentation presented to him by the bank officials on their premises and had no understanding of what he was signing or its implications for him. But for the threatening conduct of the bank officials, he would not have signed the documentation and certainly would not have signed it there and then and without proper professional advice.
9. The same defendant further stated that by compelling the signature of the contracts of guarantee in this manner, the plaintiff’s servants or agents had taken advantage of the relationship of trust and good will which had built up between the plaintiff and the defendants over the years. They did so in circumstances where they were fully aware of the vulnerability of both of the defendants and the professional and personal pressures they were labouring under.
10. Each of the contracts of guarantee had a waiver thereon which was signed by the defendants in the following terms:-
“I understand the nature of the liability incurred and I have no wish to be independently advised by a solicitor.”
11. The first named defendant stated as follows at para. 13 of his grounding affidavit:-
“However, having regard to the circumstances in which our signatures to the Guarantees were procured, I say and believe that the plaintiff cannot in these proceedings rely on the guarantees in order to pursue my wife and myself personally for our failed businesses debts. This is because the guarantees were signed without any informed consent and without the benefit of any independent legal advice on my part and must be considered, in the circumstances, to have been vitiated on the grounds of undue influence and unconscionability.”
12. The first named defendant stated that in the circumstances he has a bona fide defence to the plaintiff’s claim herein. He submitted that the matter could not be disposed of by way of summary proceedings and he requested the court to refer the matter to plenary hearing.
13. The second named defendant has also provided a replying affidavit. It was in almost identical terms to that of the first named defendant as outlined above.
14. A replying affidavit was sworn on behalf of the plaintiff by Ms. Valerie Duncan who dealt with the defendants’ accounts. She said that she had read the defendants’ affidavits with “dismay and shock”. The reasons for those reactions were that (a) she considered that what the defendants had said in their replying affidavits was a betrayal of her sincere attempts on behalf of the plaintiff over many years to support the defendants in both their personal and business activities, (b) the purported statements of facts contained in those affidavits failed (apparently deliberately) to set out the actual context and purpose of their meeting in July 2010, and (c) the defendants also wholly misrepresented the reality of what occurred on that occasion. She rejected the defendants’ attempts, almost four years after the event and many years after their business relationship began, now to revise and reconstruct both facts and history.
15. Ms. Duncan stated that there had been a number of meetings between the parties prior to the meeting on 16th July, 2010. That meeting was the culmination of a lengthy communication process which had been ongoing between the parties for several months.
16. Ms. Duncan stated that the process had commenced as early as 18th February, 2010, when she met the first named defendant in an attempt to establish a full and accurate statement of the assets and liabilities of the defendants and their two companies. She stated that this meeting took place against a backdrop of decreasing turnover on the current account of Olivia Danielle Limited, unpaid items on the current accounts of both companies and arrears on the restructured loan facility of Cochrane and Co. In addition, she was concerned by the fact that she had become aware that a judgment of €10,447.00 against Olivia Danielle Limited had been published in late January 2010.
17. She stated that she again met with the first named defendant on 15th April, 2010, in order to progress the receipt of full and up to date financial information. Further meetings took place on 7th and 18th May, 2010. There were also meetings on 11th June, 2010 and 7th and 13th July, 2010. The matters discussed at these meetings included both the defendants’ requests for extension of bridging facilities for their two companies and additional stocking facilities so that Olivia Danielle Limited could purchase stock for the coming season and thus continue to trade. She also had occasional telephone conversations with the first named defendant during this period.
18. Ms. Duncan stated that this extensive series of contacts demonstrated that the meeting which took place on 16th July, 2010, did not occur either in a vacuum or abruptly. At all times, the purpose of the extensive communications process was to work with the defendants so as to obtain a full understanding of their and their companies’ financial situation with a view to working out a strategy to support them and their businesses through a difficult trading period. It was only during the course of the various meetings, and after repeated inquiries by her, that it became apparent in May 2010 that the financial position of the two companies was much worse than the defendants had previously disclosed to the plaintiff, particularly because of substantial personal indebtedness to other financial institutions and significant unpaid taxes.
19. Ms. Duncan went on to state that notwithstanding the concerns that these disclosures caused and because of both the good past relationship between the parties and the defendants’ representations concerning their business plans (including proposals to dispose of their business premises in Moate and an apartment in Athlone), the plaintiff decided in early July 2010 to agree a further restructuring of the companies’ bridging loans and to provide additional funding for stock purchases.
20. Ms. Duncan stated as follows in relation to the meeting held on 16th July, 2010:-
“I say that the specific purpose of the meeting on 16th day of July, 2010 was to finalise the documentation in relation to the restructuring of bridging loan facilities for the two companies. I also confirmed then to the defendants that the €50,000 stocking loan which they had sought for Olivia Danielle Limited had been approved by the plaintiff on the previous day. I note in that regard that in a joint statement which is attached to the first named defendant’s affidavit, they acknowledged that they had actually pre-emptively contracted to purchase stock without having such approval in place. For the avoidance of doubt, however, I say that the stocking loan was not actually formalised and initially drawn down until early August 2010.
I say that, contrary to what the defendants now seek to assert, I recall that the meeting was conducted in a professional and business like manner and that the tone was both positive and cordial, as it had been during all previous discussions. At no time was the environment unsettling or intimidating, as they allege. I also say that no threat whatsoever was made either by me that the plaintiff would withdraw its financial support unless the defendants agreed ‘there and then’ to sign and execute a range of documentation.”
21. Ms. Duncan had the following to say in relation to the defendants’ description of the atmosphere at the meeting on 16th July, 2010:-
“Concerning the defendants purported characterisation of the meeting, I say that they are both very experienced business people who had on numerous previous occasions availed of facilities from the plaintiff, had attended many similar meetings and knew full well that the purpose thereof was to complete the related loan documentation, including guarantees. They were, of course, already fully familiar with the guarantee process having, (for example) signed in September 2008 (and with similar waivers concerning legal advice) the guarantee with Roderick Scott as exhibited as ‘RS1’ and ‘RS3’. On this occasion, as before, the terms of the proposed loans (including related guarantees) had been discussed in advance and were set out in the facility letters dated 5th day of July 2010 to which I have already referred in paragraph 6 hereof. I am satisfied that, contrary to what the defendants assert, they fully understood what they were signing and did so with informed consent and without complaint or demur. I object strongly to their assertions that they were effectively compelled to do so.”
22. Ms. Duncan stated that the meeting ended pleasantly. As she accompanied the defendants in the lift down to the Banking Hall, they inquired about her forthcoming holidays. Before they left the premises, she shook hands with the defendants, she thanked them for coming in and wished them well and said that she would be in touch with them after her return from leave.
23. Ms. Duncan further stated that the defendants’ characterisation of the state of her relationship with them at the meeting on 16th July, 2010, was inconsistent with the content of a letter dated 2nd September, 2010, which Ms. Duncan had received from the defendants’ solicitors, in which the solicitor referred in the penultimate paragraph to “the amicable relations that our client has procured with the Bank of Ireland over the past years….”.
24. Ms. Duncan stated that she had further meetings with the first named defendant in August, October and November 2010 and January, February and April 2011. She stated that at no time during this period did either of the defendants make any complaints or allegations such as those which they have asserted in their affidavits. She believed that those belated assertions were baseless. She stated that she had a diary note of the telephone conversation with the first named defendant on 30th September, 2010, when he expressed his thanks for the plaintiff’s financial support, noting that the recently drawn €50,000 stocking loan had been “a massive help” at a critical time. Further, Ms. Duncan recalled that at a meeting on 13th April, 2011, with the first named defendant and Mr. Tighe O’Donohue, which she attended with her colleague Ann Henry, to whom she was handing over responsibility for the files, the first named defendant was very complementary to her concerning the manner in which she had managed the account relationship with him, his wife and their companies.
25. Ms. Duncan strongly refuted the allegations made by the defendants in their replying affidavits. She stated as follows at para. 20 of her affidavit:-
“I say that for the reasons which I have set out above, I utterly reject and refute all of the wholly-unfounded allegations against both the plaintiff and me which the defendants have set out in their affidavits in an attempt to rewrite history (including, but not limited to, their assertions of supposed undue influence, lack of professionalism, intimidation, pressure, bullying, compunction, threatening behaviour, the taking of advantage and unconscionability) as if I had set each of them out here in full and denied them individually, as I do. None of those assertions has any basis in fact.”
26. Mr. Dermott Horan, a senior business manager in the Athlone branch of the plaintiff bank, swore an affidavit which dealt with the relationship with the defendants both prior to and subsequent to the meeting on 16th July, 2010. He did not attend the meeting on that date, where the contracts of guarantee were signed. However, he averred to the fact that subsequent to that meeting, the defendants did not make any complaint to him as manager of the Athlone branch in relation to what had transpired at the meeting. Apart from the fact that the defendants could have done so at any time thereafter, if they felt they had a grievance, there was not a hint at the meeting which he attended in February 2011 that the defendants had any difficulty in relation to either Ms. Duncan’s previous interactions with them or her ongoing dealings with them. There was no record on the plaintiff’s file of any complaint either verbal or written made by the defendants subsequent to that meeting. Mr. Horan stated that both of the meetings which he attended were conducted in an entirely courteous and professional manner. At no stage during either meeting did he see any inappropriate engagement by Ms. Duncan with the first named defendant nor was he aware of any tension or difficulty between them. He stated that Ms. Duncan did not seek to apply any pressure on the first named defendant during her dealings with him while he was present.
27. The first named defendant swore a further replying affidavit on 27th May, 2014. He denied that his account of the meeting on 16th July, 2010, was a misrepresentation of what had occurred at that meeting. He stated that it was his understanding that the purpose of the meeting was to address the possibility of the bank offering him a stocking loan which was essential to their businesses continuing to trade. Before going into the meeting, he did not anticipate, nor was he advised by the plaintiff, that this important stocking loan would be conditional on his wife and he providing personal guarantees to the plaintiff. However, that was the approach adopted by Ms. Duncan on behalf of the plaintiff, thereby placing him and his wife in an impossible position.
28. The first named defendant took issue with the description of the meeting on 16th July, 2010, as given in Ms. Duncan’s affidavit. He stated as follows at para. 8 of his further replying affidavit:-
“I dispute Ms. Duncan’s averment at paragraph 13 of her affidavit that the meeting of 16th July, 2010 was conducted in a professional and positive manner. We found the environment within the branch extremely intimidating on this occasion. Ms. Duncan was fully aware of our precarious and vulnerable financial position and the enormous personal and professional pressures under which my wife and I were labouring at that time. Notwithstanding this knowledge on the plaintiff’s part, the plaintiff effectively compelled us to sign personal guarantees which were manifestly to our disadvantage at a time when our businesses were on the brink of failure. In all my years in business, I had never before been placed in such a position. Although I had previously signed guarantees, I was never provided with or received independent legal advice and I did not appreciate the legal implications of such guarantees for my personal financial position. On 16th July, 2010, there was never any real opportunity for my wife and I to obtain independent legal advice.”
29. The first named defendant stated that he did not deny signing either the loan offers or the personal guarantees at issue. However, as explained in his relying affidavit, he stated that the plaintiff, acting through Ms. Duncan, procured the personal guarantees by threatening not to provide the short term stocking loan facility of €50,000 and thereby compelling their businesses to close their doors. He stated that in circumstances where Ms. Duncan was well aware of their precarious and very vulnerable financial position and of the precarious position of their companies, this constituted actual undue influence.
30. The first named defendant stated that although he attended a number of further meetings with the plaintiff following the meeting on 16th July, 2010, at that stage, he was still endeavouring to salvage what he could of his family businesses. During all of that period, he was labouring under personal and professional pressures. He stated that it was only after the businesses failed, and the plaintiff initiated the within proceedings, that he came to understand the full implications and significance of the documents signed by him on 16th July, 2010.
31. The first named defendant also dealt with the matters raised in the affidavit sworn by Mr. Horan. It is not necessary to go into the matters at length in this judgment.
32. A further affidavit was also sworn by the second named defendant. Insofar as it dealt with the averments in the affidavit of Ms. Duncan, it was in the same terms as the affidavit sworn by the first named defendant as referred to above. She did not attend any meetings with Mr. Horan and so did not comment on his replying affidavit.
The Law in Summary Judgment Applications
33. The law has been set out with clarity in a number of decisions. In Aer Rianta cpt v. Ryanair Limited [2001] 4 IR 607, Hardiman J. described the relevant test to be applied in the following terms:-
“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?”
34. In Irish Bank Resolution Corporation (In Special Liquidation) v. Gerard McCaughey (Unreported, Supreme Court, 11th July, 2014), Clarke J. stated as follows in relation to the nature of the defence which must be disclosed by the defendant in resisting an application for summary judgment:-
“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 statable 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.
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.”
35. Finally, Kelly J. in IBRC Limited v. Quinn [2011] IEHC 470, gave the following dicta in relation to the defence which must be established by a defendant in resisting an application for summary judgment:-
“The threshold of proof which has to be achieved by a defendant is low. The test as identified by Hardiman J. in Aer Rianta v. Ryanair [2001] 4 IR 607, is this:-
[Judge here sets out portion already cited]
The most recent statement of the law from the Supreme Court is contained in Danske Bank v. Durkan New Homes [2010] IESC 22. There Denham J. (as she then was) cited with approval the views of Ackner L.J. where he said:-
‘It is of course trite law that O.14 proceedings are not decided by weighing the two affidavits. It is also trite that the mere assertion in an affidavit of a given situation which is to be the basis of a defence does not, ipso facto, provide leave to defend; the Court must look at the whole situation and ask itself whether the defendant has satisfied the Court that there is a fair or reasonable probability of the defendants having a real or bona fide defence.’”
Conclusions
36. Applying these principles to this case, I am satisfied that there is a fundamental dispute between the parties as to what occurred at the meeting on 16th July, 2010. The defendants accept they signed the two acceptances of the letters of loan offer dated 5th July, 2010. They also signed contracts of guarantee in respect of the indebtedness of both their companies. They both signed waivers stating that they did not want independent legal advice prior to incurring the liability under the contracts of guarantee.
37. There is a major dispute between the parties as to the atmosphere at the meeting. The defendants state that it was a very hostile and intimidatory atmosphere on the part of the bank officials who were present at the meeting. The defendants maintain that it was made clear to them that the provision of the stocking loan, which was essential to the survival of their businesses in the short term, was conditional upon the defendants agreeing to sign up to the personal guarantees in respect of the indebtedness of their companies. The defendants maintain that they were put under enormous pressure to sign the contracts of guarantee at that meeting and that in reality they had no opportunity to consider the matter, or to take independent legal advice thereon.
38. This account is hotly disputed by the plaintiff’s officials and in particular by Ms. Duncan, who has stated that the meeting was conducted in a professional and business like manner. She denied that there was any pressure or undue influence exerted upon the defendants at that meeting.
39. While this Court has considerable doubt about the defendants’ prospect of success in establishing that the contracts of guarantee are vitiated by undue influence, especially in view of the fact that the defendants were experienced business people, who had a long history of doing business with the bank, it nevertheless appears to the court that this is a case where the defendants should be given the opportunity to have their claim decided on oral evidence. Where there is a stark conflict of fact in the affidavits sworn on either side, such as there is in relation to the meeting on 16th July, 2010, such conflict cannot be determined on affidavit evidence. In order to reach a decision as to where the truth lies, it is necessary to hear both parties in evidence in chief and to have such evidence tested in cross examination.
40. In the circumstances, I will remit the matter for plenary hearing. There were two contracts of guarantee signed on 4th September, 2008. It is not clear whether these are challenged on the same basis as the later guarantees. In view of the fact that there is not a separate breakdown as to what was owed to the plaintiff under these contracts, it is appropriate that the question of the liability under these contracts of guarantee should also be remitted to plenary hearing.
41. In the circumstances, I refuse the plaintiff’s application for summary judgment. I remit the matter for plenary hearing. I will allow four weeks for a statement of claim and four weeks thereafter for a defence on behalf of the defendants.
Ulster Bank Ltd -v- deKretser & anor HC
[2015] IEHC 359 (10 June 2015)
JUDGMENT of Mr. Justice Hedigan delivered on the 10th of June 2015
1. The plaintiff applies herein for liberty to enter final judgment against the defendants in the amount of €98,952 together with further interest on the principle sum of €89,350.95 from the 19th of August, 2010 which now amounts to €126,077.06. The claim is on foot of a joint and several guarantee dated the 5th of July, 2007 over the obligations of a company of which both defendants were directors named Stones Finishes Supply Limited.
2. In return for this guarantee the plaintiff granted an overdraft facility to the company. The guarantee was limited to €100,000 plus interest. The company defaulted on its debts under this facility as a result of which on the 7th of January, 2009 the plaintiff sent a letter of demand of that date, in which it called in the guarantee although it referred mistakenly to the date of the guarantee as the 5th of July, 2008.
3. The defendants resist this application and seek to have the matter put to plenary hearing. They also seek to enforce what they say was an agreement by the plaintiff to accept, in settlement of their claim, the proceeds of an Ark Life Assurance policy (valued at €55,011.68 on the 25th of August, 2009).
4. The defendants put forward by way of their intended defence the following:
(a) They did not have any proper chance to review or understand the guarantee they signed.
(b) The second defendant signed under duress or the undue influence of her husband.
(c) They had no independent legal advice.
(d) The consideration was past.
(e) The guarantee was not a continuing one.
5. The plaintiffs respond in the affidavit of Damien Devlin to these proposed defences as follows:
(a) The facility was addressed to both defendants two weeks before they signed the guarantee. Both defendants had previously on at least four occasions each provided guarantees in respect of respectively the second defendants own company and the company herein.
(b) No evidence of undue pressure or duress is put forward. There is only an assertion.
(c) The defendants had plenty of time to obtain legal advice.
(d) The document of guarantee was one under seal and in any event the continuing overdraft facility was sufficient consideration and
(e) The issue of a continuing guarantee does not arise. The plaintiffs move upon a guarantee entered into in relation to the transaction in respect of which the demand was made.
6. In relation to the claim about the assurance policy the plaintiffs state the offer to accept this was conditioned on payment being made within 28 days. This was not done and so their acceptance of the offer lapsed.
7. The principles applicable to this type of application are well established. To proceed to plenary hearing a legally statable defence must be identified. Assertion of a ground for defence is not enough. See Harrisrange Limited v. Duncan [2002] IEHC 14 McKechnie J. Is there a fair or reasonable probability of the defence having a real or bona fide defence? See Banque de Paris et des Pays-Bas (Suisse) SA v. de Naray [1984] Lloyds’ Rep. 21 approved by the Supreme Court Denham J. in Danske Bank AS trading as National Irish Bank v. Durcan Homes [2010] IESC 22 at page 9. Taking the points in order
a) The defendants are both experienced business people with a track record of multiple guarantees provided to the bank. It is entirely unreal to suggest that they did not know what they were doing. Even were this not so, between the letter of facility and the signing of the guarantee two weeks later, they had every opportunity to acquaint themselves with all they needed to know. During this time they also had every opportunity to obtain legal advice. It should be noted in passing that absent some clear evidence of the need to insist upon customers obtaining, it there is no obligation on a bank to insist on customers obtaining legal advice before entering into contracts with them. See Ulster Bank Ltd v. Roche and Buttimer [2012] IEHC 166.
b) There is no evidence of any duress or undue influence. There is simply an assertion. That assertion flies in the face of the evidence. This is, as noted above, that both defendants were experienced business people. Moreover, it was in fact the second defendant who introduced the bank to the company Stone Finishes. Also the second defendant was in receipt of a monthly salary of €2,000 from the company. Far from there existing any evidence to show duress or undue influence, in fact the evidence shows the opposite.
c) This is already dealt with at (a) above.
d) The guarantee is an instrument executed under seal and thus the issue of consideration does not arise.
e) This issue does not arise also and is clearly pleaded in error. This guarantee is in respect of the specific transaction in question. The continuing guarantee issue does not arise.
f) Finally, as to the claim made concerning the offer of an assurance policy in full and final settlement; that acceptance of the offer was made in a letter sent by the plaintiff bank and dated the 18th of the September 2009. See exhibit B first affidavit of Walter de Kretser. It is explicitly conditioned upon payment being received within 28 days. The bank was not obliged to agree. It did so and could impose any condition it wished on its acceptance of the offer. Its fundamental and indeed its only condition was not met and therefore the acceptance lapsed.
8. The final point made in a draft defence which has been treated by the court as the submission is that of the invalidity of the letter of demand. This letter of the 7th of January 2009 by the plaintiff to the defendants called upon them to honour their guarantee dated the 5th of July 2008. This of course was in error. The correct date was the 5th of July 2007. However the defendants, as is clear from their affidavits, were never in doubt as to the guarantee that was being called in. They were only too well aware of the reality of the situation. The dating error caused no prejudice to them in trying to defend the plaintiff’s claim. The error may be dealt with on the de minimis principle.
9. Regrettably, notwithstanding Mr. Kretser’s valiant efforts to defend himself and Ms. Fox against this application I am unable to identify any fair or reasonable probability of a real or bona fide defence herein. There must therefore be summary judgment in the amount of Euro 126,077.36
Ulster Bank (Ireland) Ltd -v- De Kretser & Anor CA
[2016] IECA 371 (07 December 2016)
Composition of Court:
Peart J., Birmingham J., Hogan J.
Judgment by:
Birmingham J.
Status:
Approved
Result:
Dismiss
Judgments by
Link to Judgment
Concurring
Dissenting
Birmingham J.
Link
Peart J..
Hogan J.
Hogan J.
Link
JUDGMENT of Mr. Justice Birmingham delivered on the 7th day of December 2016
1. This is an appeal by the defendants/appellants from a judgment of the High Court (Hedigan J.) dated the 10th June, 2015, granting the plaintiff/respondent liberty to enter final judgment in the amount of €126,077.06 (representing a principal sum of €89,350.95 with interest thereon from the 19th August, 2010). The plaintiff/respondent sued on foot of a joint and several guarantee in writing entered into by the appellants dated the 5th July, 2007, in respect of the obligations of a company of which both defendants were directors, named Stones Finishes Supply Limited. The guarantee was a condition for the granting of an overdraft facility to the company which was granted by way of a facility letter dated the 29th June, 2007. The guarantee was limited to the principal sum of €100,000 plus interest.
2. The company defaulted on its obligations under the facility letter and a demand was consequently made under the guarantee for the principal sum of €89,350.95 on the 7th January, 2009. Thereafter a summary summons was issued in respect of that sum plus interest on the 19th January, 2009. The background to the entry into the guarantee is that the first named appellant/defendant was a stonemason by trade and an expert in restoration. He started Stone Finishes Supply Limited in 1999 and it grew into a very successful business, having a turnover of over €1.1 million per annum at one stage and employing fifteen staff directly as well as a number of subcontractors. However in late 2007 the company came under significant pressure with regards to cash flow with a number of clients delaying payments due. The company encountered major difficulties in mid to late 2008 when two of its biggest clients became insolvent. In those circumstances the company went into voluntary liquidation on the 4th December, 2008.
Summary of defences and issues raised
3. The High Court concluded that the defendants had not made out an arguable defence to the claim. The appellants had resisted the bank’s claim advancing inter alia the following defences:-
(i) A lack of review or understanding of the guarantee by the appellants, which was supposedly signed in desperation in a situation where the company was in an extreme financial situation.
(ii) That Ms. Fox only signed the guarantee consequent upon undue influence and duress by Mr. De Kretser.
(iii) That the guarantee was unenforceable due to the rule in relation to past consideration.
(iv) That the respondent was legally bound to accept the assignment of certain insurance policies offered in full and final settlement of the claims under the guarantee.
4. On the 18th February, 2012, the appellant/defendant Gillian Fox swore an affidavit which asserted inter alia:
(a) That she had been pressured into signing the guarantee by her husband, the first named defendant/appellant Mr. De Kretser.
(b) She had only signed the guarantee under duress.
(c) She had not seen copies of the guarantee prior to signing it.
(d) She was only a 1% shareholder of the company and received no benefit from the guarantee.
5. The first named appellant also swore an affidavit on the 18th February, 2012. He averred that:
(i) He was a 99% shareholder in the company.
(ii) The original guarantee provided to the company had only been provided by him and he did not understand why his wife had been required to act as co-surety in 2007.
(iii) He put undue pressure on his wife to execute the guarantee, as the company was under huge pressure in order to meet obligations and the respondent insisted on this prior to releasing funds.
(iv) He had not seen copies of the guarantee prior to signing it.
(v) The respondent had made contractual agreement to settle all outstanding liabilities under the guarantee by taking an assignment of an Ark Life Assurance policy which was valued at just over €55,000 and then unreasonably insisted on a contractually impossible encashment deadline of 28 days.
(vi) The respondent was legally obliged to take an assignment of the Ark Life policies.
6. Both defendants/appellants swore further affidavits on the 13th June, 2012. On this occasion Mr. De Kretser swore an affidavit reiterating his position in relation to the Ark Life policies and stated that he had a valid defence under the past consideration rule. Ms. Fox in her affidavit stated that she wished to defend the action based upon the defences of duress/undue influence and the rule of past consideration.
7. On the 18th October, 2012, Mr. Damien Devlin of the Collections and Recoveries Department swore an affidavit on behalf of the plaintiff bank refuting the claims that had been set out in the appellant’s affidavits. In relation to Ms. Fox, the second named defendant/appellant he stated that:-
(a) Ms. Fox was not under the undue influence of her husband and that she had in fact introduced her husband to the respondent, with whom she had had prior dealings through her spa and beauty business Heavenly Spa Limited.
(b) That while she only held 1% shareholding in the company, she was also a director of the company and drew a €2,000 per month salary from it, contrary to her assertion that she received no benefit from the guarantee.
(c) That the facility letter was addressed to and signed by both appellants as directors and the guarantee was not signed until two weeks after the facility letter issued.
(d) That Ms. Fox had previously provided guarantees in the same or similar form going back to 2000, when she had guaranteed the liabilities of Heavenly Spa Limited and she had provided guarantees in respect of Stone Finishes Supply Limited on four occasions in 2002, 2003 and 2006.
8. In relation to Mr. De Kretser, Mr. Devlin stated that:
(a) Contrary to Mr. De Kretser’s assertion that Ms. Fox had only been asked to provide a guarantee in 2007, she had in fact provided four previous guarantees in relation to the obligations of the company.
(b) His statement in relation to not having seen the guarantee in advance had to be seen in the context of his having known about the obligation to provide it two weeks earlier and his previous record of having signed guarantees.
(c) His statement about desperation to get funds for the company was refuted by the fact that he was also, at the time seeking a €740,000 mortgage in respect of the business premises that he owned and in which the company was operating.
(d) That the respondent had only conditionally accepted the assignment of the Ark Life policy when offered subject to encashment within 28 days and when this did not happen, the offer lapsed and there was consequently no contract to enforce.
9. While there has been mention of other issues, the real point in this case, both at first instance and on appeal is as to whether the guarantee was valid and that in turn raises the issue of whether there was a positive or affirmative duty on the bank to ensure that Ms. Fox understood the nature of the guarantee and had done what was required to ensure that she had access to independent legal advice, if she required it, before executing the guarantee.
10. Before addressing the issues raised in greater detail and before seeking to put those issues in a factual context, I need to remind myself these issues are arising in the context of an application for summary judgment where the defendants/appellants are contending that they have an arguable defence. The principles applicable to cases where the judgment is sought have been considered by the Superior Courts on a number of occasions in recent years. The principles that have emerged have been helpfully synthesised and summarised by McKechnie J. in Harrisrange Limited v. Duncan [2003] 4 IR 1. He did so in 12 numbered paragraphs as follows:-
“(i) the power to grant summary judgment should be exercised with discernible caution;
(ii) in deciding upon this issue the court should look at the entirety of the situation and consider the particular facts of each individual case, there being several ways in which this may best be done;
(iii) in so doing the court should assess not only the defendant’s response, but also in the context of that response, the cogency of the evidence adduced on behalf of the plaintiff, being mindful at all times of the unavoidable limitations which are inherent on any conflicting affidavit evidence;
(iv) where truly there are no issues or issues of simplicity only or issues easily determinable, then this procedure is suitable for use;
(v) where however, there are issues of fact which, in themselves, are material to success or failure, then their resolution is unsuitable for this procedure;
(vi) where there are issues of law, this summary process may be appropriate but only so if it is clear that fuller argument and greater thought is evidently not required for a better determination of such issues;
(vii) the test to be applied, as now formulated is whether the defendant has satisfied the court that he has a fair or reasonable probability of having a real or bona fide defence; or as it is sometimes put, ‘is what the defendant says credible?’, which latter phrase I would take as having as against the former an equivalence of both meaning and result;
(viii) this test is not the same as and should be not elevated into a threshold of a defendant having to prove that his defence will probably succeed or that success is not improbable, it being sufficient if there is an arguable defence;
(ix) leave to defend should be granted unless it is very clear that there is no defence;
(x) leave to defend should not be refused only because the court has reason to doubt the bona fides of the defendant or has reason to doubt whether he has a genuine cause of action;
(xi) leave should not be granted where the only relevant averment in the totality of the evidence, is a mere assertion of a given situation which is to form the basis of a defence and finally;
(xii) the overriding determinative factor, bearing in mind the constitutional basis of a person’s right of access to justice either to assert or respond to litigation, is the achievement of a just result whether that be liberty to enter judgment or leave to defend, as the case may be.”
11. So, I approach this case on the basis that Ms. Fox should be given leave to defend unless it is very clear that she has no defence, not even one which could be described as arguable.
How the High Court dealt with the issue
12. The High Court dealt with this aspect of the case in the following terms:
“Taking the points in order:
(a) The defendants are both experienced business people with a track record of multiple guarantees provided to the bank. It is entirely unreal to suggest that they did not know what they were doing. Even were this not so, between the letter of facility and the signing of the guarantee two weeks later, they had every opportunity to acquaint themselves with all they needed to know. During this time they also had every opportunity to obtain legal advice. It should be noted in passing that absent some clear evidence of the need to insist upon customers obtaining it, there is no obligation on a bank to insist on customers obtaining legal advice before entering into contracts with them. (See Ulster Bank Limited v. Roche and Buttimer [2012] IEHC 166)
(b) There is no evidence of any duress or undue influence, there is simply an assertion. That assertion flies in the face of the evidence. This is, as noted above, that both defendants were experienced business people. Moreover, it was in fact the second defendant who introduced the bank to the company Stone Finishes. Also the second defendant was in receipt of a monthly salary of €2,000 from the company. Far from there being any existing evidence to show duress or undue influence, in fact the evidence shows the opposite.”
13. The High Court judgment, the operative parts of which have been quoted, adverted to a number of the relevant facts in this case. However, it may helpful to refer to some of the matters that emerged from the affidavits in a little more detail. From the affidavit of Mr. Devlin it emerges that it was the second named defendant/appellant Ms. Fox who introduced Stone Finishes Supply Limited (the company) to the plaintiff bank in early 2002. At that time Ms. Fox ran a spa and beauty business known as Heavenly Spa Limited based in the Shelbourne Hotel in Dublin with Heavenly Spa Limited maintaining its bank accounts with Ulster Bank. Ms. Fox and her husband, the first named defendant/appellant, were directors of Heavenly Spa Limited. In December 2000, Ms. Fox and Mr. De Kretser, as directors of Heavenly Spa Limited, entered into a guarantee for the sum of €40,000.
14. Ms. Fox had stated on affidavit that she only held a 1% share in the company and that she was not involved in the day to day running of the company and did not benefit personally therefrom. Factually the position is that apart from being a shareholder, she was also a director of the company and received a monthly salary of €2,000. In relation to Ms. Fox’s contention that she was pressurised into signing the guarantee by her husband Mr. De Kretser, the bank points out that the facility letter to the company dated the 20th June, 2007, issued to both defendants as directors and it provided under the heading “Security” as follows:-
“Personal letter of guarantee signed by the directors – Walter De Kretser and Gillian Fox.”
15. Ms. Fox signed the facility letter on the 29th June, 2007, and it was only on the 5th July, 2007, some two weeks after the facility letter had issued was the guarantee signed.
16. On four previous occasions, the 30th July, 2002, 19th February, 2003, 3rd November, 2003 and the 6th November, 2006, Ms. Fox had signed guarantees in relation to the liabilities Stone Finishes Supply Limited. While the language of the 2007 guarantee at issue in the present proceedings and the earlier guarantees are not identical in all respects, it was to all intents and purposes the same.
17. The extent of an obligation on a bank or similar financial institution entering into financial transactions with married couples or couples living together has been considered by the courts in Ireland and in Britain on a number of occasions in recent years. The starting point for consideration of this issue is the case of Ulster Bank Ireland Limited v. Fitzgerald [2001] IEHC 259. In that case the second defendant, a Ms. Williams, had signed two guarantees in respect of the liabilities of a particular company in which her husband Mr. Fitzgerald had controlling or important stake. When the plaintiff bank sought to enforce the guarantees, it was argued on behalf of Ms. Williams that she had entered into them as a result of undue influence by Mr. Fitzgerald. She suggested that the marriage had been in difficulties and that she was convinced that a refusal to sign the guarantee would cause “further trouble between them and again threatened their marriage”. She also claimed that Mr. Fitzgerald had “insisted that he knew what he was doing and that she should trust him”. Her argument was that, as a result of this undue influence exercised by her husband, the bank should be precluded from enforcing the guarantee.
18. O’Donovan J. believed that while it “may well” have been the case that Ms. Williams had signed the guarantees as a result of undue influence from Mr. Fitzgerald, it was not necessary for him to reach a conclusion on this point because the bank would not have been affected by any undue influence which took place. He was satisfied that none of the representatives of the plaintiff bank had either actual or constructive notice of any undue influence which might have taken place. As O’Donovan J. put it, the bank did not have “even an inkling” of any reason why the guarantor might not have been a free agent. He considers that a bank was not put on inquiry simply because a wife guarantees a loan to her husband’s business.
19. A somewhat more intense and nuanced consideration of the issue occurred in the case of Ulster Bank Ireland Limited v. Roche and Buttimer [2012] IEHC 166. It must be said immediately that there are significant, even dramatic differences between the facts of the Ulster Bank v. Roche and Buttimer case and the present case. In Roche and Buttimer, Ms. Buttimer was the partner in the personal sense of that term, as Clarke J. put it, of Mr. Roche who was running a business involved in the motor trade. She took no role in the business and was employed as a hairdresser on a modest salary. She had been named as a director of the company involved, Louis Roche Motors Limited, though it appeared that her involvement was limited in the extreme. Judgment was obtained against Mr. Roche, but Ms. Buttimer was permitted to defend inter alia on the basis that in providing the guarantee she was subject to undue influence. As Clarke J. pointed out, there were both factual and legal aspects to the argument. The first factual question was as to whether Ms. Buttimer was actually under the undue influence of Mr. Roche.
20. Clarke J. having heard the evidence of Ms. Buttimer and the evidence of a clinical psychologist whose client she was, was satisfied that Ms. Buttimer was under the undue influence of Mr. Roche at the time in question. He was satisfied that she had no involvement in the business of Roche Motors of any material variety, and that she was in a dependent and quite abusive relationship. He said that he found the evidence of the psychologist in the case of particular assistance given the fact that the professional contact between Ms. Buttimer and her clinical psychologist was contemporaneous to the events with which the case was concerned and that it was not one of those cases where a mental health professional is attempting to reconstruct a situation sometime (often years) after the events which are crucial to the proceedings.
21. Turning to the legal issue in the case, Clarke J. acknowledged that if he was to follow the views of O’Donovan J. in Fitzgerald, Ms. Buttimer must fail because there was no evidence that Ulster Bank was in any way aware of any undue influence that Mr. Roche might have brought to bear on Ms. Buttimer.
22. However, counsel for Ms. Buttimer placed reliance on a decision of the House of Lords in Royal Bank of Scotland plc v. Etridge (No. 2) [2001] 2 AC 773. The decision in Fitzgerald, it might be noted, came a few weeks after Etridge and as Clarke J. observed for understandable reasons Etridge does not appear to have been referred to in argument and was certainly not referred to in that judgment. Clarke J. felt that what he was concerned with was a case of constructive knowledge. Constructive knowledge issues, he was of the view, could often usefully be broken down into two separate questions. The first is as to what factors place a party on inquiry. The second is as to the nature of the inquiry or actions that may then be required.
23. It is clear that Clarke J. had some difficulties with the test as it appeared to be formulated in Etridge pointing out that it would give rise to surprising results in the case of two business partners who were the principals and shareholders in the business, whose debts were to be guaranteed and were also same sex partners in the relationship sense of that term, (his judgment of course predated the marriage equality referendum). In such a situation there would be no particular reason why either one of the partners might not be said to be the one who might exercise undue influence and the other be the one who might be influenced. If that is so it would seem to follow that it was necessary to ensure that both had independent legal advice. Again, given the recognition that the principle applies equally between husband and wife as it does between wife and husband, it is difficult to see how there could be any logic in requiring a wife to have independent legal advice, but not a husband in circumstances where they are both shareholders in the business the debts of which were to be guaranteed. So, he said, that nothing in the judgment should be taken as necessarily implying that the law in Ireland goes as far as the position in the UK identified in Etridge in placing a bank on inquiry.
24. However, he felt it was not necessary to go that far. He identified as relevant the fact that Ms. Buttimer was not a shareholder in Roche Motors, even though she was a director and said that was a factor which suggests at least a significant possibility of a non commercial aspect to the case. Secondly, the bank had some knowledge of the fact that Mr. Roche and Ms. Buttimer were involved in a personal relationship. Furthermore all of the discussions between Roche Motors and the bank were conducted by Mr. Roche. That fact, of itself would not, in his view, be sufficient. Frequently it is the case that one of a number of partners in business ventures whether carried out as a partnership or through a corporate vehicle will have primary responsibility for dealing with financial matters including relations with the ventures bank. So that fact of itself should not necessarily place a bank on inquiry as to whether others involved in the venture who are asked to put up security by way of guarantee might not be the subject of undue influence.
25. However he felt that in the circumstances where the person who is required to offer security is not a shareholder and where there was no evidence to suggest that the bank was aware of any actual involvement of that person in the business then it seems to him that the personal relationship between the parties emerged as a much more significant factor. He was satisfied that in those circumstances the bank was on inquiry.
26. He then went on to address the question of what a bank on inquiry must do. He was satisfied that a bank placed on inquiry was obliged to take at least some measures to seek to ensure that the proposed surety is openly and freely agreeing to provide the requested security, though leaving over to another day the precise steps a financial institution had to take.
27. The issue of undue influence in the context of a marriage was considered by Kelly J. in the case of Irish Bank Resolution Corporation v. Quinn [2011] IEHC 470. It seems to me that his treatment of the issue merits quotation in full:-
“Undue Influence
38. The second line of defence is an attempt to say that everything which Ms. Quinn did occurred under the undue influence of her husband.
39. It was argued during the course of the hearing that there is at law a presumption of undue influence between husband and wife. There is not. That much is clear from case law going back to the middle of the eighteenth century. In Halbury’s Laws of England (4th Ed.) para. 40, vol. 18, one finds on this topic the following under the heading ‘No presumption between husband and wife’ – ‘it is noticeable that the relation of husband and wife is not one which gives rise to the presumption that undue influence was exercised’.
40. In support of that statement, there is a line of cases which begins with that of Rigby v. Cox in 1750 going right through the nineteenth century and up until the twentieth century. So it is a principle that has been well established in law. Its effect was eloquently articulated in this jurisdiction by Carroll J. in In Re. Hunting Lodges Limited [1985] ILRM 85. Now admittedly, Carroll J. was dealing with a different situation to what I am dealing with here. In her case, a wife sought to avoid personal liability for the debts of a miscreant company in circumstances where she acted as a director of that company. As part of her defence, she alleged that she was in fact a housewife and mother and that she really took no part in the running of the company and therefore should be able to avoid liability. This is what Carroll J. had to say:-
‘In relation to Mrs. Porrit, the case has been made on her behalf that she played no part in the running of the company. The day has long since passed since married women were classified with infants and persons of unsound mind as suffering from a disability so far as responsibility for their acts was concerned, or since a married woman could escape criminal responsibility on the grounds that she acted under the influence of her husband. Mrs. Porrit cannot evade liability by claiming that she was only concerned with minding her house and looking after her children. If that was the limit of the responsibilities she wanted, she should not have become a director of the company, or having become one she should have resigned.’
41. Whilst the circumstances are different, it seems to me that that is an accurate articulation of the legal position.
42. I am satisfied that there is no presumption of undue influence at law arising simply because of the relationship of husband and wife. That has been clear since at least 1750.
43. The lack of any presumption of undue influence is not, however, the end of the matter. The absence of the presumption does not mean that there could not be actual undue influence. But if there was such actual undue influence, there would have to be, at least, some evidence demonstrative of such impropriety. There is no evidence of any sort to support such a contention. There is no suggestion of Mrs. Quinn suffering from any intellectual disability, mental illness, feebleness of mind or cognitive impairment. Neither is there any evidence of any threats of bullying or such behaviour towards her by Mr. Quinn. There is not the slightest evidence to suggest any allegation of actual undue influence could be sustained. Accordingly, I am of the view that there is here neither a presumption of undue influence or evidence of any undue influence to make such an argument possible. Accordingly, this line of defence fails.”
28. In Royal Bank of Scotland v. Etridge, the House of Lords was concerned with eight appeals. Each appeal arose out of a transaction in which the wife charged her interest in her home in favour of a bank as security for her husband’s indebtedness or the indebtedness of a company to which he carried on business. The wife later asserted that she signed the charge under the undue influence of her husband. In seven of the appeals the bank had sought to enforce the charge signed by the wife claiming an order for possession of the matrimonial home. In each of those cases the wife raised a defence that the bank was on notice that her concurrence in the transaction had been procured by her husband’s undue influence. The eighth appeal concerned a claim by a wife for damages from a solicitor who advised her before she entered into a guarantee obligation of such a character.
29. So far as the specific cases that were before the House of Lords are concerned, they fell into three different categories. Three cases, those of Harris, Wallace and Moore did not go beyond the interlocutory stage, the wives’ pleadings having been struck out as disclosing no defence to the bank’s claim for possession. There were four cases, Etridge, Gill, Coleman and Bennett which proceeded to trial and in which at trial and/or on appeal the wife was unsuccessful. Then there was the final case, that of Kenyon-Brown in which the wife was suing her solicitor for damages for breach of duty. The appeals in the case of Harris, Wallace and Moore, the interlocutory cases, were successful as was the appeal in Bennett and the appeal by the solicitor in Kenyon-Brown. The appeals in Etridge, Gill, Coleman were unsuccessful.
30. Given the complexities involved in a case involving eight appeals falling into three categories and in respect of which some succeeded and some failed it is convenient to set out what was said in the head note.
“Where a wife sought to impugn a transaction into which she had entered on the ground of her husband’s undue influence their relationship did not fall within a special category of case where an irrebuttable presumption of trust and confidence arose. If she was able on the facts of the particular case to establish that she had placed trust and confidence in her husband in the management of her financial affairs and that the impugned transaction was not explicable in the ordinary way she could rely on a presumption which, as an evidential forensic tool, shifted the burden of proof to her opponent and could be rebutted on appropriate evidence by that party. Since the fortunes of husband and wife were ordinarily bound up together, a guarantee given by the wife with the charge on her interest in the matrimonial home to secure her husband’s debts was not plainly to her disadvantage so as to be explicable only on the basis that the transaction had been procured by his undue influence.
Whenever a wife offers to stand surety for the indebtedness of her husband or his business, or a company in which they both had some shareholding, the lender was put on inquiry and was obliged to take reasonable steps to satisfy itself that she had understood and freely entered into the transaction. The steps reasonably to be expected of a lender in relation to past transactions were to bring home to the wife the risk she was running by standing surety, either at a private meeting with her or by requiring her to take independent advice from a solicitor on whose confirmation the lender might rely that she had understood the nature and effect of the transaction. In respect of future transactions the lender should contact the wife directly, checking the name of the solicitor she wished to act for her and explaining that for its protection it would require his confirmation as to her understanding of the documentation to prevent her from subsequently disputing the transaction. The lender should not proceed until it had received an appropriate response from the wife and should in every case receive the written confirmation from the nominated solicitor. Subject to the husband’s consent to disclosure, without which the transaction could not in any event proceed, the lender should routinely furnish to the nominated solicitor financial information relating to the facility and the husband’s existing indebtedness to enable a proper explanation to be given to the wife. The nominated solicitor should require confirmation that the wife wished him to act for her, and he might, so long as no conflict of duty or interest arose and he was satisfied that it was in her best interest to do so, also act for the husband or the lender. His advise should be given at a face to face meeting in the absence of the husband, and its contents need not be directed to the commercial wisdom of the transaction but should include, as a core minimum, an explanation of the documentation, its practical consequences and inherent risks based on the financial information provided by the lender: he should also state that the choice whether to proceed was to be exercised by her and should check that she wished to continue and if so, he should obtain her consent to his giving the confirmation required by the lender. Since in so advising her the solicitor assumes professional responsibility to the wife he did not act as agent for the lender, who is entitled to assume that he had acted properly, and in consequence, knowledge of the contents of advice given to the wife, whether negligently or otherwise, was not to be imputed to the lender.”
31. The outcome of the individual appeals that were dealt with together in the House of Lords in Etridge shows that these cases are very fact specific. Clearly, there is room for much debate as to what circumstances would put a bank on inquiry and for even more debate as to what can be expected of a bank that has been put on inquiry. However, these issues arise only if there has been undue influence. In my view the facts of the present case are particularly clear cut. There is, as Kelly J. pointed out in IBRC v. Quinn, no basis for suggesting that there is here a presumption of undue influence. The fundamental question in this case is has an arguable case been made out that Ms. Fox executed the guarantee under the undue influence of her husband. In other words have the defendants and in particular the second named defendant produced any credible evidence on a prima facie basis, going beyond mere assertion which gives rise to the prospects that it might be established at trial that her husband so overbore her mind (i.e. exerted undue influence upon her), that it could be said that she did not freely and willingly undertake the obligations to the bank under the guarantee which she signed. In my view as I have already indicated the facts of the present case are particularly clear cut and there can be no doubt about the answer to the question. It was for Ms. Fox to adduce evidence that she in fact acted under undue influence. That, she has singularly failed to do. Far from there being evidence of undue influence all the evidence in the case is the other way. The evidence is clear that Ms. Fox is an experienced business woman with a long history of interaction with the plaintiff bank. The high watermark of the defence case is a mere assertion, in the nature of a formal pleading, that Ms. Fox acted under undue influence. A mere assertion does not provide a basis for resisting an application for summary judgment. In that regard the bald but unsubstantiated averment, and it has to be said somewhat self serving averment by Mr. deKretser that he exerted undue influence upon his wife, adds nothing to the weight of the evidence adduced by the defendants in resisting the application for judgment.
32. The present case calls to mind the observations of Lord Hobhouse of Woodborough in relation to the appeal of Mrs. Etridge. He commented:
“This was a case which after some delay and contested interlocutory proceedings went to trial before Judge Behrens. The wife gave evidence. The judge found that, on the evidence, she had not been the victim of any actual undue influence. However, he went on to deal with the case on the basis of presumed undue influence. On appeal, the Court of Appeal upheld the judge’s finding of no actual undue influence: nor did she at either level obtain a finding in her favour that she had been induced to sign by any misrepresentation. Accordingly, on the correct view of the law, her case failed in limine and none of the other points arise. Judgment was rightly entered for the bank. On this ground, I agree that this appeal should be dismissed. This case provides an object lesson in the dangers of attempting a summary resolution of issues of mixed law and fact without having ascertained the facts.”
For my part I find these remarks of Lord Hobhouse entirely apposite.
33. In this case the appellants have identified an interesting and developing legal issue, but in my view they have failed to engage with the facts and what the outcome of the individual appeals that were dealt with in the House of Lords in Etridge shows, is that these types of cases are very fact specific.
34. The appellants cannot escape from the fact that they had a long history of interaction with the bank and that the bank clearly knew that Ms. Fox was an experienced business woman in her own right, with a long history of commercial interaction with it.
35. Against the specific prior knowledge that the bank had in relation to its dealings over a number of years, is pitted a mere assertion by Ms. Fox on affidavit in these proceedings – an assertion never raised by her at any time prior to the proceedings – that in relation to the last of the guarantees she was under the undue influence of Mr. De Kretser such that she ought not to be found to have any liability whatever.
36. The task of the trial judge on the plaintiffs motion for judgment when it came before him was, as I have already stated by reference to the judgment of McKechnie J. in Harrisgrange to consider the affidavit evidence and to determine whether Ms. Fox had raised an arguable case that she had acted under the undue influence of Mr. De Kretser such that a plenary hearing was required in order to determine that issue. Put another way, the judge was entitled to grant the bank’s motion for summary judgment against Ms. Fox only, if he was satisfied that it was clear that she had no defence to the claim. It is of course the case that merely because a judge felt that the bank would in all likelihood succeed at a plenary hearing and that the defence would likely fail would not be a sufficient basis for denying a party the right to defend the case.
37. A judge should be slow to grant summary judgment, but that did not mean that he was obliged to ignore what had been put on affidavit by the bank as to its state of knowledge of Ms. Fox’s business background and her previous dealings with the bank and to which she had made no reference in her own affidavit. Insofar as Mr. De Kretser had filed an affidavit corroborating her averment that he had put her under undue influence to sign the guarantee, the trial judge was entitled to place very little, if any, weight on what on any view had to be seen as a self serving assertion.
38. I do not doubt that Ms. Fox and Mr. De Kretser would have preferred had the bank not sought the security they did. There must be few borrowers who would not prefer if their lenders would advance funds to them while seeking less security or perhaps on a non recourse basis altogether. However, that is very far from saying that the party agreeing to provide the security sought was not acting as a free agent and was subject to the undue influence of another.
39. If the situation were otherwise and one party was a dominant business person and the other partner entirely without business expertise the situation might indeed be different. However, that is far from the case here. The facts here could scarcely be more different than those that were considered by Clarke J. in Ulster Bank Limited v. Roche and Buttimer. Here the situation is that two people experienced in business were requested to provide security in a particular form when they sought funds from a bank. They made a decision to provide that security.
40. In my view the trial judge was correct when he determined that the defendants, and in particular the second named defendant had not raised an arguable defence to the claim on the basis of undue influence. Other grounds have been mentioned, including the defence of non est factum, but were not seriously pressed. In my view the trial judge was correct in determining, as he did without any difficulty, that these did not give rise to an arguable defence. I note what Hogan J. has to say and I agree with him that this is not a case where the defence of non est factum is made out. The main focus of the defendants’ arguments here was on the undue influence issue. Interesting as the legal issue that they sought to raise is, the facts are clearly against them. In those circumstances the judge was entitled to grant liberty to enter final judgment and so in those circumstances I would favour dismissing their appeal.
JUDGMENT of Mr. Justice Gerard Hogan delivered on the 7th day of December 2016
1. This is an appeal from a decision of Hedigan J. in the High Court delivered on 10th June 2015 (Ulster Bank Ltd. v. de Kretser [2015] IEHC 359) in which he held that the defendants, Mr. de Kretser and Ms. Fox (“the appellants”), had not established an arguable defence to a claim for €89,391 plus interest brought against them by the plaintiff bank. The appellants (who are husband and wife), now appeal to this Court against that decision of the High Court to grant summary judgment in this amount.
2. While I agree that the appeal of the husband must be dismissed, I regret that I cannot share the conclusion of my colleagues to the effect that the wife has established no arguable defence. In order to explain these conclusions it is first necessary to set out the relevant facts.
3. The proceedings themselves arise from a personal guarantee given the appellants on 5th July 2007 in respect of the obligations of a company known as Stones Finishes Supply Ltd. (“the company”). This was a company of which Mr. de Kretser was the 99% shareholder. Ms. Fox owed the remaining 1% shareholding, but she also drew a salary of some €2,000 per month. The guarantee in question was a condition for the granting of an overdraft facility to the company by a facility letter dated 29th June 2007. The company ultimately defaulted on its obligations, thus triggering a demand for payments from the guarantors. The fundamental question is whether that guarantee is a valid one.
4. In the course of the appeal to this Court, the appellants focussed almost entirely on the question of whether there was an arguable case that Ms. Fox was subject to undue influence in executing the guarantee and, specifically, whether the Bank ought to have insisted that she had access to independent legal advice.
5. It should be noted at the outset that Ms. Fox was a businesswoman in her own right and she ran her own company, Heavenly Spa Ltd. Indeed, the evidence is that it was she who in fact provided the business introduction to Ulster Bank in respect of her husband. As might be expected from a person with her business experience, Ms. Fox was not unfamiliar with the execution of personal guarantees. As it happens, she had in fact already executed personal guarantees in favour of her husband’s company on four earlier occasions in 2002, 2003 and 2006.
6. There is no doubt but that the 2007 guarantee was executed in circumstances which suggested that the company urgently needed the funds. While it is accepted that Ms. Fox had not seen the guarantee in advance of its execution and that she signed it at the Bank’s premises on the day it was executed, it is equally clear that Mr. de Kretser knew that such by Ulster Bank was required two weeks in advance of its execution, so that Ms. Fox must have had some inkling of what was required.
7. While the guarantee is not phrased exactly as the earlier guarantees and although there are at least some textual differences between the wording of the 2007 guarantee and the earlier guarantee, it cannot really be disputed that the 2007 guarantee was in substance similar to the earlier guarantees which both defendants had executed in the past.
8. It is true that the 2007 guarantee involved a guarantee and indemnity, whereas the earlier guarantees were simply guarantees. There are, of course, potentially significant differences between a guarantee and indemnity, principally because of the all encompassing nature of the latter: see generally, Breslin, Banking Law (Dublin, 2013) at 535-537. But in the context of the present case where there was no dispute regarding the validity of the original debt or the obligation to pay same, there is no difference of substance as between the obligations of the defendants qua guarantors on the one hand as compared with indemnitors on the other.
The judgment of the High Court
9. In his judgment Hedigan J. found that the guarantee was duly executed under seal, so that any question of past consideration simply did not arise. So far as the critical issues of undue influence were concerned, Hedigan J. stated:-
“(a) The defendants are both experienced business people with a track record of multiple guarantees provided to the bank. It is entirely unreal to suggest that they did not know what they were doing. Even were this not so, between the letter of facility and the signing of the guarantee two weeks later, they had every opportunity to acquaint themselves with all they needed to know. During this time they also had every opportunity to obtain legal advice. It should be noted in passing that absent some clear evidence of the need to insist upon customers obtaining, it there is no obligation on a bank to insist on customers obtaining legal advice before entering into contracts with them….
(b) There is no evidence of any duress or undue influence. There is simply an assertion. That assertion flies in the face of the evidence. This is, as noted above, that both defendants were experienced business people. Moreover, it was in fact the second defendant who introduced the bank to the company Stone Finishes. Also the second defendant was in receipt of a monthly salary of €2,000 from the company. Far from there existing any evidence to show duress or undue influence, in fact the evidence shows the opposite.”
Whether the Bank had affirmative duties vis-à-vis Ms. Fox
10. The essence of the appellants’ case is that the Bank were under an affirmative duty to ensure that Ms. Fox in particular understood the nature of the guarantee and that it had taken appropriate steps to ensure that she had access to independent legal advice given that she was being called upon to guarantee business debts of her husband and his company. I should observe at this point that the husband has not advanced any argument such as would suggest that he could avoid liability in respect of these liabilities.
11. The extent of the duties of a bank vis-à-vis a spouse in cases such as this has been the subject of extensive judicial consideration in recent times. In Ulster Bank Ltd. v. Roche [2012] IEHC 166, [2012] 1 I.R.765 Clarke J. was required to consider this matter both in the context of a non est factum plea, together with an argument based on un due influence. The facts of Roche were somewhat similar to the present case (although there are important differences which I will presently outline) in that one party gave a guarantee on behalf of the business of another party in circumstances where she had not had the opportunity for independent advice. The two parties were not, in fact, married, although they were living together as a couple. The case can therefore be treated for the purposes of the law on guarantees as if the parties were, in fact, married.
The non est factum defence
12. Clarke J. first rejected the non est factum defence for reasons that are not altogether surprising ([2012] 1 I.R. 765, 771-772):
“The fact remains that [the partner of the defendant] Ms. Buttimer signed a guarantee in circumstances where it was likely that that guarantee would be given to Ulster Bank as representing her guarantee. It will be necessary to turn to the circumstances in which she signed the guarantee when dealing with the second issue to which brief reference has already been made. However, in the ordinary way (and as I pointed out in ACC Bank PLC v. Kelly [2011] IEHC 7 and as Kelly J. adopted in Irish Bank Resolution Corporation Ltd v. Quinn [2011] IEHC 470), a person who signs a document which may well have significant legal effect and does so, either without reading the document or without applying themselves to the content of the document, “must accept the consequences of having signed a commercially binding agreement in those circumstances” and will, prima facie, be bound by what they have signed. The fact is that Ms. Buttimer signed a document without making any attempt to ascertain what it was or what its consequences might be. In the ordinary way, she has to bear responsibility for her own actions in so doing. As I pointed out in ACC v. Kelly, the situation might be different where the bank concerned itself misrepresents the content of the document or otherwise acts in a way which would allow the party to have the transaction set aside. However, there does not seem to me to be any evidence to suggest that the bank in this case acted improperly. Even if, therefore, the way in which the guarantee came to be signed is as Ms. Buttimer asserts, I am not satisfied that that would afford her any defence. She signed banking documents on behalf of a company which was owned by her partner and of which she was a director. Any bank receiving those documents is entitled to assume that she has committed herself to guarantee the loan referred to in the documentation. Subject, therefore, to the undue influence question, it seems to me that Ms. Buttimer bound herself to the guarantee when she signed it. I, therefore, turn to the undue influence question.”
13. It seems to me that this is sufficient in itself to dispose of the non est factum plea insofar as this argument was advanced by Ms. Fox. She executed documents, the general provenance, status and effect of which she was surely aware. Even if she was not, then, adopting the words of Clarke J. in Roche, any bank receiving those documents was entitled to assume that she had committed herself to guarantee the loan in question.
14. In these circumstances, I do not think that the non est factum defence is an arguable one.
Whether there was undue influence
15. I can now proceed to the examination of the general issue of undue influence and, specifically, whether the bank was under a duty to take affirmative steps to ensure that the other spouse (i.e., in this case, the wife) obtained independent advice. I agree, of course, the fact that the parties are husband and wife does not in itself create any presumption of undue influence. Article 41 of the Constitution presupposes marriage between equals and the suggestion of some presumption in favour of a wife would presuppose “a disparity in status and capacity between husband and wife which runs counter to the normal relations between a married couple in modern times”: The State (Director of Public Prosecutions) v. Walsh [1981] I.R. 412, 449, per Henchy J.
16. The real question, therefore, is first whether the other spouse was actually under the undue influence of the other. If not, then the subsidiary question is whether the bank was under some positive or affirmative duty to ensure that where one spouse was guaranteeing the liabilities of the other spouse, the nature of this guarantee was fully and independently explained.
17. In Roche Clarke J. found that Ms. Buttimer was indeed under the undue influence of her partner, Mr. Roche ([2012] 1 I.R. 765,773-774):
“Having heard the evidence of Ms. Buttimer and the evidence of her clinical psychologist, I am satisfied that Ms. Buttimer was under the undue influence of Mr. Roche at the time in question. I am satisfied that she had no involvement in the business of Roche Motors of any material variety and that she was in a dependent and quite abusive relationship. Of particular assistance, on the evidence in this case, is the fact that the professional contact between Mr. Buttimer and her clinical psychologist was contemporaneous to the events with which this case is concerned. This is not one of those cases where a mental health professional is attempting to reconstruct a situation some time (often years) after the events which are crucial to the proceedings. Rather, this is a case where Ms. Buttimer was in receipt of counselling at the time in question and where her clinical psychologist is in a position to give a professional judgment as to her mental state and the relationship between that mental state and the actions of Mr. Roche, at the very time when the events which are at the heart of this case occurred. I fully accept the evidence of Ms. Buttimer’s clinical psychologist and, on that basis, am satisfied that she was in the sort of dependent and abusive relationship with Mr. Roche at the relevant time where she would have done anything that he asked. That leg of the test is, therefore, in my view, met. Ms. Buttimer signed the guarantee in question while under the undue influence of Mr. Roche.”
18. Clarke J. then turned to consider the question of whether this fact afforded Ms. Buttimer a defence to the claim of the bank. The judge found as a matter of fact that there was no evidence that the bank were actually aware of such undue influence. But were there circumstances such as ought to have put them on further inquiry?
19. Clarke J. noted that in Ulster Bank Ireland Ltd. v. Fitzgerald [2001] IEHC 259, O’Donovan J. had considered that it was not necessary for him to reach a conclusion as to whether undue influence actually existed on the facts of the case because he was satisfied that the bank in question had neither actual nor constructive notice of any undue influence. As O’Donovan J. put it, the bank did not have “even an inkling” of any reason why the guarantor might not have been a free agent. O’Donovan J. considered that a bank is not put on inquiry simply because a wife guarantees a loan to her husband’s business and also accepted the proposition that the surety in the case in question had a stake in her husband’s business (even though she was not a shareholder or a director) because she and her family relied on the income generated by the company, whose debts were to be guaranteed, for their day-to-day living. On the basis of those views, O’Donovan J. came to the conclusion that there was no obligation on the bank in question to seek to ensure that the surety should obtain independent legal advice.
20. Clarke J. observed, however, that in the seminal decision of Royal Bank of Scotland plc v. Etridge (No. 2) [2002] 2 A.C. 733 the House of Lords had subsequently clarified the law in respect of third party undue influence so far as the United Kingdom is concerned. In this respect Clarke J. noted that the decision in Fitzgerald had been the subject of considerable criticism (see, e.g., Mee, “Undue Influence and Bank Guarantees” (2002) 37 Irish Jurist 292), the substance of which was that the approach taken in Fitzgerald offered insufficient protection to potential vulnerable sureties and leaves a lender with no obligations arising from knowledge that the parties are married or otherwise closely connected unless it has some special reason to believe that a wrong has actually taken place.
21. Clarke J. then acknowledged that the issue here was really one of constructive knowledge and the circumstances in which a bank may be placed on appropriate inquiry. On this point the judge stated ([2012] 1 I.R. 765, 777-778):-
“In that context it is appropriate to consider the views on that question expressed by the House of Lords in Etridge. It must be recalled that the House of Lords was considering, in that case, appeals in some eight different cases raising, at least in general terms, the same types of issues. The head note to the judgment suggests that the finding of the court was as follows:-“Whenever a wife offered to stand surety for the indebtedness of her husband or his business, or a company in which they both had some shareholding, the lender was put on inquiry and was obliged to take reasonable steps to satisfy itself that she had understood and freely entered into the transaction. The steps reasonably to be expected of a lender in relation to past transactions were to bring home to the wife the risk she was running by standing surety, either at a private meeting with her or by requiring her to take independent advice from a solicitor on whose confirmation the lender might rely that she had understood the nature and effect of the transaction. In respect of future transactions the lender should contact the wife directly, checking the name of the solicitor she wished to act for her and explaining that for its protection it would require his confirmation as to her understanding of the documentation to prevent her from subsequently disputing the transaction. The lender should not proceed until it had received an appropriate response from the wife and should in every case receive the written confirmation from the nominated solicitor. Subject to the husband’s consent to disclosure, without which the transaction could not in any event proceed, the lender should routinely furnish to the nominated solicitor financial information relating to the facility and the husband’s existing indebtedness to enable a proper explanation to be given to the wife. The nominated solicitor should require confirmation that the wife wished him to act for her, and he might, so long as no conflict of duty or interest arose and he was satisfied that it was in her best interests to do so, also act for the husband or the lender. His advice should be given at a face-to-face meeting in the absence of the husband, and its contents need not be directed to the commercial wisdom of the transaction but should include, as a core minimum, an explanation of the documentation, its practical consequences and inherent risks based on the financial information provided by the lender; he should also state that the choice whether to proceed was to be exercised by her and should check that she wished to continue and, if so, he should obtain her consent to his giving the confirmation required by the lender. Since in so advising her the solicitor assumed professional responsibilities to the wife he did not act as agent for the lender, who was entitled to assume that he had acted properly, and, in consequence, knowledge of the contents of advice given to the wife, whether negligently or otherwise, was not to be imputed to the lender”.
22. Clarke J. then noted that in Etridge Lord Nicholls had found that a bank was put on inquiry when faced with a transaction which called for explanation and thus is put on inquiry: where a wife stands surety for her husband’s debts; where a husband stands surety for his wife’s debts; and where unmarried couples, whether heterosexual or homosexual, stand surety for each other’s debts in circumstances where the lender is aware of the relationship. As Clarke J. put it, Lord Nicholls went so far “as to suggest that the only practical way of dealing with the matter was to regard the lender as on inquiry in every case where ’the relationship between the surety and the debtor is non-commercial.’” While Lord Nicholls distinguished between cases where the surety guaranteed the debts of a spouse or partner from a case where the monies were advanced to the spouses or partners jointly (the lender not being on inquiry in the latter case unless it was known to the bank that the loan was for the benefit of one person only), Lord Nicholls nonetheless took the view that a guarantee over the debts of a company in which the shares were held by both spouses or partners did place the lender on inquiry having regard to what was said to be the fact that, in many such cases, the shareholding did not reflect the true situation.
23. Clarke J. then commented ([2012] 1 I.R. 765, 778-779):
“It seems to me that this issue raises very difficult questions. It is not, in my view, necessary to fully explore the precise parameters of the circumstances in which a bank may be placed on inquiry for the purposes of determining the issues in this case….. Nothing in this judgment should be taken as, therefore, necessarily implying that the law in Ireland goes as far as the position in the United Kingdom as identified in Etridge in placing a bank on inquiry.”
24. As it happens, it was not necessary for Clarke J. to go that far, because the judge could point to circumstances where the Bank was, in fact, on notice of the potential undue influence. Clarke J. then concluded on this point ([2012] 1 I.R. 765, 780):
“It seems to me that the academic criticism of Fitzgerald is well founded. A regime which places no obligation on a bank to take any steps to ascertain whether, in the presence of circumstances suggesting a non-commercial aspect to a guarantee, the party offering the guarantee may not be fully and freely entering into same, gives insufficient protection to potentially vulnerable sureties. While not necessarily accepting that the precise parameters, identified in Etridge, are those which give rise to an obligation on the bank to inquire, and thus represent the law in this jurisdiction, I am satisfied that the general principle, which underlies Etridge, is to the effect that a bank is placed on inquiry where it is aware of facts which suggest, or ought to suggest, that there may be a non-commercial element to a guarantee. That general principle, at a minimum, goes far enough to cover the facts of this case where the bank was, for reasons set out, aware of the personal relationship between Ms. Buttimer and Mr. Roche and was also aware that Ms. Buttimer had no direct interest in the company (other than being a director) and was, indeed, in those circumstances, in a less secure position than a spouse or, in the modern context, a civil partner who has at least certain potential legal rights in the assets or income of the other spouse or partner. The potential for undue influence against a partner, such as Ms. Buttimer, who has very limited legal rights indeed and who has no interest in the company whose debts it is sought that she should guarantee, seems to me to be well on the side of whatever threshold might ultimately be fixed for determining the point at which a bank is placed on inquiry. In those circumstances I am satisfied that the bank was on inquiry on the facts of this case.”
25. Clarke J. then addressed the second question, namely, what a bank was required to do when placed on inquiry ([2012] 1 I.R. 765,781):
“I have already cited the position in the United Kingdom as per Etridge. Again, under this heading, nothing which I say should be taken as necessarily implying that the full rigours of the regime which applies in the United Kingdom represents the law in Ireland. However, I am satisfied that a bank which is placed on inquiry is obliged to take at least some measures to seek to ensure that the proposed surety is openly and freely agreeing to provide the requested security. As Ulster Bank, in this case, took no such steps it is, in my view, unnecessary to consider the precise level of steps which a bank must take.”
The implications of the decision in Roche for the present case
26. It remains to consider what the implications of Roche for the present case might be. One may say immediately that in contrast to that case there is actually no evidence – and certainly no clinical evidence – of the kind of undue influence which was established by expert evidence in Roche at play in the present case. There is no suggestion at all that the relationship between Mr. de Krester and Ms. Fox is anything other than a happy one. Certainly, the circumstances of this case are very different to those of Roche where Clarke J. expressly found that the relationship in that case was a dependent and quite abusive one.
27. It is also true that, as Hedigan J. expressly found, Ms. Fox was an experienced businesswomen with considerable experience of a banking relationship and, indeed, the giving of personal guarantees. It was she, after all, who introduced her husband as a potential customer to the plaintiff Bank. To that extent, her case and general circumstances are rather different to those of the partner in Roche who was called upon to act as surety. It is also the case that Ms. Fox had a small 1% shareholding in her husband’s company and that she drew a monthly salary of some €2,000 per month
28. The fact remains, however, that the Bank took no affirmative steps to protect Ms. Fox prior to the execution of the guarantee of her husband’s business debts (and those of his company) by her. Those are the critical considerations so far as the decision in Etridge (No.2) is concerned, since that case is, in some respects, rather less about undue influence as such and rather more about ensuring that banks insist on independent advice where one spouse is guaranteeing the commercial debts of the other spouse, almost regardless of the personal circumstances of the spouse called upon to act as surety.
29. In the course of an exceptionally thorough review of the authorities, Lord Nicholls stated ([2002] 2 AC 773, 803) that the effect of the earlier decision of the House of Lords in Barclays Bank v. O’Brien [1994] 1 AC 180 was that “quite simply that a bank is put on inquiry whenever a wife offers to stand surety for her husband’s debts.” In Mee’s graphic words, the decision in Etridge has accordingly “collapsed into a regime which requires the lender to insist on independent legal advice”: see (2002) 37 Irish Jurist 292, 305.
30. The test for summary judgment is, of course, that as stated by Hardiman J. 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?”
31. Judged by these standards, it seems to me that, in the light of cases such as Etridge (No.2) and Roche, Ms. Fox has raised an arguable case that the Bank were under an affirmative duty to insist that she obtain independent legal advice before she executed a guarantee of her husband’s business debts. In the light of this case-law, I cannot say that Ms. Fox has no case so far as her Etridge-style defence to the guarantee is concerned.
Conclusions
32. In summary, therefore, I am of the view that, save in one respect, the defendants have not raised any arguable defences to the Bank’s application for summary judgment. As I have indicated, Ms. Fox has, however, advanced an arguable case to the effect that the Bank was under an affirmative duty to see that she was independently advised before she executed the guarantee in question. Nothing in this judgment should be interpreted as expressing any further views on the merits of this defence, save that, in my view, Ms. Fox has in this respect met the threshold for resisting summary judgment.
Bank of Ireland -v- Curran & anor
[2016] IECA 399 (21 December 2016)
Composition of Court:
Ryan P., Irvine J., Hanna J.
Judgment by:
Irvine J.
Status:
Approved
Result:
Dismiss
THE COURT OF APPEAL
Neutral Citation Number: [2016] IECA 399
Appeal Nos. 2016/22
Ryan P.
Irvine J.
Hanna J.
JUDGMENT of Ms. Justice Irvine delivered on the 21st day of December 2016
1. This is an appeal by the second named defendant, Mrs. Maureen Curran, (“Mrs. Curran”) against the judgment and order of the High Court (McGovern J.) of 21st December, 2015, whereby he granted the plaintiff / respondent, the Governor and Company of the Bank of Ireland (“the bank”), summary judgment against Mrs. Curran for the sum of €1m. The issue on this appeal is whether the trial judge erred in law when he concluded that Mrs. Curran had not established a bona fide credible defence to the bank’s claim such that the proceedings ought to have been remitted to plenary hearing.
2. The bank, in its claim which was commenced by summary summons on 27th October, 2015, sought judgment against Mrs. Curran on foot of a guarantee dated 28th May, 2008, ( “the guarantee”) whereby she guaranteed the liabilities of a company, XL Fuels Group Ltd. (“the company”), to the extent of €1m. plus interest.
3. Following the issue of the bank’s motion for summary judgment on 2nd November, 2015, affidavits were exchanged between the parties. Three in number were sworn on behalf of the bank detailing Mrs. Curran’s dealings with the bank and the circumstances surrounding her execution of the guarantee. In response, Mrs. Curran swore two affidavits in which she advanced her intended defence. Mr. Michael Ryan, a solicitor who had acted on her behalf concerning other banking transactions concluded some weeks earlier, also swore an affidavit on her behalf.
4. In her affidavits Mrs. Curran set out to demonstrate that there were three grounds upon which she might arguably and credibly defend the proceedings; the first being that the guarantee was unenforceable as one executed under undue influence, the second that the guarantee was unenforceable as an unconscionable bargain and, thirdly, a defence based on the doctrine on non est factum.
5. In his detailed judgment delivered on 21st December, 2015, McGovern J. addressed the evidence upon which Mrs. Curran relied in support of her three potential grounds of defence before concluding that she had not established any arguable defence to the proceedings.
Relevant background facts
6. It is only possible to consider whether the trial judge erred in law in failing to refer the within proceedings to plenary hearing if the relevant background facts are known. For this reason I will try to summarise the more relevant aspects of the evidence that was before the High Court.
7. The company was incorporated in 2007. Mrs. Curran was a director of the company and was also its secretary. She received what was described as a “stipend” in respect of such services.
8. By facility letter addressed to the company secretary dated 28th May, 2008, the bank agreed to make additional facilities available to the company on the terms and conditions therein proposed. These included the requirement that further security would be provided in the form of a letter of guarantee (limit of €1m.) to be executed by Mrs. Curran. The acceptance of that facility was signed by Mrs. Curran and her son, Michael Curran, the first named defendant.
9. On the same date, at her home which was at her request, Mrs. Curran signed the aforementioned guarantee in the presence of two bank officials, Vivien Rountree and Lorraine Kavanagh. Mr. Michael Curran was not in attendance.
10. It is not disputed that Mrs. Curran signed the guarantee in three places. The first signature appears beneath a warning advising that if the borrower failed to pay the guarantor would become liable to discharge the outstanding loan together with interest and which also advised that prior to signing the guarantee independent legal advice should be obtained. The second signature acknowledges receipt of a copy of the guarantee and indemnity. The third signature appears beneath a statement written by Mrs. Curran which advises that she understood the nature of the liability she was undertaking and that she did not wish to obtain the independent advice of a solicitor. It is accepted that the text of this last statement, whilst written in the hand of Mrs. Curran, was one which would have been read out to her by one of the bank officials present.
11. It is not disputed that the following day Mrs. Curran received a letter from the bank enclosing a copy of the guarantee. The same letter explained the reason for which the guarantee had been required and also advised her that the bank would review the ongoing facility in three months time.
12. On 22nd September, 2008, the bank wrote to Mrs. Curran asking her to confirm that she was amenable to permitting the bank to rely upon the guarantee as continuing security for the facility then being afforded to the company, a request accepted by Mrs. Curran as acknowledged by her signature which she duly appended to the acceptance form enclosed with the bank’s letter.
General principles
13. The parties are not in dispute as to the threshold which a defendant must meet in order to avoid summary judgment. The question the Court must ask itself is that identified by Hardiman J. in Aer Rianta v. Ryanair [2001] 4 IR 607 at 623, namely:-
“…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?”
14. Further and more particular guidance as to the proper approach of the court on an application for summary judgment is to be found in the judgment of McKechnie J. in Harrisrange Limited v. Duncan [2003] 4 IR 1 where at para. 9 he identified twelve factors material to the court’s consideration on such an application. It is clear from this decision, and indeed many more besides, that a mere assertion as to a given situation which is to form the basis of a defence is insufficient. The defendant must do better than bald assertions as was advised by Ackner L.J. in Banque de Paris v. de Naray [1984] 1 Lloyd’s Law Reports 21, where he stated as follows::-
“…the mere assertion in an affidavit of a given situation which is to be the basis of a defence did not, ipso facto provide leave to defend; the court must look at the whole situation and ask itself whether the defendant has satisfied the court that there is a fair or reasonable probability of the defendants’ having a real or bona fide defence.”
15. That last statement of Ackner L.J. has been approved of in this jurisdiction in many decisions including that of Murphy J. in First National Commercial Bank plc v. Anglin [1996] 1 IR 75 and more recently the judgment of Ryan J. in Bank of Scotland plc v. Hickey [2014] IEHC 202, the latter being a decision to which I will later return.
16. It is also well established law that there are issues that may conveniently be dealt with otherwise than on a plenary hearing. However these are relatively limited as was stated by Clarke J. in McGrath v. O’Driscoll [2007] I ILRM 203 where, in the following brief passage from his judgment at p. 210, he said as follows:-
“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.”
Submissions
17. The parties delivered very extensive submissions in writing on this appeal. It is not in my view necessary to rehearse these as the same will be apparent from my appraisal of each ground of defence proposed by Mrs. Curran and which are dealt with individually below. Suffice to state that Mr. O’Reilly S.C. submits that the trial judge erred in law insofar as he could not have been satisfied, as was required of him to grant summary judgment, that Mrs. Curran had no arguable defence to the proceedings. He further maintained that there were issues of law which were complex and were not capable of being determined in the course of an interlocutory hearing.
18. I now intend to review each of the potential defences advanced on behalf of Mrs. Curran for the purposes of considering whether the trial judge erred in his conclusion that she had not made out a bona fide or credible defence entitling her to have the proceedings referred to a plenary hearing. .
Undue influence
19. It is necessary first to consider in brief the law in this jurisdiction in relation to the defence of undue influence. That of course very much depends upon the circumstances in which such a defence is advanced. If one contracting party induces or forces the other to enter into a particular contract or agreement, it is clear that such a contract will be set aside inter partes. That, however, was not the scenario with which the High Court was concerned in this case. Here, Mrs. Curran’s claim of undue influence, insofar as it can be ascertained from her affidavits, does not appear to be made against the contracting party i.e. the bank, but rather against a third party, her son, Michael Curran, who had an interest in procuring the execution of the guarantee. The same was required in order that the company would be provided with the banking facilities contained in the Facility Letter of 28th May, 2008.
20. The law in this particular area was relatively recently and thoroughly addressed by Clarke J. in Ulster Bank (Ireland) Ltd v. Roche and Buttimer [2012] 1 I.R. 765, a case in which he was asked to adopt as the law in this jurisdiction the law as clarified by the House of Lords in Royal Bank Of Scotland plc v. Etridge (No.2) [2002] 2 AC 773 and in which he was encouraged to reject the approach that had been adopted by O’Donovan J. in Ulster Bank Ireland Ltd v. Fitzgerald and Williams [2001] IEHC 159. I will refer in some detail to the decision in Ulster Bank (Ireland) Ltd v. Roche and Buttimer as I consider the same of significance to my conclusions.
21. The first defendant, Mr. Roche, was involved in the motor trade and was running his business through a corporate entity, Louis Roche Motors Ltd. Ms. Buttimer, who was his partner, in the personal sense of that term, was employed as a hairdresser. She was also a director in Mr. Roche’s business although it was accepted that she played no role in it. Ms. Buttimer signed a guarantee in respect of the liabilities of the business and when the bank moved to enforce it against her she sought to rely upon a defence of undue influence.
22. The first substantial issue which Clarke J. had to address was the factual question as to whether Ms. Buttimer was actually under the undue influence of Mr. Roche at the time she executed the guarantee. This was what he described as the first leg of the “test” for undue influence. Only if that issue was resolved in her favour, would it be necessary for the court to address the legal question as to whether there were sufficient circumstances to permit Ms. Buttimer contend that the guarantee should be set aside, given that the bank was not itself guilty of any undue influence.
23. Having heard the evidence of Ms. Buttimer and that of the clinical psychologist who had been treating her at the time she signed the guarantee, Clarke J. expressed himself satisfied that at the time she executed the guarantee she was indeed under the undue influence of Mr. Roche. He found as a matter of fact that she was in a dependent and abusive relationship and that she would have done anything that he asked of her.
24. Clarke J. then went on to consider the second leg of the test, namely whether Mr. Roche’s undue influence provided Ms. Buttimer with a defence. He did so in the context of the decisions in Etridge and Fitzgerald, the latter being a decision which had received some criticism as providing insufficient protection to potentially vulnerable sureties, insofar as he had absolved the lender of any responsibility to the guarantor unless it could be established that the lender had some special reason to believe that a wrong had actually taken place.
25. Given that there was no evidence from which it could be inferred that the bank was actually aware of the undue influence exercised by Mr. Roche over Ms. Buttimer, Clarke J. went on to consider the circumstances in which it would be appropriate to attribute to a bank knowledge of undue influence where it was not actually aware of the undue influence concerned.
26. The following is what Clarke J. stated, at para. 25 of his judgment concerning the issue of constructive notice:-
“Constructive knowledge can often usefully be broken down into two separate questions. The first is as to what factors place a party on inquiry. The second is as to the nature of the inquiry or action that may then be required. If, in circumstances where a party is put on inquiry, that party does not carry out the inquiries necessary or take whatever other form of action may be mandated, then the party will be fixed with knowledge of matters which it would have discovered had it made the appropriate inquiries or, at least, may be faced with the situation where the court views the case on the basis that appropriate steps were not taken.”
27. It is clear from what is stated in his judgment that Clarke J., whilst agreeing that the decision in Fitzgerald provided insufficient protection to potentially vulnerable sureties, was not prepared to go so far as to adopt as the law in this jurisdiction that which was laid down by the House of Lords in Etridge.
28. In his judgment Clarke J. refers to two particular statements made by Nicholls L.J.; the first being that the only practical way of dealing with the issue was to regard the lender as on inquiry in every case “where the relationship between the surety and the debtor was non-commercial” and the second being that a proposed guarantee over the debts of a company in which the shares were held by both spouses or partners placed the lender on enquiry, having regard to the fact that, in many such cases, the shareholding did not reflect the true situation. It is noteworthy that Clarke J. does not state whether he would endorse either proposition. However, he described, at para. 32, the general principle which underlies Etridge in the following manner:-
“…a bank is placed on inquiry where it is aware of facts which suggest, or ought to suggest, that there may be a non-commercial element to the guarantee. That general principle, at a minimum, goes far enough to cover the facts of this case where the bank was, for reasons set out, aware of the personal relationship between Ms. Buttimer and Mr. Roche and was also aware that Ms. Buttimer had no direct interest in the company (other than being a director) and was, indeed, in those circumstances, in a less secure position than a spouse or, in the modern context, a civil partner who has at least certain potential legal rights in the assets or income of the other spouse or partner. The potential for undue influence against a partner, such as Ms. Buttimer, who has very limited legal rights indeed and who has no interest in the company whose debts it is sought that she should guarantee, seems to me to be well on the side of whatever threshold might ultimately be fixed for determining the point at which a bank is placed on inquiry.”
29. As the bank had taken no steps to ensure that Ms. Buttimer had freely agreed to the guarantee it was unnecessary to consider the precise steps which the bank was obliged to take. He held that Ms. Buttimer was entitled to rely on the “undoubted undue influence” which Mr. Roche had exercised over her and that, having regard to the bank’s failure to conduct any inquiries, the claim had to fail.
30. More recently, Ryan J. in Bank of Scotland plc v. Hickey [2014] IEHC 202 considered the obligations of a bank when taking security to support borrowing in the context of summary summons proceedings. The decision is particularly material to the type of evidence required of a defendant should they wish to rely upon a defence such as undue influence. In that case the defendant and her partner had entered into a loan agreement with the bank the terms thereof required that the parties provide security in the form of a legal mortgage over a number of properties. When the borrowers fell into arrears the bank brought proceedings against Ms. Hickey who sought, in the context of a motion for summary judgment, to contend that she had an arguable defence based upon her assertion that she executed the relevant document “at the behest and direction of Mr. Porter” her partner with whom she was in a personal relationship. The bank had failed to take steps to ascertain the circumstances in which she had executed the documentation and that being so Ms. Hickey maintained that she had an arguable defence to the proceedings based upon undue influence.
31. What Ryan J. made clear in the course of his judgment was that it was hopelessly inadequate for Ms. Hickey, in order to avoid summary judgment, to make what was a relatively bald assertion that she was under the undue influence or domination of Mr. Porter when she executed the relevant documentation. This is what he said at para. 34 of his judgment:-
“Ms. Hickey says that she “executed the relevant documents at the behest and direction of Mr. Porter” which counsel, Mr. Downey, interprets as a claim of undue influence or domination of Ms. Hickey by Mr. Porter. This is the only evidence put forward to establish that this defendant was not in control of her own destiny in taking out these loans. It is hopelessly inadequate as evidence and goes nowhere near establishing the case. As the plaintiff submitted, the defendant has provided no proof or detail of any fact or circumstance to suggest that Mr. Porter exerted undue influence over her. Moreover, she was at all times represented by a solicitor. No information is provided, no example is given of how the alleged coercion was exercised and it is impossible to deduce from the bald and brief statement the overbearing of will that would be necessary to avoid liability. Taking the statement entirely at face value, it does not amount to coercion or undue influence.”
32. From the last two mentioned decisions, it is clear that in order to establish a defence of undue influence at a plenary hearing Mrs. Curran would first have to satisfy the court that but for the undue influence exerted upon her by her son she would not have executed the guarantee and second that the bank, i.e. the creditor, had actual or constructive notice that the guarantee was procured by the undue influence. That being so, in order to resist summary judgment, Mrs. Curran had to satisfy the low threshold standard by establishing on affidavit that she might credibly argue in the course of a plenary hearing that she had executed the guarantee as a result of the undue influence. It is only relevant to consider whether it is arguable that the bank was obliged to make inquiries to ascertain whether, having regard to her connection with the company, she fully understood and was freely entering into the guarantee, if she could first establish a credible or arguable case on the facts that she executed the guarantee in circumstances of undue influence. In turn, that required her to set out on affidavit the type of facts, details and circumstances upon which she would rely at the trial to establish that her will was overborne by her son, Michael Curran, when she executed the guarantee.
33. As has so often been advised in the relevant case law, a bald assertion as to the existence of circumstances which might afford a defence is insufficient for the purposes of resisting summary judgment. That is all that Mrs. Curran placed before the High Court for the purposes of defending the motion for summary judgment. I am quite satisfied that evidence does not meet even the relatively low threshold required of the defendant to have the case remitted to plenary hearing.
34. In her affidavit of 23rd November, 2015, having referred in some detail to entering into mortgage agreements with the bank in early 2008 to secure joint borrowings of €1.7m with her son Joseph Curran, she states as follows concerning the guarantee:
Paragraph 13:
“I say that given my age and lack of involvement in the businesses, I cannot explain how the said documentation actually came to be executed by me…”
Paragraph 18:
“…aside from the advices obtained from Mr. Ryan, my solicitor, I relied wholly on the explanations and advices provided to me by Michael Curran and Vivien Rowntree of Bank of Ireland and did what was asked of me by them. I say that at no time was it explained to your Deponent that I was doing anything which I had been advised by Mr. Ryan, not to do. I say that both Michael Curran and Ms. Rowntree knew that I had been advised by Mr. Ryan.”
Paragraph 30:
“I say that Michael Curran would call to my house and request my signature for various documentation at various intervals. I say that I relied upon him to explain the nature and purpose of the request. I say that at no time was I aware that there was a personal guarantee in effect. I say that I always understood that the nature of the security provided was solely in respect of the mortgage properties.”
35. What is glaringly absent from her affidavits is evidence to demonstrate that any undue influence was brought to bear upon her by her son, Michael Curran, or indeed by the bank itself. In regard to the bank also, Mrs Curran’s affidavits cannot support any potential defence of undue influence based on the conduct of the bank as the contracting party.
36. In these circumstances I am satisfied that the High Court judge cannot be faulted for concluding that Mrs. Curran had failed to demonstrate a bona fide or credible defence based upon acts of undue influence. There was no evidence that the bank should have been on inquiry to satisfy itself that she understood the nature of the guarantee proposed and that she was executing it otherwise than under her son’s influence.
37. It is unnecessary in light of the above conclusions to consider a number of other matters raised by way of potential defence to these proceedings. These include (i) Mrs. Curran’s evidence that she was advised by the bank officials at the time she signed the guarantee that she did not require legal advice (ii) whether she played an active role within the company or (iii) whether legal advice carried over from when she executed mortgages in respect of her joint borrowings with her son, Joseph Curran, earlier in the year. These are issues which are only material to the second leg of a court’s analysis of an undue influence claim. They do not fall to be considered in the absence of factual evidence to support the undue influence alleged. Having said that, I do not think there is any reason to disagree with the conclusions of McGovern J in his judgment.
Unconscionable bargain
38. As with her proposed defence based upon a claim of undue influence, the trial judge concluded that Mrs. Curran had adduced no credible evidence to support a defence of unconscionable bargain. In coming to this conclusion he relied upon the fact that she had extensive connections with the company with the result that the guarantee could not arguably be considered an unconscionable bargain.
39. In his decision in the High Court in Carroll v. Carroll [1998] 2 ILRM 218, [1998] IEHC 42, a decision later upheld by the Supreme Court, Shanley J. set out the elements which must be established before equity would intervene on the grounds of unconscionable bargain. First, one party must be at a serious disadvantage to the other by reason of poverty, ignorance or otherwise, so that circumstances exist of which unfair advantage can be taken. Second, the transaction must be at an undervalue and third there must be a lack of independent legal advise.
40. Assuming that Mrs. Curran can credibly argue that the advice she received from Mr. Ryan concerning the execution of guarantees at the time she executed two legal mortgages six weeks prior to the transaction under scrutiny in this case was insufficient, the question is whether she put before the trial judge bona fide and credible evidence which could arguably satisfy the other two elements of the test. In my view she did not do so. Mrs. Curran did not put forward on affidavit any evidence to demonstrate that she was at any serious disadvantage to the bank by reason of poverty, ignorance or otherwise. Her age or ignorance had not precluded her from carrying out her obligations as company secretary which included signing its annual accounts. Further, some six weeks prior to the execution of the guarantee she borrowed jointly with her son, Joseph Curran, €1.7m. and executed two deeds of mortgage to support those borrowings. There is nothing in her affidavits upon which she might reasonably rely to bring herself close to the type of personal situation established by the plaintiff in Grealish v. Murphy [1946] 1 I.R. 35 or Carroll v. Carroll. The facts of those cases are well known and it is unnecessary to refer to them in any detail. Suffice to mention that Mr. Grealish was an elderly farmer who lived on his own, had a range of mental difficulties, was relatively illiterate and was known to be irresponsible with money. Further, unlike the transactions in Grealish and Carroll, the guarantee in this case can’t be stated to have been given for nothing or for some insignificant advantage. It is clear that the bank agreed to provide additional banking facilities to the company which would not otherwise have been made available had the guarantee not been provided by way of security. The “bargain” could never be considered extortionate.
41. In the aforementioned circumstances I am quite satisfied that the trial judge was correct as a matter of law when he concluded that the facts advanced by Mrs. Curran on affidavit were insufficient to demonstrate a credible defence based upon the doctrine of unconscionable bargain.
Non est factum
42. The law in relation to non est factum has been discussed in a number of recent decisions including those of Kelly J. in Allied Irish Banks plc v. Higgins and Others [2010] IEHC 219 and IBRC v. Quinn [2011] IEHC 470 and Clarke J. in Ulster Bank Ireland Ltd v. Roche and Buttimer to which I have already referred.
43. In the first of the aforementioned decisions, Kelly J. at p. 41 approved of the following proposition as advised in Saunders v. Anglia Building Society [1971] AC 1004:-
“The plea cannot be available to anyone who was content to sign without taking the trouble to try to find out at least the general effect of the document. Many people do frequently sign documents put before them for signature by their solicitor or other trusted advisors without making any inquiry as to their purpose or effect. But the essence of the plea non est factum is that the person signing believed that the document he signed had one character or one effect whereas in fact its character or effect was quite different. He could not have had such a belief unless he had taken steps or been given information which gave him some grounds for his belief…”
44. In the present case if Mrs. Curran had taken the trouble to read the document presented to her for her signature on 28th May, 2008, as was advised by the trial judge in the course of his judgment, she would not have had any difficulty in understanding that she was signing was a guarantee for €1m. and that in doing so she was providing security to the bank that was separate and distinct from any earlier security she had provided in respect of other borrowings.
45. I am quite satisfied that the conclusion of the trial judge that Mrs. Curran, on the facts advanced, had not demonstrated an arguable defence based on non est factum is borne out by the decision of Clarke J. in Ulster Bank Ireland Ltd v. Roche and Buttimer when referring back to his own decision in ACC Bank plc v. Kelly [2011] IEHC 7 as adopted by Kelly J. in Irish Bank Resolution Corporation Limited v. Quinn [2011] IEHC 470, at p. 771 he stated:-
“….A person who signs a document which may well have significant legal effect and does so, either without reading the document or without applying themselves to the content of the document, “must accept the consequences of having signed a commercially binding agreement in those circumstances” and will, prima facie, be bound by what they have signed.”
Conclusion
46. Having considered the relevant legal principles, the judgment of McGovern J. and the evidence that was before him at the time he granted summary judgment in favour of the bank, I am satisfied that he was correct when he concluded that Mrs. Curran had not established an arguable or credible defence to the bank’s claim. For the reasons earlier set out I would dismiss the appeal.
ACC Loan Management Ltd -v- Connolly & Anor
[2017] IECA 119 (04 April 2017)
Composition of Court:
Finlay Geoghegan J., Hogan J., Hanna J.
Judgment by:
Finlay Geoghegan J.
Status:
Approved
Result:
Dismiss
Judgments by
Link to Judgment
Concurring
Finlay Geoghegan J.
Link
Hogan J., Hanna J.
Hogan J.
Link
Finlay Geoghegan J., Hanna J.
JUDGMENT delivered by Ms. Justice Finlay Geoghegan on the 4th day of April
2017
1. This appeal primarily concerns the question as to whether a guarantor who does not contend that he entered into a guarantee under the undue influence or by reason of some other wrong of the principal debtor, such as misrepresentation, nevertheless has an arguable defence against a claim made by the creditor pursuant to the guarantee upon the grounds that the creditor, being on notice of a family relationship between the guarantor and the principal debtor, was obliged to take steps to ensure that the guarantor understood the nature of the guarantee and/or freely consented to the giving of the guarantee.
2. The respondent raises a preliminary objection to the appeal upon the grounds that it was out of time and the appellant has brought a motion seeking, if necessary, an order extending the time within which to bring the appeal.
3. There is also a subsidiary question in relation to the execution of the guarantee purporting to have been “signed, sealed and delivered” but without evidence that a seal was affixed.
Background facts
4. The appellant is the father of the first named defendant (“the son”). By a facility letter dated the 28th October, 2005, the plaintiff (“the bank”) offered credit facilities in the sum of €680,000 to the son. The purpose of the loan was to fund the purchase of a 1.7 hectare site with outline planning permission for five properties at Fethard-on-Sea, Co. Wexford. The loan was accepted by the son.
5. By a second facility letter dated the 30th November, 2007, the bank offered further facilities in the sum of €613,000 to the son for the purpose of building the first of the five houses and associated costs. That loan was also accepted by the son.
6. The security to be given for each loan pursuant to the facility letters included a guarantee and indemnity from the appellant supported by a first legal mortgage in charge on the 35 hectares of agricultural lands in Co. Wexford.
7. The bank contends that the appellant granted to it a first guarantee and indemnity dated the 4th November, 2005 and a second guarantee and indemnity dated the 23rd November, 2008.
8. There was default in repayment of the loans, and letters of demand were sent to the son and the appellant. The bank issued a summons on the 24th May, 2013, seeking judgment against the son as principal debtor and the appellant as guarantor pursuant to the first and second guarantee.
9. The bank in due course issued a motion seeking liberty to enter final judgment against both defendants. Affidavits were exchanged to which I will refer further below, and following the hearing of the application for summary judgment in the High Court (Fullam J.), that court, for the reasons set out in a written judgment delivered on the 12th February, 2015, granted judgment against the appellant in favour of the plaintiff pursuant to the first guarantee dated the 4th November, 2005 and remitted to plenary hearing the issue of the appellant’s liability under the second guarantee. Judgment was also given against the son for the full amount claimed, from which there is no appeal.
10. Pursuant to that judgment an order was drawn by the High Court dated the 12th February, 2015, and perfected on the 4th June, 2015. It provided, insofar as the appellant is concerned, that “the plaintiff do recover against the defendants jointly and severally in the sum of €1,185,255.55 in respect of the first loan and guarantee” and remitted the claim against the appellant in respect of the second guarantee to plenary hearing.
11. No step was taken by the appellant within the ten day period permitted for an expedited appeal following the perfection of the said order.
12. It appears that the bank subsequently ascertained that the figure of €1,185,255.55 was incorrect and it made an ex parte application to the High Court under O. 28, r. 11 and the order was amended by a further order made on the 16th November, 2015, which in accordance with its terms insofar as relevant, ordered that the order of the 12th February, be amended by “the deletion of the figure €1,185,255.55 where same appears in the said order and replacing same with the figure €1,061,357.98”. That order was perfected on the 14th January, 2016. The appellant issued a notice of expedited appeal on the 22nd January, 2016, i.e. within ten days of the perfection of the second High Court order. The respondent, in its notice, took as a preliminary point the fact that the appeal was out of time. The appellant issued a motion seeking an extension of time grounded on an affidavit of the appellant sworn on the 28th June, and it was agreed that the motion be heard with the substantive appeal.
13. In his affidavit, the appellant has sworn that it was always his intention to appeal the order of the 12th February, 2015, insofar as it related to the summary judgment granted against him, but that as the order was not perfected until the 4th June, 2015, neither he nor his solicitor became aware of the order having been perfected until after the period of time for filing the notice of appeal. He seeks to contend that as his appeal is against both orders, the second of which was perfected on the 14th January, 2016, that his appeal was in time. In the alternative he seeks an extension of time.
14. I do not consider that the appeal against the order granting summary judgment was lodged in time. The substantive order is the order of the 12th February, 2015. The amendment properly sought and obtained on behalf of the bank was to the benefit of the appellant as it reduced the amount for which judgment was ordered against him. The second order provides for an amendment to the substantive order.
15. I recognise that where there is significant delay in the perfection of an order, it may give rise to its perfection being overlooked by a client or his solicitor.
16. In accordance with the well known principles in Eire Continental Trading Company Limited v. Clonmel Foods Limited [1955] I.R. 170, by reason of the averment of the appellant that he always intended to appeal the decision granting the summary judgment against him, it appears that the primary matter for consideration by the court is whether or not the appellant has arguable grounds of appeal. In circumstances where the full appeal has been argued before the court and raises an important point, it appears preferable in the interests of justice that the court enlarges the time for bringing the appeal up to the 22nd January, 2016 and determines the appeal.
17. The bank, by an amended respondent‘s notice, has sought to advance additional grounds upon which the judgment of the High Court should be upheld. It has not, however, cross appealed against the remittal of the claim on the second guarantee to plenary hearing.
Evidence relating to the first guarantee
18. Mr. Scanlon, the deponent for the bank in the High Court, exhibited a copy of what he described as “guarantee and indemnity dated 4 November 2005”. The copy exhibited is not dated on the first page where a date ought to have been inserted. The guarantee on p. 11 opposite the printed words “signed, sealed and delivered” appears to have been signed by the appellant.
19. The final page, however, of the copy document exhibited contains the following printed words:-
“I, Maurice Connolly, hereby confirm that I have been afforded an opportunity of obtaining independent legal advice as to giving my guarantee for a Loan Facility of €686,000 which has been sanctioned by ACC Bank plc to John Connolly, under the terms set out in the Letter of Sanction by ACC Bank plc dated the 28th October, 2005 and that I have declined to avail of this opportunity or have been afforded with such independent legal advise (sic).”
Below it is dated the 4th November, 2005, signed “Maurice Connolly” and then witnessed by Carol Sinnott of Cathal O’Neill and Co., Solicitors, 10 Church Avenue, Rathmines, Dublin 6.
20. The appellant did not make any affidavit in response to the plaintiff’s application for summary judgment in the High Court notwithstanding being given the opportunity to do so and being legally represented. His son, the first named defendant, swore one affidavit in which he draws attention to the fact that the first guarantee is not dated; that it was signed by the appellant and also refers to the fact that the appellant “has signed an endorsement dated the 4th November, 2005, stating that he has been afforded independent legal advice in relation to the Guarantee”. The son deposed that the advice was given by Cathal O’Neill and Co. Solicitors, who were the solicitors representing him in the transaction and that his father did not receive independent legal advice in respect of the guarantee and indemnity. The affidavit of John Connolly makes no reference to his having exerted any pressure or undue influence on his father to give the guarantees. The appellant swore no affidavit and did not adduce any evidence to ground any arguable defence that he entered into the guarantee by reason of pressure, undue influence or any other wrongful act by his son or adduced any evidence in relation to the circumstances in which he executed the first guarantee or received the legal advice referred to.
High Court submissions and judgment
21. The trial judge helpfully records the submissions relevant to the issues on appeal made on behalf of the appellant at para. 9 of his judgment to the effect that:-
“(a) The second defendant had no independent legal advice and that there was nothing before the court as to the circumstances of the signing of the documents, and
(b) The transaction was an improvident one for the second defendant who was a vulnerable person in his late sixties who had had a heart operation.”
22. He records the submission made on behalf of the bank relevant to this issue at para. 11.1:-
“Not having legal advice is not a defence in Irish Law. If there was evidence of undue influence exerted by the first defendant on the second defendant, and in this case there is no such evidence, it might afford a defence (Ulster Bank v. Roche and Buttimer [2012] IEHC 166 Clarke J). In this regard, the second defendant, having been given time by the court to swear a replying affidavit has failed to do so.”
23. The trial judge then identified the applicable principles on an application for summary judgment in accordance with the judgments in Air Rianta. v. Ryanair [2001] 4 IR 607 and Harrisgrange Limited v. Duncan [2003] 4 IR 1. He then considered the judgments of Clarke J. in the High Court in Ulster Bank v. Roche and Buttimer [2012] 1 I.R. 765, O’Donovan J. in the High Court in Ulster Bank (Ireland Limited) v. Fitzgerald and Williams [2001] IEHC 159, the House of Lords in Royal Bank of Scotland v. Etridge (No. 2) [2002] 2 AC 773 and Birmingham J. in the High Court in ACC Bank plc v. McEllin [2013] IEHC 454. Having done so he then set out his own analysis and conclusion on the issue at paras. 22 and 23:-
“22. While there is no specific allegation of undue influence, either by the first defendant on affidavit or the second defendant through his counsel’s submissions, the relationship between the first and second defendant does place the plaintiff on inquiry and, therefore under an obligation to take some reasonable steps to ensure that the guarantees have been freely entered into by the second defendant. In this regard the plaintiffs obtained a declaration from the second defendant that he had been afforded independent legal advice in respect of the first guarantee. The second defendant’s declaration dated 4th November, 2005 was witnessed by Mr. O’Neill, the solicitor, who is an officer of the court. If the second defendant wished to contradict the import of that declaration, he has had ample opportunity to do so by swearing a replying affidavit. He has chosen not to make such affidavit.
23. In the circumstances I am satisfied that the obtaining of the declaration was a sufficiently reasonable step on the part of the plaintiffs and the declaration has not been dislodged by the assertions of the first named plaintiff on affidavit or the submission of counsel for the second defendant.”
Appeal
24. On the principal issue, counsel on behalf of the appellant submitted that the trial judge was correct and followed the judgments in Ulster Bank v. Roche and Buttimer and the House of Lords in Etridge in determining that even in the absence of any claim of undue influence, those judgments provide that where a bank is on notice of a familial relationship, between the borrower and the guarantor, such as between the father and son herein, that the bank is under an obligation to take some steps to ensure that the guarantees are being freely entered into by the guarantor. Alternatively it is put that the bank is under an obligation to ensure that the guarantor is given independent legal advice prior to executing the guarantee. Counsel submitted that on the facts herein, by reason of the fact that the same solicitor was acting both for the son and the appellant, that the appellant had an arguable defence that the bank was in breach of its obligation to him and that such constitutes an arguable defence against the bank enforcing the guarantee against him.
25. The bank submitted, as it had done in the High Court, that the appellant had not adduced any evidence or otherwise sought to ground a defence that he had entered into the guarantee under the undue influence of his son. They submitted that the trial judge erred in law in determining that the relationship between the appellant and his son as principal debtor placed the bank on inquiry and under an obligation to take some reasonable steps to ensure that the guarantees were freely entered into by the appellant. Counsel for the bank submitted that this does not follow from the judgments in Ulster Bank v. Roche and Buttimer nor the decision of the House of Lords in Etridge.
26. Counsel for the appellant at the oral hearing sought to make two slightly different submissions. When asked what was the proposed arguable defence which he contended gave the appellant a right to have the bank’s claim on the first guarantee remitted to plenary, hearing he initially submitted that it was a defence of undue influence. By that I understood him to mean that the appellant contended that he entered into the guarantee under the undue influence of his son. However, on further questioning by members of the court he also submitted that the appellant was seeking to pursue a second defence, independent of any defence of undue influence, that by reason of the fact that the bank knew of the father/son relationship it was placed on inquiry and under an obligation to take steps to ensure that the appellant was given independent legal advice prior to entering into the guarantee. He submitted that it was an arguable defence to the enforcement of the guarantee against the appellant that the bank had failed on the facts to comply with that obligation. He made that second submission in reliance upon what he understood had been determined by Clarke J. in Ulster Bank v. Roche and Buttimer and the House of Lords in Etridge.
Discussion and Decision
27. I cannot accept the submission made on behalf of the appellant that on the evidence before the High Court at the hearing of the application for summary judgment an arguable defence, as that term is used in the Supreme Court decision in Aer Rianta v. Ryanair [2001] 4 IR 607, has been made out.
28. My conclusion is by reason first of the absence of any evidence by or on behalf of the appellant that he executed the first guarantee by reason of the undue influence or any other wrongful act of his son, the principal debtor. There was no evidence before the High Court upon which it could be concluded that an arguable defence of undue influence or other wrong by the son was made out. Further, I am not satisfied that, in the absence of the father making out an arguable defence that he gave the guarantee under the undue influence of his son (or because of any other alleged wrong such as misrepresentation), there is any arguable defence available in Irish law to him that the bank was under an obligation by reason of the known fact that he, the proposed guarantor, was the father of the principal debtor to take steps to ensure that he received independent legal advice or otherwise ensure that the guarantee was freely entered into such that the failure of the bank to take such steps is an arguable defence to the enforcement of the guarantee against him.
29. My reason for this latter conclusion is that I consider that the decision of the House of Lords in Etridge and the judgment of Clarke J. in Ulster Bank v. Roche and Buttimer are only concerned with the entitlement of a bank to enforce a guarantee where the guarantor has established, or in the case of an application for summary judgment has raised arguable grounds for contending, that the guarantee was entered into by reason of the undue influence or other wrongful act, in particular any misrepresentation, of the principal debtor. Those judgments are not in my view authority for an independent or distinct defence for a guarantor, albeit related to the principal debtor, seeking to vitiate a guarantee executed in favour of a bank by reason of a breach of an alleged duty owed by the bank to him to ensure that he has obtained independent legal advice or has taken some further steps to ensure that he fully understood the nature of the guarantee being given. Further, counsel has not referred to any other judgment as authority for such a proposition other than what I consider to be an obiter comment by Birmingham J. in the High Court in ACC Bank plc v. McEllin [2013] IEHC 454.
30. In Ulster Bank v. Roche and Buttimer, Ms. Buttimer was in a relationship with Mr. Roche and guaranteed his debt to Ulster Bank. Clarke J. at para. 16 of the judgment identified the issues arising in relation to the defence of undue influence raised by Ms. Buttimer in the following terms:-
“As pointed out earlier, there are both factual and legal aspects to the argument under this heading. The first factual question is as to whether Ms. Buttimer was actually under the undue influence of Mr. Roche. The legal question (which involves, at least in one view, some further questions of fact) is as to whether there are sufficient circumstances that allow Ms. Buttimer to have the guarantee set aside on the basis of the undue influence of Mr. Roche where Ulster Bank was not, itself, guilty of any undue influence. I propose dealing with the first of those issues straight away.”
31. On the first issue identified, Clarke J. concluded that Ms. Buttimer signed the guarantee in question while under the undue influence of Mr. Roche. He then concluded at para. 18 that the case came down to a question as to whether “that fact affords Ms. Buttimer a defence to Ulster Bank’s claim in this case”.
32. Clarke J. then identified the relevant question on that issue as being:-
“The extent to which a bank may find itself unable to rely on a banking contract (including in this context a guarantee for a bank debt) where it can be shown that the relevant contract was entered into as a result of the exercise of undue influence by a third party not directly connected with the bank.”
33. Next, Clarke J. considered the judgment of O’Donovan J. in the High Court in Ulster Bank Ireland Limited v. Fitzgerald [2001] IEHC 159, where O’Donovan J. having been satisfied on the facts that the bank in question had neither actual or constructive notice of any undue influence, concluded that there was no obligation on the bank in question to seek to ensure that the surety should obtain independent legal advice. On the facts of Ulster Bank v. Roche and Buttimer it was accepted that the bank was not in any way aware of undue influence and that Ms. Buttimer’s defence would have to fail if Clarke J. had followed Ulster Bank v. Fitzgerald.
34. However, Clarke J. then went on to consider the reliance placed by counsel for Ms. Buttimer on the Etridge judgment of the House of Lords where as stated by Clarke J. “the House of Lords clarified the law in respect of third party undue influence so far as the United Kingdom is concerned”. Clarke J. at paras. 24 and 25 of his judgment identified the issue that he was then concerned with was one of constructive knowledge, and stated at para. 25:-
“Constructive knowledge can often usefully be broken down into two separate questions. The first is as to what factors place a party on inquiry. The second is as to the nature of the inquiry or action that may then be required. If, in circumstances where a party is put on inquiry, that party does not carry out the inquiries necessary or take whatever other form of action may be mandated, then the party will be fixed with knowledge of matters which it would have discovered had it made the appropriate inquiries or, at least, may be faced with the situation where the court views the case on the basis that appropriate steps were not taken.”
35. Having considered portions of the opinion of Lord Nicholls in Etridge, Clarke J. the concluded at para. 32:-
“. . . While not necessarily accepting that the precise parameters, identified in Royal Bank of Scotland plc v. Etridge (No. 2) [2001] UKHL 44, [2002] 2 AC 773, are those which give rise to an obligation on the bank to inquire, and thus represent the law in this jurisdiction, I am satisfied that the general principle, which underlies Royal Bank of Scotland plc v. Etridge (No. 2) [2001] UKHL 44, is to the effect that a bank is placed on inquiry where it is aware of facts which suggest, or ought to suggest, that there may be a non-commercial element to a guarantee. That general principle, at a minimum, goes far enough to cover the facts of this case where the bank was, for reasons set out, aware of the personal relationship between Ms. Buttimer and Mr. Roche and was also aware that Ms. Buttimer had no direct interest in the company (other than being a director) and was, indeed, in those circumstances, in a less secure position than a spouse or, in the modern context, a civil partner who has at least certain potential legal rights in the assets or income of the other spouse or partner. The potential for undue influence against a partner, such as Ms. Buttimer, who has very limited legal rights indeed and who has no interest in the company whose debts it is sought that she should guarantee, seems to me to be well on the side of whatever threshold might ultimately be fixed for determining the point at which a bank is placed on inquiry.
33. In those circumstances I am satisfied that the bank was on inquiry on the facts of this case.
34. That leads to the second question which is as to what a bank must do when placed on inquiry. I have already cited the position in the United Kingdom as per Royal Bank of Scotland plc v. Etridge (No. 2) [2001] UKHL 44, [2002] 2 AC 773. Again, under this heading, nothing which I say should be taken as necessarily implying that the full rigours of the regime which applies in the United Kingdom represents the law in Ireland. However, I am satisfied that a bank which is placed on inquiry is obliged to take at least some measures to seek to ensure that the proposed surety is openly and freely agreeing to provide the requested security. As Ulster Bank, in this case, took no such steps it is, in my view, unnecessary to consider the precise level of steps which a bank must take.
35. In those circumstances it seems to me that Ms. Buttimer is entitled to rely on the undoubted undue influence which Mr. Roche exercised over her by virtue of the failure of Ulster Bank to take any steps to seek to ensure that she was acting freely in circumstances where, for the reasons which I have sought to analyse, Ulster Bank was, in my view, placed on inquiry.
36. For those reasons it seems to me that Ulster Bank’s claim must fail.
37. I leave it to another case to deal with any different set of circumstances either as to when a bank is put on inquiry or the steps which a bank must take when put on inquiry.”
36. As appears from para. 35 of the judgment of Clarke J. above, his ultimate conclusion was that Ms. Buttimer was entitled to rely on the undue influence which Mr. Roche exercised over her as a defence to the bank’s claim, in circumstances where the bank was placed on inquiry and failed to take any steps to seek to ensure that she was acting freely in the circumstances.
37. The judgment to Clarke J. in Ulster Bank v. Roche and Buttimer cannot in my view be considered as authority for a defence, independent of any allegation of undue influence or other wrong by the principal debtor, on the basis of a breach by a bank of a free standing obligation to take any measures to seek to ensure that a proposed surety is openly and freely agreeing to provide the requested guarantee or security. The entire analysis in Ulster Bank v. Roche and Buttimer is in the context of the prior finding of undue influence by Mr. Roche, and as identified by Clarke J. at para. 19 of his judgment set out above, the difficult question being whether a bank can rely on a contract where it can be shown by the defendant that the contract of guarantee or security was entered into as a result of the exercise of undue influence by a third party not directly connected with the bank. That was the issue being considered and decided in Ulster Bank v. Roche and Buttimer.
38. Similarly, in my view, in Etridge, the House of Lords speeches are given in a context where the appeals in question all concerned claims where the wife had raised a defence of undue influence by the husband in relation to the bank’s claim to enforce a security given by the wife. The leading opinion of Lord Nicholls commences with an explanation of the appeals in eight cases in the following terms:-
“Each case arises out of a transaction in which a wife charged her interest in her home in favour of a bank as security for her husband’s indebtedness or the indebtedness of a company through which he carried on business. The wife later asserted she signed the charge under the undue influence of her husband [emphasis added]. In Barclays Bank Plc v O’Brien [1994] 1 AC 180 your Lordships enunciated the principles applicable in this type of case. Since then, many cases have come before the courts, testing the implications of the O’Brien decision in a variety of different factual situations. Seven of the present appeals are of this character. In each case the bank sought to enforce the charge signed by the wife. The bank claimed an order for possession of the matrimonial home. The wife raised a defence that the bank was on notice that her concurrence in the transaction had been procured by her husband’s undue influence [emphasis added]. The eighth appeal concerns a claim by a wife for damages from a solicitor who advised her before she entered into a guarantee obligation of this character.”
39. Whilst the opinions of Lord Nicholls and Lord Scott, as put by Lord Bingham, “show some difference of expression and approach”, each makes clear that what was under consideration were the circumstances in which, where a wife asserts that she gave security to the bank for her husband’s debt by reason of his undue influence, the bank is considered to have constructive notice of the undue influence, or as alternatively stated, is put on inquiry. Further, in those circumstances, what steps a bank must take if it is to avoid being fixed with constructive notice of the undue influence or other wrongdoing such as misrepresentation by the husband such that it may not enforce the security against the wife or the wife may assert as a valid defence against the bank the fact that she gave the security under the undue influence of the third party husband. The speeches of the Law Lords are not in my view authority for a defence for a wife, independent of undue influence, simply by reason of her position as a wife and the bank’s knowledge of that fact based upon a free standing obligation on a bank to take steps to ensure that she obtained independent legal advice or otherwise that her consent to entering into the guarantee or security was freely given. It is clear there is no general presumption of undue influence between spouses.
40. The opinions in Etridge are primarily concerned with a consideration of the earlier decision of the House of Lords in O’Brien’s case. In that case there was a single opinion given by Lord Browne-Wilkinson which sets out well the legal position. He identified the question on that appeal as being “whether a bank is entitled to enforce against a wife an obligation to secure a debt owed by her husband to the bank where the wife has been induced to stand as surety for her husband’s debt by the undue influence or misrepresentation of the husband”. In that opinion Lord Browne-Wilkinson summarised his views as follows:-
“Where one co-habitee has entered into an obligation to stand as surety for the debts of the other co-habitee and the creditor is aware that they are co-habitees:-
(1) the surety obligation will be valid and enforceable by the creditor unless the suretyship was procured by the undue influence, misrepresentation or other legal wrong of the principal debtor;
(2) if there has been undue influence, misrepresentation or other legal wrong by the principal debtor, unless the creditor has taken reasonable steps to satisfy himself that the surety entered into the obligation freely and in knowledge of the true facts, the creditor will be unable to enforce the surety obligation because he will be fixed with constructive notice of the surety’s right to set aside the transaction;
(3) unless there are special exceptional circumstances, a creditor will have taken such reasonable steps to avoid being fixed with constructive notice if the creditor warns the surety (at a meeting not attended by the principal debtor) of the amount of her potential liability and of the risks involved and advises the surety to take independent legal advice.”
41. The reason for which there is a reference to co-habitees is that whilst Lord Browne-Wilkinson had considered the position of husband and wife he also took the view that the same principles apply to co-habitees and indeed that other relationships including those between a son and elderly parents could give rise to a similar result.
42. In Etridge, Lord Nicholls had some difficulty with the use of the term “constructive notice” and also the phrase that the bank is “put on inquiry”. As stated at para. 44 of his opinion in relation to the latter phrase he stated “Strictly this is a misnomer. As already noted a bank is not required to make inquiries. But it will be convenient to use the terminology which has now become accepted in this context”. At para. 50 of his opinion, he identifies that the principal area of controversy in the Etridge appeal concerns “the steps a bank should take when it has been put on inquiry”. All the subsequent views expressed by him are in the factual context of the defence raised by the wife that the security or charge was given by reason of the undue influence of the husband.
43. The approach of both Lord Nicholls and Lord Scott to the individual appeal of Mrs. Etridge appears to me to put beyond doubt that they were only considering the position of a bank where the wife successfully raises a defence of undue influence against her husband. At para. 90 of his opinion, Lord Nicholls agrees that the appeal of Mrs. Etridge should be dismissed. Lord Scott, who considered in some detail the facts relating to the appeal by Mrs. Etridge, concluded at para. 221 of his opinion, in relation to the defence of undue influence, “In my view, the judge’s conclusion that there had been no undue influence was well justified on the evidence. That conclusion should have been an end of the case”. However, he then continued to consider a submission made by counsel on her behalf before the House of Lords that there had been misrepresentation to Mrs. Etridge by her husband. On that issue at para. 223 he concluded “The misrepresentation contention is, in my opinion, for both these reasons a hopeless one”. He then stated at para. 224:-
“There was, therefore, nothing, no undue influence and no misrepresentation, to which constructive notice could attach.”
44. Notwithstanding that conclusion he did go on to consider, at paras. 225 to 227 inclusive, the question of constructive notice and advice given to Mrs. Etridge by solicitors. However that appears to me to have been obiter given his earlier conclusion.
45. I am aware that my colleague Hogan J. in the judgment he is about to deliver takes a different view of what was decided in Etridge. With the greatest of respect I cannot agree, for the reasons set out that Etridge is authority for an arguable defence by a guarantor who is a spouse or, as in this instance father, of the principal debtor independently of any allegation of undue influence or other wrongdoing by the principal debtor.
46. Accordingly I have concluded that in this case the trial judge was in error in considering that in the absence of any evidence which could form the basis of arguable grounds for contending that the appellant entered into the guarantee under the undue influence of the principal debtor, his son, it is arguable that the bank failed in any duty to ensure the appellant received independent legal advice or take other reasonable steps to ensure that the guarantees have been freely entered into by the appellant. No submission was made correctly that in a father/son relationship there is a presumption of undue influence of by the son over the father.
47. If, however, an arguable defence of undue influence had been made out it may well be arguable, upon the authority of Etridge, that the approach in Ulster Bank v. Roche and Buttimer should also apply to a relationship between a son and an elderly father with no commercial interest in the transaction, which might include the situation of the appellant. However, in the absence of any evidential basis for an arguable defence that the appellant entered into the guarantee under the undue influence of his son, there is on the facts herein no arguable defence available to the appellant against the enforcement of the guarantee by the bank by reason of any alleged obligation on the bank to ensure or procure that he obtained independent legal advice. In those circumstances the question as to whether the advice given by a solicitor in the firm of solicitors acting also for the principal debtor and acknowledged by the appellant in the document signed was or was not sufficient does not arise.
48. It is important to distinguish the position in this appeal from that in ACC Loan Management Ltd -v- Sheehan [2016] IECA 343 where the bank had made a condition of drawdown of the loan receipt of a “letter from Guarantor Solicitor confirming Guarantor received independent legal advice prior to execution of Guarantee & Indemnity document” and only a letter from the borrower’s solicitor was received. The defendant had sworn that he had not received independent advice nor been advised (by the borrower’s solicitor) of the effect of the guarantee in question. On those facts, this court upheld a decision to remit to plenary hearing as it considered the High Court was entitled to conclude that it was arguable that the bank was not entitled to unilaterally waive a condition it had imposed but which arguably was for the benefit of both parties. No such condition was included herein and no submission was made (correctly) in reliance on either the certificate or note on the guarantee advising to take independent advice.
49. The appellant’s unfortunate position is that as a person of full age he has signed a guarantee in favour of the bank. Whilst he was referred to in submission as a “vulnerable” person there was no evidence of any particular vulnerability. He has not put any evidence before the court upon which it could be argued that he did not freely enter into the commitments under the guarantee he signed and permitted to be delivered to the bank in connection with the loans being given to his son. In the absence of evidence which would support an arguable duty imposed on the bank and arguable breach thereof there is no arguable defence.
50. I have also considered the line of authority referred to in the judgment about to be delivered by Hogan J in relation to the equitable jurisdiction to set aside unconscionable bargains or improvident transactions. However, again, in the absence of any evidence from the appellant there is no factual basis for consideration of any arguable defence in reliance on what would, in effect, be a counterclaim to set aside the guarantee upon which the appellant is sued.
51. I am aware that since the hearing of this appeal two judgments have been delivered by this Court in which the majority take a similar view to the conclusion I have reached above: Bank of Ireland -v- Curran & Anor. [2016] IECA 399 and Ulster Bank (Ireland) Ltd -v- De Kretser & Anor. [2016] IECA 371. As I have independently reached a similar view I did not consider it necessary to reconvene the parties.
No seal on guarantee
52. The copy guarantee exhibited by the bank indicates that it is “Signed, Sealed and Delivered”. It is only signed by the appellant, and it does not appear to have had a seal affixed. The trial judge rejected any arguable defence by reason of the absence of the seal upon the basis that the obligation to have a guarantee by an individual executed under seal was abolished by s. 64 of the Land and Conveyancing Law Reform Act, 2009. Counsel for the appellant submits that this provision only came into operation on 1st December, 2009 and is not retrospective. The guarantees were signed in November, 2005 and January, 2008, respectively.
53. The bank does not dispute that the trial judge incorrectly decided this issue by reference to s. 64 of the 2009 Act. However, it submits that even prior to that Act there was no requirement that a guarantee be executed under seal to be valid. It refers to Anglo Irish Bank p.l.c. v. McKenna & Ors. [2014] IEHC 122 in which Birmingham J. found that the guarantee in question was not executed under seal, but held that there was no such requirement where the bank had provided consideration for the guarantee by way of loan and overdraft facilities to the principal debtor. It submits that there was on the facts herein consideration for the guarantee in the form of the loan facility advanced to the first named defendant.
54. Reliance was also placed upon the judgment of this Court in McDonnell v. Ring & Ors. [2016] IECA 16 where Mahon J. giving the judgment of the Court stated at para. 30:
“Even if there had been an absence of consideration, the guarantee was “Signed Sealed and Delivered” by the appellant. Where a contract is executed “under seal” it is not necessary to establish the existence of consideration. In this case, although the guarantee is said to be “under seal” there is no evidence that the document was in fact sealed. However, the absence of a seal is not necessarily fatal to the respondent’s claim. In Halsbury’s Laws of England (Vol. 32/2012) the following is stated:-
‘Where a person executes a deed by stating that it has been “Signed, Sealed and Delivered” but without in fact sealing it, and another person relies on the deed to his detriment, the person executing the deed is estopped from denying that it was sealed.’”
55. Whilst the trial judge rejected any arguable defence by reason of the absence of a seal for an incorrect reason, the decision reached was correct for the reasons advanced in the above submissions on behalf of the bank.
56. Accordingly the appeal must, in accordance with law on the evidence adduced, be dismissed.
JUDGMENT of Mr. Justice Gerard Hogan delivered on the 4th day of April 2017
I
1. Where a parent guarantees a substantial business loan for one of his or her children, is the lending bank obliged to take appropriate steps to ensure that the surety has received independent legal advice prior to the execution of the guarantee? That is essentially the question presented by this application for summary judgment on the part of the creditor bank, ACC Loan Management Ltd., who now sues on foot of the guarantee given by a father in respect of his son’s business debts following default on the part of the debtor.
2. I have had the opportunity of reading in draft the judgment of Ms. Justice Finlay Geoghegan and I gratefully adopt her summary of the facts. In her judgment Finlay Geoghegan J. has also helpfully set out the basis on which Fullam J. arrived at his conclusions in the High Court on 12th February 2015. In the light of that summary it is sufficient to say that Fullam J. found no arguable defence in respect of the first guarantee (which had been executed in 2005) because the surety, Mr. Maurice Connolly, had executed a document which had been prepared by the solicitors who were acting for his son, Mr. John Connolly, to the effect that he had waived his opportunity for independent legal advice. Mr. John Connolly was the borrower. So far as the second guarantee (which had been executed in 2009) was concerned, Fullam J. ruled that an arguable defence had been raised in the absence of any similar declaration regarding independent legal advice: see ACC Bank plc v. Connolly [2015] IEHC 188.
3. At the outset I should first observe that the second defendant, Mr. Maurice Connolly, has not sworn any affidavit in support of this defence. This omission has done his case few favours and has greatly complicated the task of both the High Court and this Court.
4. As a further preliminary, I should say that I entirely agree with the conclusions of Finlay Geoghegan J. that the Court should extend the time for the bringing of an appeal against the decision of the High Court. I also agree with her conclusions regarding the execution of the deed under seal. I accordingly propose first to proceed to a consideration of the question of whether a surety should be given an opportunity for independent legal advice both by reference to the authorities (Part II) and to the issue of principle (Part III). I will then consider in Part IV the impact of two very recent decisions of this Court, de Kretser v. Ulster Bank [2016] IECA 371 and Curran v. Bank of Ireland [2016] IECA 399 so far as the issues of stare decisis are concerned.
II
The decisions of the House of Lords in O’Brien and Etridge
5. The decisions of the House of Lords in Barclays Bank v. O’Brien [1994] 1 AC 180 and Royal Bank of Scotland v. Etridge (No.2) [2002] 2 A.C. 733 and that of Clarke J. in Ulster Bank Ltd. v. Roche [2012] IEHC 166, [2012] 1 I.R. 765 concerning the duties of banks vis-à-vis potentially vulnerable sureties who guarantee the business debts of their spouses or partners have all been discussed at length in the recent decisions of this Court in de Kretser and Curran and, indeed, in the judgment of Finlay Geoghegan J. in this case which she has just delivered.
6. I have already expressed in summary form my views on this topic in de Kretser and it is probably unnecessary to repeat them here. It is sufficient perhaps to observe that those comments were, of course, made in the context of the threshold for summary judgment and whether the wife (who was the surety for her husband’s business loans) had raised an arguable defence. It is true, of course, that the decisions in O’Brien and Etridge are all predicated upon a claim of undue influence on the part of surety vis-à-vis her husband. It is also the case that no such claim is made in express terms in this case.
7. It is, however, necessary, I think, to understand the context in which such a claim was made. The claims of undue influence advanced in the standard modern authorities – the special facts of Roche represent something of an exception to this trend – are not, however, directly comparable to what one might term the classic Allcard v. Skinner-style instances of undue influence where the contention is that the plaintiff has been the victim of deceitful or knavish trickery or otherwise overbearing conduct. In Allcard v. Skinner (1887) 36 Ch.D. 145 the English Court of Appeal found that the plaintiff – who had donated most of her assets to a convent – had been unduly influenced by reason of what Lindley L.J. described as “insidious forms of spiritual tyranny.”
8. With the exception of Roche (where Clarke J. found that the partner in question who had guaranteed the debt was in an abusive relationship), none of the recent cases involving a family member acting as surety for the business debts of a spouse, partner or off-spring have presented Allcard v. Skinner-type issues of undue influence. Rather, the classic example – illustrated by the facts of O’Brien and many of the individual eight cases heard by the House of Lords in the Etridge litigation – is that of the stay-at-home wife who is asked to provide a guarantee in respect of the family home as security for the husband’s business loan. When the surety is called upon to honour the guarantee, the response is to plead undue influence in the sense of reliance upon the husband of whose business dealings she had but imperfect knowledge.
9. It is in these circumstances that the bank is put on inquiry to ensure that appropriate steps are taken to ensure that the spouse in question is fully aware of the extent of her obligations qua surety. As the headnote to the report of Etridge puts the matter:
“Where a wife sought to impugn a transaction into which she had entered on the ground of her husband’s undue influence their relationship did not fall within a special category of case where an irrebuttable presumption of trust and confidence arose. If she was able on the facts of the particular case to establish that she had placed trust and confidence in her husband in the management of her financial affairs and that the impugned transaction was not explicable in the ordinary way, she could rely on a presumption which, as an evidential forensic tool, shifted the burden of proof to her opponent and could be rebutted on appropriate evidence by that party. Since the fortunes of husband and wife were ordinarily bound up together, a guarantee given by the wife with a charge on her interest in the matrimonial home to secure her husband’s debts was not plainly to her disadvantage so as to be explicable only on the basis that the transaction had been procured by his undue influence.
Whenever a wife offered to stand surety for the indebtedness of her husband or his business, or a company in which they both had some shareholding, the lender was put on inquiry and was obliged to take reasonable steps to satisfy itself that she had understood and freely entered into the transaction…” (emphasis supplied)
10. I consider that the words which I have taken the liberty of highlighting illustrate the potential application of Etridge to the circumstances of the present case. In this case, there is every reason to suppose that – and, this is, in any event, implicit in the affidavit sworn by John Connolly – Mr. Maurice Connolly reposed his trust in his son in the management of the latter’s business affairs. Nor is there anything to suggest that the father stood to gain personally by the giving of a guarantee for such large sums. Here is a case plain and simple where the father offered to stand surety for the indebtedness of his son for large sums of money and, on at least one view of Etridge, I find it difficult to see why the bank was not put on inquiry to ensure that the father had understood and freely entered into the transaction and to take appropriate steps accordingly. As Fullam J. pointed out in his judgment in the High Court, as it happens, in similar circumstances Birmingham J. suggested (while still a judge of the High Court) that parents who guaranteed an off-spring’s commercial debts might be in a position to raise an Etridge-style defence: see ACC Bank plc v. McEllin [2015] IEHC 454, para. 30. While these comments were admittedly obiter – since Birmingham J. had found on the facts of that case that the parents and the offspring had jointly come together to borrow the money for their commercial purposes – the decision in McEllin is nonetheless indicative of an interpretation of Etridge upon which Mr. Maurice Connolly can rely, at least for the purposes of demonstrating the existence of an arguable case.
11. I agree, of course, that, as I have already observed at the outset of this judgment, the fact that Mr. Maurice Connolly has not sworn any affidavit which formally sets out this defence of undue influence is a hugely complicating factor, despite the fact that he was given every opportunity to do so in the High Court. One may nevertheless reasonably infer from the available facts that the circumstances of this case are not altogether distant from that of an Etridge-style case, save that the guarantees here were given by the parent in support of the son’s business. Putting this another way, if the father had sworn an affidavit which formally deposed to the fact that he relied on his son and that the loans were for the son’s business and that based on this he claimed undue influence in the Etridge sense of that term, the case for permitting him to defend on these grounds would, I think, have been irresistible. And since we know from the other available evidence that these either are or might well be the facts, the prospect of injustice raised by granting summary judgment by reason simply of the absence of an affidavit from the father is, I fear, just too great. This is why, but for the considerations of stare decisis addressed in Part IV of this judgment, I would have held that the Etridge defence was, in principle, at least available to Mr. Maurice Connolly. This is not to say that had the matter gone to plenary hearing that Mr. Maurice Connolly would necessarily have succeeded. It is, however, to say that on that view of his defence he had, at least, raised an arguable defence so that the Bank was not entitled to summary judgment against him.
III
Application of equitable principles independently of O’Brien and Etridge
12. Quite independently of the authority of O’Brien, Etridge and Roche, I consider that, in any event, there is at least an arguable duty cast upon a bank by equitable principles to take steps to ensure that a potentially vulnerable surety is appropriately advised in a case of this kind. Of course, the context is everything and, for my own part, I would fight shy of prescribing ex ante rules unless the force of experience demonstrated that such was necessary. Nevertheless, that which might suffice in the case of a guarantee to cover an ordinary consumer loan (such as for a car or a domestic appliance) should not necessarily be regarded as sufficient where – as in the present case – the sums guaranteed by the two guarantees were, by any standards, very large. The loans in question amounted to sums which, if the surety were called upon to honour the full amount, could have life changing implications for him in terms of the security of his dwelling, his livelihood and any prospects he might otherwise have had in terms of living out his advancing years in any comfort or degree of financial security.
13. This is certainly true in the present case where the Bank now claims judgment as against the surety in the sums of over €2.37m. in respect of both loans and where it was awarded summary judgment against the surety in respect of the first guarantee in the sum of €1.185m. (As I have already noted, in the High Court Fullam J. adjourned the claim in respect of the second guarantee in the absence of any evidence that the surety had been independently advised). One might further observe that a requirement that a bank should ensure that such a surety is appropriately advised in such circumstances does not impose significant burdens or create unnecessary barriers to supply of credit.
14. It may be objected that a requirement of this kind involves the imposition of new rules or requirements for which there is no legislative sanction. One may readily concede that no modern court could justifiably invent or conjure up a new equitable principle by reference to the subjective notions of fairness and equity on the part of individual judges. If the law is considered to be unsatisfactory or inadequate, far-reaching change of this kind is reserved to the Oireachtas by Article 15.2.1 of the Constitution. Accordingly, as Lord Greene M.R. put it in Re Diplock [1948] Ch. 465, 481-482, if a claim “in equity exists, it must be shown to have an ancestry, founded in history and the practice and precedents of courts administering equity jurisdiction.”
15. To my mind, however, such a requirement as I have suggested represents simply the application in a modern context of standard principles of equity for which there is much historical precedent. From Allcard v. Skinner (1887) 36 Ch.D. 145 to Grealish v. Murphy [1946] I.R. 35 to Lloyds Bank v. Bundy [1974] EWCA Civ 8, [1975] QB 326, , equity has shown itself prepared to come to the aid of the vulnerable who were not independently legally advised where the transaction is fundamentally improvident. This is true even where “the deed…was in law a transaction for value”: see Grealish v. Murphy [1946] I.R. 35, 49 per Gavan Duffy J.. If there is no modern willingness to re-fashion and adapt these principles to modern conditions in the case of vulnerable sureties, it may simply be that we the judges who are required to tend to the gardens of equity by ensuring that their verdure remains fresh, vibrant and relevant to the modern world have allowed an ancient path of escape from the gravel paths of the common law to become disused and overgrown.
16. Yet if equity will not bring that moral element to the common law and ensure that in a modern setting the vulnerable are adequately protected, the principles of equity will in time come to be seen as just another set of rules, as desiccated, inflexible and arid as they were in the days of Lord Eldon in the early 19th century. That is why I believe that this Court should be astute to hold the plaintiff as the privileged holder of a banking licence to the highest standards. This is not in any way to question the bona fides of the bank, but rather to ensure – as much for the bank’s interest as anyone else – that it takes appropriate precautions in the case of potentially vulnerable and elderly sureties to ensure that the implications of such a guarantee are fully understood and appreciated.
17. In this regard I have not overlooked the fact that Mr. Maurice Connolly has not sworn any affidavit in support of this defence. As I have already had occasion to remark elsewhere in this judgment, this omission has done his case few favours, as many critical details relevant to our consideration of these issues are absent from our knowledge as a result. It is nonetheless not unrealistic to suppose that when Mr. Maurice Connolly first acted as surety for his son in 2005, he was at least in his 50s at the time the security was executed. While I would be the last to regard a person in his 50s as “elderly”, the key point here really is that Mr. Maurice Connolly put what must have been a considerable amount of personal capital at stake by way of two guarantees in support of the business venture of his son and in respect of which business venture he stood to receive no direct personal benefit. If matters went wrong, he stood to lose possibly all of that capital which, doubtless, had been accumulated after a lifetime of hard work and effort, not least his farm at Dunanore, Folksmills, Co. Wexford. It can therefore be argued that in these circumstances the transaction was fundamentally improvident so far as this guarantor was concerned, so that in the words of Lord Denning in Lloyds Bank v. Bundy, it is “not right that the strong should be allowed to push the weak to the wall.”
18. One may also fairly infer from the affidavit of his son, Mr. John Connolly, that Mr. Maurice Connolly had no involvement at all in the proposed development which was the subject of the business loan. As Mr. John Connolly explained, the loan was in respect of a development venture involving the purchase and licensing of certain lands. It would seem from that affidavit that he was the unfortunate victim of a fraud in relation to the title to those lands and that he is awaiting the outcome of an action for deceit against the alleged perpetrators of this fraud before he (i.e., Mr. John Connolly) will be in a position to repay the moneys. Independently of these civil proceedings, a criminal prosecution is still pending against the two individuals who are alleged to have fabricated the title documents, an earlier conviction for fraud having been set aside by reason of an irregularity in the documents which were made available to the jury.
19. In these circumstances, I believe that, but for the considerations of stare decisis which I will next address in Part IV, Mr. Maurice Connolly has established at least an arguable case that, based on the equitable principles I have already described, the bank was under a duty to ensure that he was independently advised prior to the execution of these two guarantees. It is true that, as I have already noted, Mr. John Connolly’s solicitors provided a declaration that Mr. Maurice Connolly had been offered an opportunity of independent legal advice in respect of the first guarantee in 2005 and that this declaration was then executed by Mr. Maurice Connolly himself. But since these solicitors also acted for the borrower, Mr. John Connolly, they cannot be regarded as having provided the opportunity of independent legal advice to Mr. Maurice Connolly: see, e.g., the comments to this effect of Irvine J. in Darby v. Shanley [2009] IEHC 459. As McGovern J. stated in Danske Bank v. Madden [2009] IEHC 319, the usual meaning to be attributed to the term “independent legal advice”:
“is that it is advice obtained by the party himself from a lawyer retained by him and not advice coming from the legal advisor of a third party with whom he is entering into a legal relationship.”
20. Accordingly, were the issue res integra and not covered by recent authority (which I will deal with in Part IV), I would have gone further than Fullam J. did in respect of the first guarantee in that I would have permitted Mr. Maurice Connolly to defend the claims in respect of both guarantees and not just simply the second guarantee. In these circumstances I would accordingly have adjourned the entirety of the Bank’s claim to plenary hearing.
IV
The impact of recent authorities and the doctrine of stare decisis
21. I have thus far proceeded on the basis that the matters at issue are res integra and that the issue is not determined by recent authority. It is, however, clear that this is not so, at least so far as this Court is concerned, since within the last few weeks this Court has twice rejected arguments along the lines I have just canvassed.
22. In a judgment delivered on 7th December 2016 in de Kretser, I was the dissentient who argued that a surety had raised an arguable defence to the effect that the Bank was under an affirmative duty to see that she was independently advised. This argument was rejected by Birmingham J. who delivered the judgment of the majority and with whom Peart J. agreed.
23. A similar view to that of the majority in de Kretser was taken by Irvine J. (and with whom Ryan P. and Hanna J. concurred) when she delivered the judgment of this Court in Curran on 21st December 2016. The decision in Curran was a case where a mother executed a guarantee for some €1m. in respect of her son’s company with whom she had had a minor involvement and where she was not advised as to the necessity of securing independent legal advice. As Irvine J. stated in her judgment:
“It is only relevant to consider whether it is arguable that the bank was obliged to make inquiries to ascertain whether, having regard to her connection with the company, she fully understood and was freely entering into the guarantee, if she could first establish a credible or arguable case on the facts that she executed the guarantee in circumstances of undue influence. In turn, that required her to set out on affidavit the type of facts, details and circumstances upon which she would rely at the trial to establish that her will was overborne by her son, Michael Curran, when she executed the guarantee.”
24. It is clear from this judgment that the bank would be placed on inquiry only where Allcard v. Skinner-type undue influence – or, at least, something approaching this – had been established by the surety, even in the case of parent/offspring guarantees for large sums from which the surety stood to gain no personal benefit.
25. In these circumstances, it is plain that the settled view of this Court is to the effect that, at least absent an express claim of undue influence or a claim of misrepresentation, a bank is under no such affirmative duty to ensure that a surety receives independent legal advice. Although this Court has not yet since its establishment in October 2014 been required to formulate its own rules regarding stare decisis, I think that by analogy with the doctrine of precedent applicable in the case of prior decisions of a co-ordinate court (see, e.g., the comments of Parke J. in Irish Trust Bank v. Central Bank of Ireland [1976-1977] I.L.R.M. 50, 53 where the practice of one High Court judge following an earlier decision of another High Court judge was discussed), then absent special circumstances, an individual member of this Court should normally yield to the prevailing consensus as reflected in prior decisions of this Court which are clearly on point and which, in the words of Finlay C.J. in Finucane v. McMahon [1990] 1 I.R. 165, 207, represent decisions “reached after the most comprehensive and detailed consideration of all relevant factors.”
26. The decision in Finucane had concerned the proper interpretation of the political offence exception in s. 50 of the Extradition Act 1965 in respect of which there had been a range of divergent judicial views expressed by various Supreme Court judges in the case-law leading up to Finucane. Even though Finlay C.J. evidently disagreed with the majority view which ultimately emerged from that case-law and in Finucane itself, he stated that he was henceforth willing to accept the majority view and adopt it as his own by reason of stare decisis. By analogy, therefore, with the approach adopted by Finlay C.J. in Finucane, I consider that it would be appropriate that I should accept and adopt this majority view as reflected in de Kretser and Curran “so that the basic principles underlying it may clearly represent the decision of this Court”: see [1990] 1 I.R. 165, 207.
Conclusions
27. In summary, therefore, while I still respectfully adhere to the views which I have expressed on this topic of the duty of banks regarding the giving of guarantee by potentially vulnerable sureties in both my dissent in de Kretser and elsewhere in this judgment, it is important that in a collegiate court such as the Court of Appeal an individual member should ultimately submit to the settled views of the majority of that Court as reflected by stare decisis. As I consider that this issue has now effectively been determined by the majority decision in de Kretser and by the unanimous decision in Curran, it is, accordingly, therefore, simply for reasons of stare decisis that I agree with the decision of Finlay Geoghegan J. that Mr. Maurice Connolly has not raised any arguable defence in respect of the first guarantee.
28. In these circumstances, it follows that his appeal should accordingly be dismissed.
Ulster Bank (Ireland) Ltd -v- De Kretser & Anor CA
[2016] IECA 371 (07 December 2016)
Composition of Court:
Peart J., Birmingham J., Hogan J.
Judgment by:
Birmingham J.
Status:
Approved
R
JUDGMENT of Mr. Justice Birmingham delivered on the 7th day of December 2016
1. This is an appeal by the defendants/appellants from a judgment of the High Court (Hedigan J.) dated the 10th June, 2015, granting the plaintiff/respondent liberty to enter final judgment in the amount of €126,077.06 (representing a principal sum of €89,350.95 with interest thereon from the 19th August, 2010). The plaintiff/respondent sued on foot of a joint and several guarantee in writing entered into by the appellants dated the 5th July, 2007, in respect of the obligations of a company of which both defendants were directors, named Stones Finishes Supply Limited. The guarantee was a condition for the granting of an overdraft facility to the company which was granted by way of a facility letter dated the 29th June, 2007. The guarantee was limited to the principal sum of €100,000 plus interest.
2. The company defaulted on its obligations under the facility letter and a demand was consequently made under the guarantee for the principal sum of €89,350.95 on the 7th January, 2009. Thereafter a summary summons was issued in respect of that sum plus interest on the 19th January, 2009. The background to the entry into the guarantee is that the first named appellant/defendant was a stonemason by trade and an expert in restoration. He started Stone Finishes Supply Limited in 1999 and it grew into a very successful business, having a turnover of over €1.1 million per annum at one stage and employing fifteen staff directly as well as a number of subcontractors. However in late 2007 the company came under significant pressure with regards to cash flow with a number of clients delaying payments due. The company encountered major difficulties in mid to late 2008 when two of its biggest clients became insolvent. In those circumstances the company went into voluntary liquidation on the 4th December, 2008.
Summary of defences and issues raised
3. The High Court concluded that the defendants had not made out an arguable defence to the claim. The appellants had resisted the bank’s claim advancing inter alia the following defences:-
(i) A lack of review or understanding of the guarantee by the appellants, which was supposedly signed in desperation in a situation where the company was in an extreme financial situation.
(ii) That Ms. Fox only signed the guarantee consequent upon undue influence and duress by Mr. De Kretser.
(iii) That the guarantee was unenforceable due to the rule in relation to past consideration.
(iv) That the respondent was legally bound to accept the assignment of certain insurance policies offered in full and final settlement of the claims under the guarantee.
4. On the 18th February, 2012, the appellant/defendant Gillian Fox swore an affidavit which asserted inter alia:
(a) That she had been pressured into signing the guarantee by her husband, the first named defendant/appellant Mr. De Kretser.
(b) She had only signed the guarantee under duress.
(c) She had not seen copies of the guarantee prior to signing it.
(d) She was only a 1% shareholder of the company and received no benefit from the guarantee.
5. The first named appellant also swore an affidavit on the 18th February, 2012. He averred that:
(i) He was a 99% shareholder in the company.
(ii) The original guarantee provided to the company had only been provided by him and he did not understand why his wife had been required to act as co-surety in 2007.
(iii) He put undue pressure on his wife to execute the guarantee, as the company was under huge pressure in order to meet obligations and the respondent insisted on this prior to releasing funds.
(iv) He had not seen copies of the guarantee prior to signing it.
(v) The respondent had made contractual agreement to settle all outstanding liabilities under the guarantee by taking an assignment of an Ark Life Assurance policy which was valued at just over €55,000 and then unreasonably insisted on a contractually impossible encashment deadline of 28 days.
(vi) The respondent was legally obliged to take an assignment of the Ark Life policies.
6. Both defendants/appellants swore further affidavits on the 13th June, 2012. On this occasion Mr. De Kretser swore an affidavit reiterating his position in relation to the Ark Life policies and stated that he had a valid defence under the past consideration rule. Ms. Fox in her affidavit stated that she wished to defend the action based upon the defences of duress/undue influence and the rule of past consideration.
7. On the 18th October, 2012, Mr. Damien Devlin of the Collections and Recoveries Department swore an affidavit on behalf of the plaintiff bank refuting the claims that had been set out in the appellant’s affidavits. In relation to Ms. Fox, the second named defendant/appellant he stated that:-
(a) Ms. Fox was not under the undue influence of her husband and that she had in fact introduced her husband to the respondent, with whom she had had prior dealings through her spa and beauty business Heavenly Spa Limited.
(b) That while she only held 1% shareholding in the company, she was also a director of the company and drew a €2,000 per month salary from it, contrary to her assertion that she received no benefit from the guarantee.
(c) That the facility letter was addressed to and signed by both appellants as directors and the guarantee was not signed until two weeks after the facility letter issued.
(d) That Ms. Fox had previously provided guarantees in the same or similar form going back to 2000, when she had guaranteed the liabilities of Heavenly Spa Limited and she had provided guarantees in respect of Stone Finishes Supply Limited on four occasions in 2002, 2003 and 2006.
8. In relation to Mr. De Kretser, Mr. Devlin stated that:
(a) Contrary to Mr. De Kretser’s assertion that Ms. Fox had only been asked to provide a guarantee in 2007, she had in fact provided four previous guarantees in relation to the obligations of the company.
(b) His statement in relation to not having seen the guarantee in advance had to be seen in the context of his having known about the obligation to provide it two weeks earlier and his previous record of having signed guarantees.
(c) His statement about desperation to get funds for the company was refuted by the fact that he was also, at the time seeking a €740,000 mortgage in respect of the business premises that he owned and in which the company was operating.
(d) That the respondent had only conditionally accepted the assignment of the Ark Life policy when offered subject to encashment within 28 days and when this did not happen, the offer lapsed and there was consequently no contract to enforce.
9. While there has been mention of other issues, the real point in this case, both at first instance and on appeal is as to whether the guarantee was valid and that in turn raises the issue of whether there was a positive or affirmative duty on the bank to ensure that Ms. Fox understood the nature of the guarantee and had done what was required to ensure that she had access to independent legal advice, if she required it, before executing the guarantee.
10. Before addressing the issues raised in greater detail and before seeking to put those issues in a factual context, I need to remind myself these issues are arising in the context of an application for summary judgment where the defendants/appellants are contending that they have an arguable defence. The principles applicable to cases where the judgment is sought have been considered by the Superior Courts on a number of occasions in recent years. The principles that have emerged have been helpfully synthesised and summarised by McKechnie J. in Harrisrange Limited v. Duncan [2003] 4 IR 1. He did so in 12 numbered paragraphs as follows:-
“(i) the power to grant summary judgment should be exercised with discernible caution;
(ii) in deciding upon this issue the court should look at the entirety of the situation and consider the particular facts of each individual case, there being several ways in which this may best be done;
(iii) in so doing the court should assess not only the defendant’s response, but also in the context of that response, the cogency of the evidence adduced on behalf of the plaintiff, being mindful at all times of the unavoidable limitations which are inherent on any conflicting affidavit evidence;
(iv) where truly there are no issues or issues of simplicity only or issues easily determinable, then this procedure is suitable for use;
(v) where however, there are issues of fact which, in themselves, are material to success or failure, then their resolution is unsuitable for this procedure;
(vi) where there are issues of law, this summary process may be appropriate but only so if it is clear that fuller argument and greater thought is evidently not required for a better determination of such issues;
(vii) the test to be applied, as now formulated is whether the defendant has satisfied the court that he has a fair or reasonable probability of having a real or bona fide defence; or as it is sometimes put, ‘is what the defendant says credible?’, which latter phrase I would take as having as against the former an equivalence of both meaning and result;
(viii) this test is not the same as and should be not elevated into a threshold of a defendant having to prove that his defence will probably succeed or that success is not improbable, it being sufficient if there is an arguable defence;
(ix) leave to defend should be granted unless it is very clear that there is no defence;
(x) leave to defend should not be refused only because the court has reason to doubt the bona fides of the defendant or has reason to doubt whether he has a genuine cause of action;
(xi) leave should not be granted where the only relevant averment in the totality of the evidence, is a mere assertion of a given situation which is to form the basis of a defence and finally;
(xii) the overriding determinative factor, bearing in mind the constitutional basis of a person’s right of access to justice either to assert or respond to litigation, is the achievement of a just result whether that be liberty to enter judgment or leave to defend, as the case may be.”
11. So, I approach this case on the basis that Ms. Fox should be given leave to defend unless it is very clear that she has no defence, not even one which could be described as arguable.
How the High Court dealt with the issue
12. The High Court dealt with this aspect of the case in the following terms:
“Taking the points in order:
(a) The defendants are both experienced business people with a track record of multiple guarantees provided to the bank. It is entirely unreal to suggest that they did not know what they were doing. Even were this not so, between the letter of facility and the signing of the guarantee two weeks later, they had every opportunity to acquaint themselves with all they needed to know. During this time they also had every opportunity to obtain legal advice. It should be noted in passing that absent some clear evidence of the need to insist upon customers obtaining it, there is no obligation on a bank to insist on customers obtaining legal advice before entering into contracts with them. (See Ulster Bank Limited v. Roche and Buttimer [2012] IEHC 166)
(b) There is no evidence of any duress or undue influence, there is simply an assertion. That assertion flies in the face of the evidence. This is, as noted above, that both defendants were experienced business people. Moreover, it was in fact the second defendant who introduced the bank to the company Stone Finishes. Also the second defendant was in receipt of a monthly salary of €2,000 from the company. Far from there being any existing evidence to show duress or undue influence, in fact the evidence shows the opposite.”
13. The High Court judgment, the operative parts of which have been quoted, adverted to a number of the relevant facts in this case. However, it may helpful to refer to some of the matters that emerged from the affidavits in a little more detail. From the affidavit of Mr. Devlin it emerges that it was the second named defendant/appellant Ms. Fox who introduced Stone Finishes Supply Limited (the company) to the plaintiff bank in early 2002. At that time Ms. Fox ran a spa and beauty business known as Heavenly Spa Limited based in the Shelbourne Hotel in Dublin with Heavenly Spa Limited maintaining its bank accounts with Ulster Bank. Ms. Fox and her husband, the first named defendant/appellant, were directors of Heavenly Spa Limited. In December 2000, Ms. Fox and Mr. De Kretser, as directors of Heavenly Spa Limited, entered into a guarantee for the sum of €40,000.
14. Ms. Fox had stated on affidavit that she only held a 1% share in the company and that she was not involved in the day to day running of the company and did not benefit personally therefrom. Factually the position is that apart from being a shareholder, she was also a director of the company and received a monthly salary of €2,000. In relation to Ms. Fox’s contention that she was pressurised into signing the guarantee by her husband Mr. De Kretser, the bank points out that the facility letter to the company dated the 20th June, 2007, issued to both defendants as directors and it provided under the heading “Security” as follows:-
“Personal letter of guarantee signed by the directors – Walter De Kretser and Gillian Fox.”
15. Ms. Fox signed the facility letter on the 29th June, 2007, and it was only on the 5th July, 2007, some two weeks after the facility letter had issued was the guarantee signed.
16. On four previous occasions, the 30th July, 2002, 19th February, 2003, 3rd November, 2003 and the 6th November, 2006, Ms. Fox had signed guarantees in relation to the liabilities Stone Finishes Supply Limited. While the language of the 2007 guarantee at issue in the present proceedings and the earlier guarantees are not identical in all respects, it was to all intents and purposes the same.
17. The extent of an obligation on a bank or similar financial institution entering into financial transactions with married couples or couples living together has been considered by the courts in Ireland and in Britain on a number of occasions in recent years. The starting point for consideration of this issue is the case of Ulster Bank Ireland Limited v. Fitzgerald [2001] IEHC 259. In that case the second defendant, a Ms. Williams, had signed two guarantees in respect of the liabilities of a particular company in which her husband Mr. Fitzgerald had controlling or important stake. When the plaintiff bank sought to enforce the guarantees, it was argued on behalf of Ms. Williams that she had entered into them as a result of undue influence by Mr. Fitzgerald. She suggested that the marriage had been in difficulties and that she was convinced that a refusal to sign the guarantee would cause “further trouble between them and again threatened their marriage”. She also claimed that Mr. Fitzgerald had “insisted that he knew what he was doing and that she should trust him”. Her argument was that, as a result of this undue influence exercised by her husband, the bank should be precluded from enforcing the guarantee.
18. O’Donovan J. believed that while it “may well” have been the case that Ms. Williams had signed the guarantees as a result of undue influence from Mr. Fitzgerald, it was not necessary for him to reach a conclusion on this point because the bank would not have been affected by any undue influence which took place. He was satisfied that none of the representatives of the plaintiff bank had either actual or constructive notice of any undue influence which might have taken place. As O’Donovan J. put it, the bank did not have “even an inkling” of any reason why the guarantor might not have been a free agent. He considers that a bank was not put on inquiry simply because a wife guarantees a loan to her husband’s business.
19. A somewhat more intense and nuanced consideration of the issue occurred in the case of Ulster Bank Ireland Limited v. Roche and Buttimer [2012] IEHC 166. It must be said immediately that there are significant, even dramatic differences between the facts of the Ulster Bank v. Roche and Buttimer case and the present case. In Roche and Buttimer, Ms. Buttimer was the partner in the personal sense of that term, as Clarke J. put it, of Mr. Roche who was running a business involved in the motor trade. She took no role in the business and was employed as a hairdresser on a modest salary. She had been named as a director of the company involved, Louis Roche Motors Limited, though it appeared that her involvement was limited in the extreme. Judgment was obtained against Mr. Roche, but Ms. Buttimer was permitted to defend inter alia on the basis that in providing the guarantee she was subject to undue influence. As Clarke J. pointed out, there were both factual and legal aspects to the argument. The first factual question was as to whether Ms. Buttimer was actually under the undue influence of Mr. Roche.
20. Clarke J. having heard the evidence of Ms. Buttimer and the evidence of a clinical psychologist whose client she was, was satisfied that Ms. Buttimer was under the undue influence of Mr. Roche at the time in question. He was satisfied that she had no involvement in the business of Roche Motors of any material variety, and that she was in a dependent and quite abusive relationship. He said that he found the evidence of the psychologist in the case of particular assistance given the fact that the professional contact between Ms. Buttimer and her clinical psychologist was contemporaneous to the events with which the case was concerned and that it was not one of those cases where a mental health professional is attempting to reconstruct a situation sometime (often years) after the events which are crucial to the proceedings.
21. Turning to the legal issue in the case, Clarke J. acknowledged that if he was to follow the views of O’Donovan J. in Fitzgerald, Ms. Buttimer must fail because there was no evidence that Ulster Bank was in any way aware of any undue influence that Mr. Roche might have brought to bear on Ms. Buttimer.
22. However, counsel for Ms. Buttimer placed reliance on a decision of the House of Lords in Royal Bank of Scotland plc v. Etridge (No. 2) [2001] 2 AC 773. The decision in Fitzgerald, it might be noted, came a few weeks after Etridge and as Clarke J. observed for understandable reasons Etridge does not appear to have been referred to in argument and was certainly not referred to in that judgment. Clarke J. felt that what he was concerned with was a case of constructive knowledge. Constructive knowledge issues, he was of the view, could often usefully be broken down into two separate questions. The first is as to what factors place a party on inquiry. The second is as to the nature of the inquiry or actions that may then be required.
23. It is clear that Clarke J. had some difficulties with the test as it appeared to be formulated in Etridge pointing out that it would give rise to surprising results in the case of two business partners who were the principals and shareholders in the business, whose debts were to be guaranteed and were also same sex partners in the relationship sense of that term, (his judgment of course predated the marriage equality referendum). In such a situation there would be no particular reason why either one of the partners might not be said to be the one who might exercise undue influence and the other be the one who might be influenced. If that is so it would seem to follow that it was necessary to ensure that both had independent legal advice. Again, given the recognition that the principle applies equally between husband and wife as it does between wife and husband, it is difficult to see how there could be any logic in requiring a wife to have independent legal advice, but not a husband in circumstances where they are both shareholders in the business the debts of which were to be guaranteed. So, he said, that nothing in the judgment should be taken as necessarily implying that the law in Ireland goes as far as the position in the UK identified in Etridge in placing a bank on inquiry.
24. However, he felt it was not necessary to go that far. He identified as relevant the fact that Ms. Buttimer was not a shareholder in Roche Motors, even though she was a director and said that was a factor which suggests at least a significant possibility of a non commercial aspect to the case. Secondly, the bank had some knowledge of the fact that Mr. Roche and Ms. Buttimer were involved in a personal relationship. Furthermore all of the discussions between Roche Motors and the bank were conducted by Mr. Roche. That fact, of itself would not, in his view, be sufficient. Frequently it is the case that one of a number of partners in business ventures whether carried out as a partnership or through a corporate vehicle will have primary responsibility for dealing with financial matters including relations with the ventures bank. So that fact of itself should not necessarily place a bank on inquiry as to whether others involved in the venture who are asked to put up security by way of guarantee might not be the subject of undue influence.
25. However he felt that in the circumstances where the person who is required to offer security is not a shareholder and where there was no evidence to suggest that the bank was aware of any actual involvement of that person in the business then it seems to him that the personal relationship between the parties emerged as a much more significant factor. He was satisfied that in those circumstances the bank was on inquiry.
26. He then went on to address the question of what a bank on inquiry must do. He was satisfied that a bank placed on inquiry was obliged to take at least some measures to seek to ensure that the proposed surety is openly and freely agreeing to provide the requested security, though leaving over to another day the precise steps a financial institution had to take.
27. The issue of undue influence in the context of a marriage was considered by Kelly J. in the case of Irish Bank Resolution Corporation v. Quinn [2011] IEHC 470. It seems to me that his treatment of the issue merits quotation in full:-
“Undue Influence
38. The second line of defence is an attempt to say that everything which Ms. Quinn did occurred under the undue influence of her husband.
39. It was argued during the course of the hearing that there is at law a presumption of undue influence between husband and wife. There is not. That much is clear from case law going back to the middle of the eighteenth century. In Halbury’s Laws of England (4th Ed.) para. 40, vol. 18, one finds on this topic the following under the heading ‘No presumption between husband and wife’ – ‘it is noticeable that the relation of husband and wife is not one which gives rise to the presumption that undue influence was exercised’.
40. In support of that statement, there is a line of cases which begins with that of Rigby v. Cox in 1750 going right through the nineteenth century and up until the twentieth century. So it is a principle that has been well established in law. Its effect was eloquently articulated in this jurisdiction by Carroll J. in In Re. Hunting Lodges Limited [1985] ILRM 85. Now admittedly, Carroll J. was dealing with a different situation to what I am dealing with here. In her case, a wife sought to avoid personal liability for the debts of a miscreant company in circumstances where she acted as a director of that company. As part of her defence, she alleged that she was in fact a housewife and mother and that she really took no part in the running of the company and therefore should be able to avoid liability. This is what Carroll J. had to say:-
‘In relation to Mrs. Porrit, the case has been made on her behalf that she played no part in the running of the company. The day has long since passed since married women were classified with infants and persons of unsound mind as suffering from a disability so far as responsibility for their acts was concerned, or since a married woman could escape criminal responsibility on the grounds that she acted under the influence of her husband. Mrs. Porrit cannot evade liability by claiming that she was only concerned with minding her house and looking after her children. If that was the limit of the responsibilities she wanted, she should not have become a director of the company, or having become one she should have resigned.’
41. Whilst the circumstances are different, it seems to me that that is an accurate articulation of the legal position.
42. I am satisfied that there is no presumption of undue influence at law arising simply because of the relationship of husband and wife. That has been clear since at least 1750.
43. The lack of any presumption of undue influence is not, however, the end of the matter. The absence of the presumption does not mean that there could not be actual undue influence. But if there was such actual undue influence, there would have to be, at least, some evidence demonstrative of such impropriety. There is no evidence of any sort to support such a contention. There is no suggestion of Mrs. Quinn suffering from any intellectual disability, mental illness, feebleness of mind or cognitive impairment. Neither is there any evidence of any threats of bullying or such behaviour towards her by Mr. Quinn. There is not the slightest evidence to suggest any allegation of actual undue influence could be sustained. Accordingly, I am of the view that there is here neither a presumption of undue influence or evidence of any undue influence to make such an argument possible. Accordingly, this line of defence fails.”
28. In Royal Bank of Scotland v. Etridge, the House of Lords was concerned with eight appeals. Each appeal arose out of a transaction in which the wife charged her interest in her home in favour of a bank as security for her husband’s indebtedness or the indebtedness of a company to which he carried on business. The wife later asserted that she signed the charge under the undue influence of her husband. In seven of the appeals the bank had sought to enforce the charge signed by the wife claiming an order for possession of the matrimonial home. In each of those cases the wife raised a defence that the bank was on notice that her concurrence in the transaction had been procured by her husband’s undue influence. The eighth appeal concerned a claim by a wife for damages from a solicitor who advised her before she entered into a guarantee obligation of such a character.
29. So far as the specific cases that were before the House of Lords are concerned, they fell into three different categories. Three cases, those of Harris, Wallace and Moore did not go beyond the interlocutory stage, the wives’ pleadings having been struck out as disclosing no defence to the bank’s claim for possession. There were four cases, Etridge, Gill, Coleman and Bennett which proceeded to trial and in which at trial and/or on appeal the wife was unsuccessful. Then there was the final case, that of Kenyon-Brown in which the wife was suing her solicitor for damages for breach of duty. The appeals in the case of Harris, Wallace and Moore, the interlocutory cases, were successful as was the appeal in Bennett and the appeal by the solicitor in Kenyon-Brown. The appeals in Etridge, Gill, Coleman were unsuccessful.
30. Given the complexities involved in a case involving eight appeals falling into three categories and in respect of which some succeeded and some failed it is convenient to set out what was said in the head note.
“Where a wife sought to impugn a transaction into which she had entered on the ground of her husband’s undue influence their relationship did not fall within a special category of case where an irrebuttable presumption of trust and confidence arose. If she was able on the facts of the particular case to establish that she had placed trust and confidence in her husband in the management of her financial affairs and that the impugned transaction was not explicable in the ordinary way she could rely on a presumption which, as an evidential forensic tool, shifted the burden of proof to her opponent and could be rebutted on appropriate evidence by that party. Since the fortunes of husband and wife were ordinarily bound up together, a guarantee given by the wife with the charge on her interest in the matrimonial home to secure her husband’s debts was not plainly to her disadvantage so as to be explicable only on the basis that the transaction had been procured by his undue influence.
Whenever a wife offers to stand surety for the indebtedness of her husband or his business, or a company in which they both had some shareholding, the lender was put on inquiry and was obliged to take reasonable steps to satisfy itself that she had understood and freely entered into the transaction. The steps reasonably to be expected of a lender in relation to past transactions were to bring home to the wife the risk she was running by standing surety, either at a private meeting with her or by requiring her to take independent advice from a solicitor on whose confirmation the lender might rely that she had understood the nature and effect of the transaction. In respect of future transactions the lender should contact the wife directly, checking the name of the solicitor she wished to act for her and explaining that for its protection it would require his confirmation as to her understanding of the documentation to prevent her from subsequently disputing the transaction. The lender should not proceed until it had received an appropriate response from the wife and should in every case receive the written confirmation from the nominated solicitor. Subject to the husband’s consent to disclosure, without which the transaction could not in any event proceed, the lender should routinely furnish to the nominated solicitor financial information relating to the facility and the husband’s existing indebtedness to enable a proper explanation to be given to the wife. The nominated solicitor should require confirmation that the wife wished him to act for her, and he might, so long as no conflict of duty or interest arose and he was satisfied that it was in her best interest to do so, also act for the husband or the lender. His advise should be given at a face to face meeting in the absence of the husband, and its contents need not be directed to the commercial wisdom of the transaction but should include, as a core minimum, an explanation of the documentation, its practical consequences and inherent risks based on the financial information provided by the lender: he should also state that the choice whether to proceed was to be exercised by her and should check that she wished to continue and if so, he should obtain her consent to his giving the confirmation required by the lender. Since in so advising her the solicitor assumes professional responsibility to the wife he did not act as agent for the lender, who is entitled to assume that he had acted properly, and in consequence, knowledge of the contents of advice given to the wife, whether negligently or otherwise, was not to be imputed to the lender.”
31. The outcome of the individual appeals that were dealt with together in the House of Lords in Etridge shows that these cases are very fact specific. Clearly, there is room for much debate as to what circumstances would put a bank on inquiry and for even more debate as to what can be expected of a bank that has been put on inquiry. However, these issues arise only if there has been undue influence. In my view the facts of the present case are particularly clear cut. There is, as Kelly J. pointed out in IBRC v. Quinn, no basis for suggesting that there is here a presumption of undue influence. The fundamental question in this case is has an arguable case been made out that Ms. Fox executed the guarantee under the undue influence of her husband. In other words have the defendants and in particular the second named defendant produced any credible evidence on a prima facie basis, going beyond mere assertion which gives rise to the prospects that it might be established at trial that her husband so overbore her mind (i.e. exerted undue influence upon her), that it could be said that she did not freely and willingly undertake the obligations to the bank under the guarantee which she signed. In my view as I have already indicated the facts of the present case are particularly clear cut and there can be no doubt about the answer to the question. It was for Ms. Fox to adduce evidence that she in fact acted under undue influence. That, she has singularly failed to do. Far from there being evidence of undue influence all the evidence in the case is the other way. The evidence is clear that Ms. Fox is an experienced business woman with a long history of interaction with the plaintiff bank. The high watermark of the defence case is a mere assertion, in the nature of a formal pleading, that Ms. Fox acted under undue influence. A mere assertion does not provide a basis for resisting an application for summary judgment. In that regard the bald but unsubstantiated averment, and it has to be said somewhat self serving averment by Mr. deKretser that he exerted undue influence upon his wife, adds nothing to the weight of the evidence adduced by the defendants in resisting the application for judgment.
32. The present case calls to mind the observations of Lord Hobhouse of Woodborough in relation to the appeal of Mrs. Etridge. He commented:
“This was a case which after some delay and contested interlocutory proceedings went to trial before Judge Behrens. The wife gave evidence. The judge found that, on the evidence, she had not been the victim of any actual undue influence. However, he went on to deal with the case on the basis of presumed undue influence. On appeal, the Court of Appeal upheld the judge’s finding of no actual undue influence: nor did she at either level obtain a finding in her favour that she had been induced to sign by any misrepresentation. Accordingly, on the correct view of the law, her case failed in limine and none of the other points arise. Judgment was rightly entered for the bank. On this ground, I agree that this appeal should be dismissed. This case provides an object lesson in the dangers of attempting a summary resolution of issues of mixed law and fact without having ascertained the facts.”
For my part I find these remarks of Lord Hobhouse entirely apposite.
33. In this case the appellants have identified an interesting and developing legal issue, but in my view they have failed to engage with the facts and what the outcome of the individual appeals that were dealt with in the House of Lords in Etridge shows, is that these types of cases are very fact specific.
34. The appellants cannot escape from the fact that they had a long history of interaction with the bank and that the bank clearly knew that Ms. Fox was an experienced business woman in her own right, with a long history of commercial interaction with it.
35. Against the specific prior knowledge that the bank had in relation to its dealings over a number of years, is pitted a mere assertion by Ms. Fox on affidavit in these proceedings – an assertion never raised by her at any time prior to the proceedings – that in relation to the last of the guarantees she was under the undue influence of Mr. De Kretser such that she ought not to be found to have any liability whatever.
36. The task of the trial judge on the plaintiffs motion for judgment when it came before him was, as I have already stated by reference to the judgment of McKechnie J. in Harrisgrange to consider the affidavit evidence and to determine whether Ms. Fox had raised an arguable case that she had acted under the undue influence of Mr. De Kretser such that a plenary hearing was required in order to determine that issue. Put another way, the judge was entitled to grant the bank’s motion for summary judgment against Ms. Fox only, if he was satisfied that it was clear that she had no defence to the claim. It is of course the case that merely because a judge felt that the bank would in all likelihood succeed at a plenary hearing and that the defence would likely fail would not be a sufficient basis for denying a party the right to defend the case.
37. A judge should be slow to grant summary judgment, but that did not mean that he was obliged to ignore what had been put on affidavit by the bank as to its state of knowledge of Ms. Fox’s business background and her previous dealings with the bank and to which she had made no reference in her own affidavit. Insofar as Mr. De Kretser had filed an affidavit corroborating her averment that he had put her under undue influence to sign the guarantee, the trial judge was entitled to place very little, if any, weight on what on any view had to be seen as a self serving assertion.
38. I do not doubt that Ms. Fox and Mr. De Kretser would have preferred had the bank not sought the security they did. There must be few borrowers who would not prefer if their lenders would advance funds to them while seeking less security or perhaps on a non recourse basis altogether. However, that is very far from saying that the party agreeing to provide the security sought was not acting as a free agent and was subject to the undue influence of another.
39. If the situation were otherwise and one party was a dominant business person and the other partner entirely without business expertise the situation might indeed be different. However, that is far from the case here. The facts here could scarcely be more different than those that were considered by Clarke J. in Ulster Bank Limited v. Roche and Buttimer. Here the situation is that two people experienced in business were requested to provide security in a particular form when they sought funds from a bank. They made a decision to provide that security.
40. In my view the trial judge was correct when he determined that the defendants, and in particular the second named defendant had not raised an arguable defence to the claim on the basis of undue influence. Other grounds have been mentioned, including the defence of non est factum, but were not seriously pressed. In my view the trial judge was correct in determining, as he did without any difficulty, that these did not give rise to an arguable defence. I note what Hogan J. has to say and I agree with him that this is not a case where the defence of non est factum is made out. The main focus of the defendants’ arguments here was on the undue influence issue. Interesting as the legal issue that they sought to raise is, the facts are clearly against them. In those circumstances the judge was entitled to grant liberty to enter final judgment and so in those circumstances I would favour dismissing their appeal.
JUDGMENT of Mr. Justice Gerard Hogan delivered on the 7th day of December 2016
1. This is an appeal from a decision of Hedigan J. in the High Court delivered on 10th June 2015 (Ulster Bank Ltd. v. de Kretser [2015] IEHC 359) in which he held that the defendants, Mr. de Kretser and Ms. Fox (“the appellants”), had not established an arguable defence to a claim for €89,391 plus interest brought against them by the plaintiff bank. The appellants (who are husband and wife), now appeal to this Court against that decision of the High Court to grant summary judgment in this amount.
2. While I agree that the appeal of the husband must be dismissed, I regret that I cannot share the conclusion of my colleagues to the effect that the wife has established no arguable defence. In order to explain these conclusions it is first necessary to set out the relevant facts.
3. The proceedings themselves arise from a personal guarantee given the appellants on 5th July 2007 in respect of the obligations of a company known as Stones Finishes Supply Ltd. (“the company”). This was a company of which Mr. de Kretser was the 99% shareholder. Ms. Fox owed the remaining 1% shareholding, but she also drew a salary of some €2,000 per month. The guarantee in question was a condition for the granting of an overdraft facility to the company by a facility letter dated 29th June 2007. The company ultimately defaulted on its obligations, thus triggering a demand for payments from the guarantors. The fundamental question is whether that guarantee is a valid one.
4. In the course of the appeal to this Court, the appellants focussed almost entirely on the question of whether there was an arguable case that Ms. Fox was subject to undue influence in executing the guarantee and, specifically, whether the Bank ought to have insisted that she had access to independent legal advice.
5. It should be noted at the outset that Ms. Fox was a businesswoman in her own right and she ran her own company, Heavenly Spa Ltd. Indeed, the evidence is that it was she who in fact provided the business introduction to Ulster Bank in respect of her husband. As might be expected from a person with her business experience, Ms. Fox was not unfamiliar with the execution of personal guarantees. As it happens, she had in fact already executed personal guarantees in favour of her husband’s company on four earlier occasions in 2002, 2003 and 2006.
6. There is no doubt but that the 2007 guarantee was executed in circumstances which suggested that the company urgently needed the funds. While it is accepted that Ms. Fox had not seen the guarantee in advance of its execution and that she signed it at the Bank’s premises on the day it was executed, it is equally clear that Mr. de Kretser knew that such by Ulster Bank was required two weeks in advance of its execution, so that Ms. Fox must have had some inkling of what was required.
7. While the guarantee is not phrased exactly as the earlier guarantees and although there are at least some textual differences between the wording of the 2007 guarantee and the earlier guarantee, it cannot really be disputed that the 2007 guarantee was in substance similar to the earlier guarantees which both defendants had executed in the past.
8. It is true that the 2007 guarantee involved a guarantee and indemnity, whereas the earlier guarantees were simply guarantees. There are, of course, potentially significant differences between a guarantee and indemnity, principally because of the all encompassing nature of the latter: see generally, Breslin, Banking Law (Dublin, 2013) at 535-537. But in the context of the present case where there was no dispute regarding the validity of the original debt or the obligation to pay same, there is no difference of substance as between the obligations of the defendants qua guarantors on the one hand as compared with indemnitors on the other.
The judgment of the High Court
9. In his judgment Hedigan J. found that the guarantee was duly executed under seal, so that any question of past consideration simply did not arise. So far as the critical issues of undue influence were concerned, Hedigan J. stated:-
“(a) The defendants are both experienced business people with a track record of multiple guarantees provided to the bank. It is entirely unreal to suggest that they did not know what they were doing. Even were this not so, between the letter of facility and the signing of the guarantee two weeks later, they had every opportunity to acquaint themselves with all they needed to know. During this time they also had every opportunity to obtain legal advice. It should be noted in passing that absent some clear evidence of the need to insist upon customers obtaining, it there is no obligation on a bank to insist on customers obtaining legal advice before entering into contracts with them….
(b) There is no evidence of any duress or undue influence. There is simply an assertion. That assertion flies in the face of the evidence. This is, as noted above, that both defendants were experienced business people. Moreover, it was in fact the second defendant who introduced the bank to the company Stone Finishes. Also the second defendant was in receipt of a monthly salary of €2,000 from the company. Far from there existing any evidence to show duress or undue influence, in fact the evidence shows the opposite.”
Whether the Bank had affirmative duties vis-à-vis Ms. Fox
10. The essence of the appellants’ case is that the Bank were under an affirmative duty to ensure that Ms. Fox in particular understood the nature of the guarantee and that it had taken appropriate steps to ensure that she had access to independent legal advice given that she was being called upon to guarantee business debts of her husband and his company. I should observe at this point that the husband has not advanced any argument such as would suggest that he could avoid liability in respect of these liabilities.
11. The extent of the duties of a bank vis-à-vis a spouse in cases such as this has been the subject of extensive judicial consideration in recent times. In Ulster Bank Ltd. v. Roche [2012] IEHC 166, [2012] 1 I.R.765 Clarke J. was required to consider this matter both in the context of a non est factum plea, together with an argument based on un due influence. The facts of Roche were somewhat similar to the present case (although there are important differences which I will presently outline) in that one party gave a guarantee on behalf of the business of another party in circumstances where she had not had the opportunity for independent advice. The two parties were not, in fact, married, although they were living together as a couple. The case can therefore be treated for the purposes of the law on guarantees as if the parties were, in fact, married.
The non est factum defence
12. Clarke J. first rejected the non est factum defence for reasons that are not altogether surprising ([2012] 1 I.R. 765, 771-772):
“The fact remains that [the partner of the defendant] Ms. Buttimer signed a guarantee in circumstances where it was likely that that guarantee would be given to Ulster Bank as representing her guarantee. It will be necessary to turn to the circumstances in which she signed the guarantee when dealing with the second issue to which brief reference has already been made. However, in the ordinary way (and as I pointed out in ACC Bank PLC v. Kelly [2011] IEHC 7 and as Kelly J. adopted in Irish Bank Resolution Corporation Ltd v. Quinn [2011] IEHC 470), a person who signs a document which may well have significant legal effect and does so, either without reading the document or without applying themselves to the content of the document, “must accept the consequences of having signed a commercially binding agreement in those circumstances” and will, prima facie, be bound by what they have signed. The fact is that Ms. Buttimer signed a document without making any attempt to ascertain what it was or what its consequences might be. In the ordinary way, she has to bear responsibility for her own actions in so doing. As I pointed out in ACC v. Kelly, the situation might be different where the bank concerned itself misrepresents the content of the document or otherwise acts in a way which would allow the party to have the transaction set aside. However, there does not seem to me to be any evidence to suggest that the bank in this case acted improperly. Even if, therefore, the way in which the guarantee came to be signed is as Ms. Buttimer asserts, I am not satisfied that that would afford her any defence. She signed banking documents on behalf of a company which was owned by her partner and of which she was a director. Any bank receiving those documents is entitled to assume that she has committed herself to guarantee the loan referred to in the documentation. Subject, therefore, to the undue influence question, it seems to me that Ms. Buttimer bound herself to the guarantee when she signed it. I, therefore, turn to the undue influence question.”
13. It seems to me that this is sufficient in itself to dispose of the non est factum plea insofar as this argument was advanced by Ms. Fox. She executed documents, the general provenance, status and effect of which she was surely aware. Even if she was not, then, adopting the words of Clarke J. in Roche, any bank receiving those documents was entitled to assume that she had committed herself to guarantee the loan in question.
14. In these circumstances, I do not think that the non est factum defence is an arguable one.
Whether there was undue influence
15. I can now proceed to the examination of the general issue of undue influence and, specifically, whether the bank was under a duty to take affirmative steps to ensure that the other spouse (i.e., in this case, the wife) obtained independent advice. I agree, of course, the fact that the parties are husband and wife does not in itself create any presumption of undue influence. Article 41 of the Constitution presupposes marriage between equals and the suggestion of some presumption in favour of a wife would presuppose “a disparity in status and capacity between husband and wife which runs counter to the normal relations between a married couple in modern times”: The State (Director of Public Prosecutions) v. Walsh [1981] I.R. 412, 449, per Henchy J.
16. The real question, therefore, is first whether the other spouse was actually under the undue influence of the other. If not, then the subsidiary question is whether the bank was under some positive or affirmative duty to ensure that where one spouse was guaranteeing the liabilities of the other spouse, the nature of this guarantee was fully and independently explained.
17. In Roche Clarke J. found that Ms. Buttimer was indeed under the undue influence of her partner, Mr. Roche ([2012] 1 I.R. 765,773-774):
“Having heard the evidence of Ms. Buttimer and the evidence of her clinical psychologist, I am satisfied that Ms. Buttimer was under the undue influence of Mr. Roche at the time in question. I am satisfied that she had no involvement in the business of Roche Motors of any material variety and that she was in a dependent and quite abusive relationship. Of particular assistance, on the evidence in this case, is the fact that the professional contact between Mr. Buttimer and her clinical psychologist was contemporaneous to the events with which this case is concerned. This is not one of those cases where a mental health professional is attempting to reconstruct a situation some time (often years) after the events which are crucial to the proceedings. Rather, this is a case where Ms. Buttimer was in receipt of counselling at the time in question and where her clinical psychologist is in a position to give a professional judgment as to her mental state and the relationship between that mental state and the actions of Mr. Roche, at the very time when the events which are at the heart of this case occurred. I fully accept the evidence of Ms. Buttimer’s clinical psychologist and, on that basis, am satisfied that she was in the sort of dependent and abusive relationship with Mr. Roche at the relevant time where she would have done anything that he asked. That leg of the test is, therefore, in my view, met. Ms. Buttimer signed the guarantee in question while under the undue influence of Mr. Roche.”
18. Clarke J. then turned to consider the question of whether this fact afforded Ms. Buttimer a defence to the claim of the bank. The judge found as a matter of fact that there was no evidence that the bank were actually aware of such undue influence. But were there circumstances such as ought to have put them on further inquiry?
19. Clarke J. noted that in Ulster Bank Ireland Ltd. v. Fitzgerald [2001] IEHC 259, O’Donovan J. had considered that it was not necessary for him to reach a conclusion as to whether undue influence actually existed on the facts of the case because he was satisfied that the bank in question had neither actual nor constructive notice of any undue influence. As O’Donovan J. put it, the bank did not have “even an inkling” of any reason why the guarantor might not have been a free agent. O’Donovan J. considered that a bank is not put on inquiry simply because a wife guarantees a loan to her husband’s business and also accepted the proposition that the surety in the case in question had a stake in her husband’s business (even though she was not a shareholder or a director) because she and her family relied on the income generated by the company, whose debts were to be guaranteed, for their day-to-day living. On the basis of those views, O’Donovan J. came to the conclusion that there was no obligation on the bank in question to seek to ensure that the surety should obtain independent legal advice.
20. Clarke J. observed, however, that in the seminal decision of Royal Bank of Scotland plc v. Etridge (No. 2) [2002] 2 A.C. 733 the House of Lords had subsequently clarified the law in respect of third party undue influence so far as the United Kingdom is concerned. In this respect Clarke J. noted that the decision in Fitzgerald had been the subject of considerable criticism (see, e.g., Mee, “Undue Influence and Bank Guarantees” (2002) 37 Irish Jurist 292), the substance of which was that the approach taken in Fitzgerald offered insufficient protection to potential vulnerable sureties and leaves a lender with no obligations arising from knowledge that the parties are married or otherwise closely connected unless it has some special reason to believe that a wrong has actually taken place.
21. Clarke J. then acknowledged that the issue here was really one of constructive knowledge and the circumstances in which a bank may be placed on appropriate inquiry. On this point the judge stated ([2012] 1 I.R. 765, 777-778):-
“In that context it is appropriate to consider the views on that question expressed by the House of Lords in Etridge. It must be recalled that the House of Lords was considering, in that case, appeals in some eight different cases raising, at least in general terms, the same types of issues. The head note to the judgment suggests that the finding of the court was as follows:-“Whenever a wife offered to stand surety for the indebtedness of her husband or his business, or a company in which they both had some shareholding, the lender was put on inquiry and was obliged to take reasonable steps to satisfy itself that she had understood and freely entered into the transaction. The steps reasonably to be expected of a lender in relation to past transactions were to bring home to the wife the risk she was running by standing surety, either at a private meeting with her or by requiring her to take independent advice from a solicitor on whose confirmation the lender might rely that she had understood the nature and effect of the transaction. In respect of future transactions the lender should contact the wife directly, checking the name of the solicitor she wished to act for her and explaining that for its protection it would require his confirmation as to her understanding of the documentation to prevent her from subsequently disputing the transaction. The lender should not proceed until it had received an appropriate response from the wife and should in every case receive the written confirmation from the nominated solicitor. Subject to the husband’s consent to disclosure, without which the transaction could not in any event proceed, the lender should routinely furnish to the nominated solicitor financial information relating to the facility and the husband’s existing indebtedness to enable a proper explanation to be given to the wife. The nominated solicitor should require confirmation that the wife wished him to act for her, and he might, so long as no conflict of duty or interest arose and he was satisfied that it was in her best interests to do so, also act for the husband or the lender. His advice should be given at a face-to-face meeting in the absence of the husband, and its contents need not be directed to the commercial wisdom of the transaction but should include, as a core minimum, an explanation of the documentation, its practical consequences and inherent risks based on the financial information provided by the lender; he should also state that the choice whether to proceed was to be exercised by her and should check that she wished to continue and, if so, he should obtain her consent to his giving the confirmation required by the lender. Since in so advising her the solicitor assumed professional responsibilities to the wife he did not act as agent for the lender, who was entitled to assume that he had acted properly, and, in consequence, knowledge of the contents of advice given to the wife, whether negligently or otherwise, was not to be imputed to the lender”.
22. Clarke J. then noted that in Etridge Lord Nicholls had found that a bank was put on inquiry when faced with a transaction which called for explanation and thus is put on inquiry: where a wife stands surety for her husband’s debts; where a husband stands surety for his wife’s debts; and where unmarried couples, whether heterosexual or homosexual, stand surety for each other’s debts in circumstances where the lender is aware of the relationship. As Clarke J. put it, Lord Nicholls went so far “as to suggest that the only practical way of dealing with the matter was to regard the lender as on inquiry in every case where ’the relationship between the surety and the debtor is non-commercial.’” While Lord Nicholls distinguished between cases where the surety guaranteed the debts of a spouse or partner from a case where the monies were advanced to the spouses or partners jointly (the lender not being on inquiry in the latter case unless it was known to the bank that the loan was for the benefit of one person only), Lord Nicholls nonetheless took the view that a guarantee over the debts of a company in which the shares were held by both spouses or partners did place the lender on inquiry having regard to what was said to be the fact that, in many such cases, the shareholding did not reflect the true situation.
23. Clarke J. then commented ([2012] 1 I.R. 765, 778-779):
“It seems to me that this issue raises very difficult questions. It is not, in my view, necessary to fully explore the precise parameters of the circumstances in which a bank may be placed on inquiry for the purposes of determining the issues in this case….. Nothing in this judgment should be taken as, therefore, necessarily implying that the law in Ireland goes as far as the position in the United Kingdom as identified in Etridge in placing a bank on inquiry.”
24. As it happens, it was not necessary for Clarke J. to go that far, because the judge could point to circumstances where the Bank was, in fact, on notice of the potential undue influence. Clarke J. then concluded on this point ([2012] 1 I.R. 765, 780):
“It seems to me that the academic criticism of Fitzgerald is well founded. A regime which places no obligation on a bank to take any steps to ascertain whether, in the presence of circumstances suggesting a non-commercial aspect to a guarantee, the party offering the guarantee may not be fully and freely entering into same, gives insufficient protection to potentially vulnerable sureties. While not necessarily accepting that the precise parameters, identified in Etridge, are those which give rise to an obligation on the bank to inquire, and thus represent the law in this jurisdiction, I am satisfied that the general principle, which underlies Etridge, is to the effect that a bank is placed on inquiry where it is aware of facts which suggest, or ought to suggest, that there may be a non-commercial element to a guarantee. That general principle, at a minimum, goes far enough to cover the facts of this case where the bank was, for reasons set out, aware of the personal relationship between Ms. Buttimer and Mr. Roche and was also aware that Ms. Buttimer had no direct interest in the company (other than being a director) and was, indeed, in those circumstances, in a less secure position than a spouse or, in the modern context, a civil partner who has at least certain potential legal rights in the assets or income of the other spouse or partner. The potential for undue influence against a partner, such as Ms. Buttimer, who has very limited legal rights indeed and who has no interest in the company whose debts it is sought that she should guarantee, seems to me to be well on the side of whatever threshold might ultimately be fixed for determining the point at which a bank is placed on inquiry. In those circumstances I am satisfied that the bank was on inquiry on the facts of this case.”
25. Clarke J. then addressed the second question, namely, what a bank was required to do when placed on inquiry ([2012] 1 I.R. 765,781):
“I have already cited the position in the United Kingdom as per Etridge. Again, under this heading, nothing which I say should be taken as necessarily implying that the full rigours of the regime which applies in the United Kingdom represents the law in Ireland. However, I am satisfied that a bank which is placed on inquiry is obliged to take at least some measures to seek to ensure that the proposed surety is openly and freely agreeing to provide the requested security. As Ulster Bank, in this case, took no such steps it is, in my view, unnecessary to consider the precise level of steps which a bank must take.”
The implications of the decision in Roche for the present case
26. It remains to consider what the implications of Roche for the present case might be. One may say immediately that in contrast to that case there is actually no evidence – and certainly no clinical evidence – of the kind of undue influence which was established by expert evidence in Roche at play in the present case. There is no suggestion at all that the relationship between Mr. de Krester and Ms. Fox is anything other than a happy one. Certainly, the circumstances of this case are very different to those of Roche where Clarke J. expressly found that the relationship in that case was a dependent and quite abusive one.
27. It is also true that, as Hedigan J. expressly found, Ms. Fox was an experienced businesswomen with considerable experience of a banking relationship and, indeed, the giving of personal guarantees. It was she, after all, who introduced her husband as a potential customer to the plaintiff Bank. To that extent, her case and general circumstances are rather different to those of the partner in Roche who was called upon to act as surety. It is also the case that Ms. Fox had a small 1% shareholding in her husband’s company and that she drew a monthly salary of some €2,000 per month
28. The fact remains, however, that the Bank took no affirmative steps to protect Ms. Fox prior to the execution of the guarantee of her husband’s business debts (and those of his company) by her. Those are the critical considerations so far as the decision in Etridge (No.2) is concerned, since that case is, in some respects, rather less about undue influence as such and rather more about ensuring that banks insist on independent advice where one spouse is guaranteeing the commercial debts of the other spouse, almost regardless of the personal circumstances of the spouse called upon to act as surety.
29. In the course of an exceptionally thorough review of the authorities, Lord Nicholls stated ([2002] 2 AC 773, 803) that the effect of the earlier decision of the House of Lords in Barclays Bank v. O’Brien [1994] 1 AC 180 was that “quite simply that a bank is put on inquiry whenever a wife offers to stand surety for her husband’s debts.” In Mee’s graphic words, the decision in Etridge has accordingly “collapsed into a regime which requires the lender to insist on independent legal advice”: see (2002) 37 Irish Jurist 292, 305.
30. The test for summary judgment is, of course, that as stated by Hardiman J. 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?”
31. Judged by these standards, it seems to me that, in the light of cases such as Etridge (No.2) and Roche, Ms. Fox has raised an arguable case that the Bank were under an affirmative duty to insist that she obtain independent legal advice before she executed a guarantee of her husband’s business debts. In the light of this case-law, I cannot say that Ms. Fox has no case so far as her Etridge-style defence to the guarantee is concerned.
Conclusions
32. In summary, therefore, I am of the view that, save in one respect, the defendants have not raised any arguable defences to the Bank’s application for summary judgment. As I have indicated, Ms. Fox has, however, advanced an arguable case to the effect that the Bank was under an affirmative duty to see that she was independently advised before she executed the guarantee in question. Nothing in this judgment should be interpreted as expressing any further views on the merits of this defence, save that, in my view, Ms. Fox has in this respect met the threshold for resisting summary judgment.
Bank of Ireland -v- Curran & anor [2016] IECA 399 (21 December 2016)
URL: http://www.bailii.org/ie/cases/IECA/2016/CA399.html
Cite as: [2016] IECA 399
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Judgment
Title:
Bank of Ireland -v- Curran & anor
Neutral Citation:
[2016] IECA 399
Court of Appeal Record Number:
2016 22
High Court Record Number:
2016 2006 S
Date of Delivery:
21/12/2016
Court:
Court of Appeal
Composition of Court:
Ryan P., Irvine J., Hanna J.
Judgment by:
Irvine J.
Status:
Approved
Result:
Dismiss
THE COURT OF APPEAL
Neutral Citation Number: [2016] IECA 399
Appeal Nos. 2016/22
Ryan P.
Irvine J.
Hanna J.
BETWEEN/
THE GOVERNOR AND COMPANY OF THE BANK OF IRELAND
PLAINTIFF / RESPONDENT
– AND –
MICHAEL CURRAN
FIRST NAMED DEFENDANT
– AND –
MAUREEN CURRAN
SECOND NAMED DEFENDANT / APPELLANT
JUDGMENT of Ms. Justice Irvine delivered on the 21st day of December 2016
1. This is an appeal by the second named defendant, Mrs. Maureen Curran, (“Mrs. Curran”) against the judgment and order of the High Court (McGovern J.) of 21st December, 2015, whereby he granted the plaintiff / respondent, the Governor and Company of the Bank of Ireland (“the bank”), summary judgment against Mrs. Curran for the sum of €1m. The issue on this appeal is whether the trial judge erred in law when he concluded that Mrs. Curran had not established a bona fide credible defence to the bank’s claim such that the proceedings ought to have been remitted to plenary hearing.
2. The bank, in its claim which was commenced by summary summons on 27th October, 2015, sought judgment against Mrs. Curran on foot of a guarantee dated 28th May, 2008, ( “the guarantee”) whereby she guaranteed the liabilities of a company, XL Fuels Group Ltd. (“the company”), to the extent of €1m. plus interest.
3. Following the issue of the bank’s motion for summary judgment on 2nd November, 2015, affidavits were exchanged between the parties. Three in number were sworn on behalf of the bank detailing Mrs. Curran’s dealings with the bank and the circumstances surrounding her execution of the guarantee. In response, Mrs. Curran swore two affidavits in which she advanced her intended defence. Mr. Michael Ryan, a solicitor who had acted on her behalf concerning other banking transactions concluded some weeks earlier, also swore an affidavit on her behalf.
4. In her affidavits Mrs. Curran set out to demonstrate that there were three grounds upon which she might arguably and credibly defend the proceedings; the first being that the guarantee was unenforceable as one executed under undue influence, the second that the guarantee was unenforceable as an unconscionable bargain and, thirdly, a defence based on the doctrine on non est factum.
5. In his detailed judgment delivered on 21st December, 2015, McGovern J. addressed the evidence upon which Mrs. Curran relied in support of her three potential grounds of defence before concluding that she had not established any arguable defence to the proceedings.
Relevant background facts
6. It is only possible to consider whether the trial judge erred in law in failing to refer the within proceedings to plenary hearing if the relevant background facts are known. For this reason I will try to summarise the more relevant aspects of the evidence that was before the High Court.
7. The company was incorporated in 2007. Mrs. Curran was a director of the company and was also its secretary. She received what was described as a “stipend” in respect of such services.
8. By facility letter addressed to the company secretary dated 28th May, 2008, the bank agreed to make additional facilities available to the company on the terms and conditions therein proposed. These included the requirement that further security would be provided in the form of a letter of guarantee (limit of €1m.) to be executed by Mrs. Curran. The acceptance of that facility was signed by Mrs. Curran and her son, Michael Curran, the first named defendant.
9. On the same date, at her home which was at her request, Mrs. Curran signed the aforementioned guarantee in the presence of two bank officials, Vivien Rountree and Lorraine Kavanagh. Mr. Michael Curran was not in attendance.
10. It is not disputed that Mrs. Curran signed the guarantee in three places. The first signature appears beneath a warning advising that if the borrower failed to pay the guarantor would become liable to discharge the outstanding loan together with interest and which also advised that prior to signing the guarantee independent legal advice should be obtained. The second signature acknowledges receipt of a copy of the guarantee and indemnity. The third signature appears beneath a statement written by Mrs. Curran which advises that she understood the nature of the liability she was undertaking and that she did not wish to obtain the independent advice of a solicitor. It is accepted that the text of this last statement, whilst written in the hand of Mrs. Curran, was one which would have been read out to her by one of the bank officials present.
11. It is not disputed that the following day Mrs. Curran received a letter from the bank enclosing a copy of the guarantee. The same letter explained the reason for which the guarantee had been required and also advised her that the bank would review the ongoing facility in three months time.
12. On 22nd September, 2008, the bank wrote to Mrs. Curran asking her to confirm that she was amenable to permitting the bank to rely upon the guarantee as continuing security for the facility then being afforded to the company, a request accepted by Mrs. Curran as acknowledged by her signature which she duly appended to the acceptance form enclosed with the bank’s letter.
General principles
13. The parties are not in dispute as to the threshold which a defendant must meet in order to avoid summary judgment. The question the Court must ask itself is that identified by Hardiman J. in Aer Rianta v. Ryanair [2001] 4 IR 607 at 623, namely:-
“…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?”
14. Further and more particular guidance as to the proper approach of the court on an application for summary judgment is to be found in the judgment of McKechnie J. in Harrisrange Limited v. Duncan [2003] 4 IR 1 where at para. 9 he identified twelve factors material to the court’s consideration on such an application. It is clear from this decision, and indeed many more besides, that a mere assertion as to a given situation which is to form the basis of a defence is insufficient. The defendant must do better than bald assertions as was advised by Ackner L.J. in Banque de Paris v. de Naray [1984] 1 Lloyd’s Law Reports 21, where he stated as follows::-
“…the mere assertion in an affidavit of a given situation which is to be the basis of a defence did not, ipso facto provide leave to defend; the court must look at the whole situation and ask itself whether the defendant has satisfied the court that there is a fair or reasonable probability of the defendants’ having a real or bona fide defence.”
15. That last statement of Ackner L.J. has been approved of in this jurisdiction in many decisions including that of Murphy J. in First National Commercial Bank plc v. Anglin [1996] 1 IR 75 and more recently the judgment of Ryan J. in Bank of Scotland plc v. Hickey [2014] IEHC 202, the latter being a decision to which I will later return.
16. It is also well established law that there are issues that may conveniently be dealt with otherwise than on a plenary hearing. However these are relatively limited as was stated by Clarke J. in McGrath v. O’Driscoll [2007] I ILRM 203 where, in the following brief passage from his judgment at p. 210, he said as follows:-
“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.”
Submissions
17. The parties delivered very extensive submissions in writing on this appeal. It is not in my view necessary to rehearse these as the same will be apparent from my appraisal of each ground of defence proposed by Mrs. Curran and which are dealt with individually below. Suffice to state that Mr. O’Reilly S.C. submits that the trial judge erred in law insofar as he could not have been satisfied, as was required of him to grant summary judgment, that Mrs. Curran had no arguable defence to the proceedings. He further maintained that there were issues of law which were complex and were not capable of being determined in the course of an interlocutory hearing.
18. I now intend to review each of the potential defences advanced on behalf of Mrs. Curran for the purposes of considering whether the trial judge erred in his conclusion that she had not made out a bona fide or credible defence entitling her to have the proceedings referred to a plenary hearing. .
Undue influence
19. It is necessary first to consider in brief the law in this jurisdiction in relation to the defence of undue influence. That of course very much depends upon the circumstances in which such a defence is advanced. If one contracting party induces or forces the other to enter into a particular contract or agreement, it is clear that such a contract will be set aside inter partes. That, however, was not the scenario with which the High Court was concerned in this case. Here, Mrs. Curran’s claim of undue influence, insofar as it can be ascertained from her affidavits, does not appear to be made against the contracting party i.e. the bank, but rather against a third party, her son, Michael Curran, who had an interest in procuring the execution of the guarantee. The same was required in order that the company would be provided with the banking facilities contained in the Facility Letter of 28th May, 2008.
20. The law in this particular area was relatively recently and thoroughly addressed by Clarke J. in Ulster Bank (Ireland) Ltd v. Roche and Buttimer [2012] 1 I.R. 765, a case in which he was asked to adopt as the law in this jurisdiction the law as clarified by the House of Lords in Royal Bank Of Scotland plc v. Etridge (No.2) [2002] 2 AC 773 and in which he was encouraged to reject the approach that had been adopted by O’Donovan J. in Ulster Bank Ireland Ltd v. Fitzgerald and Williams [2001] IEHC 159. I will refer in some detail to the decision in Ulster Bank (Ireland) Ltd v. Roche and Buttimer as I consider the same of significance to my conclusions.
21. The first defendant, Mr. Roche, was involved in the motor trade and was running his business through a corporate entity, Louis Roche Motors Ltd. Ms. Buttimer, who was his partner, in the personal sense of that term, was employed as a hairdresser. She was also a director in Mr. Roche’s business although it was accepted that she played no role in it. Ms. Buttimer signed a guarantee in respect of the liabilities of the business and when the bank moved to enforce it against her she sought to rely upon a defence of undue influence.
22. The first substantial issue which Clarke J. had to address was the factual question as to whether Ms. Buttimer was actually under the undue influence of Mr. Roche at the time she executed the guarantee. This was what he described as the first leg of the “test” for undue influence. Only if that issue was resolved in her favour, would it be necessary for the court to address the legal question as to whether there were sufficient circumstances to permit Ms. Buttimer contend that the guarantee should be set aside, given that the bank was not itself guilty of any undue influence.
23. Having heard the evidence of Ms. Buttimer and that of the clinical psychologist who had been treating her at the time she signed the guarantee, Clarke J. expressed himself satisfied that at the time she executed the guarantee she was indeed under the undue influence of Mr. Roche. He found as a matter of fact that she was in a dependent and abusive relationship and that she would have done anything that he asked of her.
24. Clarke J. then went on to consider the second leg of the test, namely whether Mr. Roche’s undue influence provided Ms. Buttimer with a defence. He did so in the context of the decisions in Etridge and Fitzgerald, the latter being a decision which had received some criticism as providing insufficient protection to potentially vulnerable sureties, insofar as he had absolved the lender of any responsibility to the guarantor unless it could be established that the lender had some special reason to believe that a wrong had actually taken place.
25. Given that there was no evidence from which it could be inferred that the bank was actually aware of the undue influence exercised by Mr. Roche over Ms. Buttimer, Clarke J. went on to consider the circumstances in which it would be appropriate to attribute to a bank knowledge of undue influence where it was not actually aware of the undue influence concerned.
26. The following is what Clarke J. stated, at para. 25 of his judgment concerning the issue of constructive notice:-
“Constructive knowledge can often usefully be broken down into two separate questions. The first is as to what factors place a party on inquiry. The second is as to the nature of the inquiry or action that may then be required. If, in circumstances where a party is put on inquiry, that party does not carry out the inquiries necessary or take whatever other form of action may be mandated, then the party will be fixed with knowledge of matters which it would have discovered had it made the appropriate inquiries or, at least, may be faced with the situation where the court views the case on the basis that appropriate steps were not taken.”
27. It is clear from what is stated in his judgment that Clarke J., whilst agreeing that the decision in Fitzgerald provided insufficient protection to potentially vulnerable sureties, was not prepared to go so far as to adopt as the law in this jurisdiction that which was laid down by the House of Lords in Etridge.
28. In his judgment Clarke J. refers to two particular statements made by Nicholls L.J.; the first being that the only practical way of dealing with the issue was to regard the lender as on inquiry in every case “where the relationship between the surety and the debtor was non-commercial” and the second being that a proposed guarantee over the debts of a company in which the shares were held by both spouses or partners placed the lender on enquiry, having regard to the fact that, in many such cases, the shareholding did not reflect the true situation. It is noteworthy that Clarke J. does not state whether he would endorse either proposition. However, he described, at para. 32, the general principle which underlies Etridge in the following manner:-
“…a bank is placed on inquiry where it is aware of facts which suggest, or ought to suggest, that there may be a non-commercial element to the guarantee. That general principle, at a minimum, goes far enough to cover the facts of this case where the bank was, for reasons set out, aware of the personal relationship between Ms. Buttimer and Mr. Roche and was also aware that Ms. Buttimer had no direct interest in the company (other than being a director) and was, indeed, in those circumstances, in a less secure position than a spouse or, in the modern context, a civil partner who has at least certain potential legal rights in the assets or income of the other spouse or partner. The potential for undue influence against a partner, such as Ms. Buttimer, who has very limited legal rights indeed and who has no interest in the company whose debts it is sought that she should guarantee, seems to me to be well on the side of whatever threshold might ultimately be fixed for determining the point at which a bank is placed on inquiry.”
29. As the bank had taken no steps to ensure that Ms. Buttimer had freely agreed to the guarantee it was unnecessary to consider the precise steps which the bank was obliged to take. He held that Ms. Buttimer was entitled to rely on the “undoubted undue influence” which Mr. Roche had exercised over her and that, having regard to the bank’s failure to conduct any inquiries, the claim had to fail.
30. More recently, Ryan J. in Bank of Scotland plc v. Hickey [2014] IEHC 202 considered the obligations of a bank when taking security to support borrowing in the context of summary summons proceedings. The decision is particularly material to the type of evidence required of a defendant should they wish to rely upon a defence such as undue influence. In that case the defendant and her partner had entered into a loan agreement with the bank the terms thereof required that the parties provide security in the form of a legal mortgage over a number of properties. When the borrowers fell into arrears the bank brought proceedings against Ms. Hickey who sought, in the context of a motion for summary judgment, to contend that she had an arguable defence based upon her assertion that she executed the relevant document “at the behest and direction of Mr. Porter” her partner with whom she was in a personal relationship. The bank had failed to take steps to ascertain the circumstances in which she had executed the documentation and that being so Ms. Hickey maintained that she had an arguable defence to the proceedings based upon undue influence.
31. What Ryan J. made clear in the course of his judgment was that it was hopelessly inadequate for Ms. Hickey, in order to avoid summary judgment, to make what was a relatively bald assertion that she was under the undue influence or domination of Mr. Porter when she executed the relevant documentation. This is what he said at para. 34 of his judgment:-
“Ms. Hickey says that she “executed the relevant documents at the behest and direction of Mr. Porter” which counsel, Mr. Downey, interprets as a claim of undue influence or domination of Ms. Hickey by Mr. Porter. This is the only evidence put forward to establish that this defendant was not in control of her own destiny in taking out these loans. It is hopelessly inadequate as evidence and goes nowhere near establishing the case. As the plaintiff submitted, the defendant has provided no proof or detail of any fact or circumstance to suggest that Mr. Porter exerted undue influence over her. Moreover, she was at all times represented by a solicitor. No information is provided, no example is given of how the alleged coercion was exercised and it is impossible to deduce from the bald and brief statement the overbearing of will that would be necessary to avoid liability. Taking the statement entirely at face value, it does not amount to coercion or undue influence.”
32. From the last two mentioned decisions, it is clear that in order to establish a defence of undue influence at a plenary hearing Mrs. Curran would first have to satisfy the court that but for the undue influence exerted upon her by her son she would not have executed the guarantee and second that the bank, i.e. the creditor, had actual or constructive notice that the guarantee was procured by the undue influence. That being so, in order to resist summary judgment, Mrs. Curran had to satisfy the low threshold standard by establishing on affidavit that she might credibly argue in the course of a plenary hearing that she had executed the guarantee as a result of the undue influence. It is only relevant to consider whether it is arguable that the bank was obliged to make inquiries to ascertain whether, having regard to her connection with the company, she fully understood and was freely entering into the guarantee, if she could first establish a credible or arguable case on the facts that she executed the guarantee in circumstances of undue influence. In turn, that required her to set out on affidavit the type of facts, details and circumstances upon which she would rely at the trial to establish that her will was overborne by her son, Michael Curran, when she executed the guarantee.
33. As has so often been advised in the relevant case law, a bald assertion as to the existence of circumstances which might afford a defence is insufficient for the purposes of resisting summary judgment. That is all that Mrs. Curran placed before the High Court for the purposes of defending the motion for summary judgment. I am quite satisfied that evidence does not meet even the relatively low threshold required of the defendant to have the case remitted to plenary hearing.
34. In her affidavit of 23rd November, 2015, having referred in some detail to entering into mortgage agreements with the bank in early 2008 to secure joint borrowings of €1.7m with her son Joseph Curran, she states as follows concerning the guarantee:
Paragraph 13:
“I say that given my age and lack of involvement in the businesses, I cannot explain how the said documentation actually came to be executed by me…”
Paragraph 18:
“…aside from the advices obtained from Mr. Ryan, my solicitor, I relied wholly on the explanations and advices provided to me by Michael Curran and Vivien Rowntree of Bank of Ireland and did what was asked of me by them. I say that at no time was it explained to your Deponent that I was doing anything which I had been advised by Mr. Ryan, not to do. I say that both Michael Curran and Ms. Rowntree knew that I had been advised by Mr. Ryan.”
Paragraph 30:
“I say that Michael Curran would call to my house and request my signature for various documentation at various intervals. I say that I relied upon him to explain the nature and purpose of the request. I say that at no time was I aware that there was a personal guarantee in effect. I say that I always understood that the nature of the security provided was solely in respect of the mortgage properties.”
35. What is glaringly absent from her affidavits is evidence to demonstrate that any undue influence was brought to bear upon her by her son, Michael Curran, or indeed by the bank itself. In regard to the bank also, Mrs Curran’s affidavits cannot support any potential defence of undue influence based on the conduct of the bank as the contracting party.
36. In these circumstances I am satisfied that the High Court judge cannot be faulted for concluding that Mrs. Curran had failed to demonstrate a bona fide or credible defence based upon acts of undue influence. There was no evidence that the bank should have been on inquiry to satisfy itself that she understood the nature of the guarantee proposed and that she was executing it otherwise than under her son’s influence.
37. It is unnecessary in light of the above conclusions to consider a number of other matters raised by way of potential defence to these proceedings. These include (i) Mrs. Curran’s evidence that she was advised by the bank officials at the time she signed the guarantee that she did not require legal advice (ii) whether she played an active role within the company or (iii) whether legal advice carried over from when she executed mortgages in respect of her joint borrowings with her son, Joseph Curran, earlier in the year. These are issues which are only material to the second leg of a court’s analysis of an undue influence claim. They do not fall to be considered in the absence of factual evidence to support the undue influence alleged. Having said that, I do not think there is any reason to disagree with the conclusions of McGovern J in his judgment.
Unconscionable bargain
38. As with her proposed defence based upon a claim of undue influence, the trial judge concluded that Mrs. Curran had adduced no credible evidence to support a defence of unconscionable bargain. In coming to this conclusion he relied upon the fact that she had extensive connections with the company with the result that the guarantee could not arguably be considered an unconscionable bargain.
39. In his decision in the High Court in Carroll v. Carroll [1998] 2 ILRM 218, [1998] IEHC 42, a decision later upheld by the Supreme Court, Shanley J. set out the elements which must be established before equity would intervene on the grounds of unconscionable bargain. First, one party must be at a serious disadvantage to the other by reason of poverty, ignorance or otherwise, so that circumstances exist of which unfair advantage can be taken. Second, the transaction must be at an undervalue and third there must be a lack of independent legal advise.
40. Assuming that Mrs. Curran can credibly argue that the advice she received from Mr. Ryan concerning the execution of guarantees at the time she executed two legal mortgages six weeks prior to the transaction under scrutiny in this case was insufficient, the question is whether she put before the trial judge bona fide and credible evidence which could arguably satisfy the other two elements of the test. In my view she did not do so. Mrs. Curran did not put forward on affidavit any evidence to demonstrate that she was at any serious disadvantage to the bank by reason of poverty, ignorance or otherwise. Her age or ignorance had not precluded her from carrying out her obligations as company secretary which included signing its annual accounts. Further, some six weeks prior to the execution of the guarantee she borrowed jointly with her son, Joseph Curran, €1.7m. and executed two deeds of mortgage to support those borrowings. There is nothing in her affidavits upon which she might reasonably rely to bring herself close to the type of personal situation established by the plaintiff in Grealish v. Murphy [1946] 1 I.R. 35 or Carroll v. Carroll. The facts of those cases are well known and it is unnecessary to refer to them in any detail. Suffice to mention that Mr. Grealish was an elderly farmer who lived on his own, had a range of mental difficulties, was relatively illiterate and was known to be irresponsible with money. Further, unlike the transactions in Grealish and Carroll, the guarantee in this case can’t be stated to have been given for nothing or for some insignificant advantage. It is clear that the bank agreed to provide additional banking facilities to the company which would not otherwise have been made available had the guarantee not been provided by way of security. The “bargain” could never be considered extortionate.
41. In the aforementioned circumstances I am quite satisfied that the trial judge was correct as a matter of law when he concluded that the facts advanced by Mrs. Curran on affidavit were insufficient to demonstrate a credible defence based upon the doctrine of unconscionable bargain.
Non est factum
42. The law in relation to non est factum has been discussed in a number of recent decisions including those of Kelly J. in Allied Irish Banks plc v. Higgins and Others [2010] IEHC 219 and IBRC v. Quinn [2011] IEHC 470 and Clarke J. in Ulster Bank Ireland Ltd v. Roche and Buttimer to which I have already referred.
43. In the first of the aforementioned decisions, Kelly J. at p. 41 approved of the following proposition as advised in Saunders v. Anglia Building Society [1971] AC 1004:-
“The plea cannot be available to anyone who was content to sign without taking the trouble to try to find out at least the general effect of the document. Many people do frequently sign documents put before them for signature by their solicitor or other trusted advisors without making any inquiry as to their purpose or effect. But the essence of the plea non est factum is that the person signing believed that the document he signed had one character or one effect whereas in fact its character or effect was quite different. He could not have had such a belief unless he had taken steps or been given information which gave him some grounds for his belief…”
44. In the present case if Mrs. Curran had taken the trouble to read the document presented to her for her signature on 28th May, 2008, as was advised by the trial judge in the course of his judgment, she would not have had any difficulty in understanding that she was signing was a guarantee for €1m. and that in doing so she was providing security to the bank that was separate and distinct from any earlier security she had provided in respect of other borrowings.
45. I am quite satisfied that the conclusion of the trial judge that Mrs. Curran, on the facts advanced, had not demonstrated an arguable defence based on non est factum is borne out by the decision of Clarke J. in Ulster Bank Ireland Ltd v. Roche and Buttimer when referring back to his own decision in ACC Bank plc v. Kelly [2011] IEHC 7 as adopted by Kelly J. in Irish Bank Resolution Corporation Limited v. Quinn [2011] IEHC 470, at p. 771 he stated:-
“….A person who signs a document which may well have significant legal effect and does so, either without reading the document or without applying themselves to the content of the document, “must accept the consequences of having signed a commercially binding agreement in those circumstances” and will, prima facie, be bound by what they have signed.”
Conclusion
46. Having considered the relevant legal principles, the judgment of McGovern J. and the evidence that was before him at the time he granted summary judgment in favour of the bank, I am satisfied that he was correct when he concluded that Mrs. Curran had not established an arguable or credible defence to the bank’s claim. For the reasons earlier set out I would dismiss the appeal.
ACC Loan Management Ltd -v- Connolly & Anor [2017] IECA 119 (04 April 2017)
URL: http://www.bailii.org/ie/cases/IECA/2017/CA119.html
Cite as: [2017] IECA 119
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Judgment
Title:
ACC Loan Management Limited -v- Connolly & Anor
Neutral Citation:
[2017] IECA 119
Court of Appeal Record Number:
2016 32
High Court Record Number:
2013 1697 S
Date of Delivery:
04/04/2017
Court:
Court of Appeal
Composition of Court:
Finlay Geoghegan J., Hogan J., Hanna J.
Judgment by:
Finlay Geoghegan J.
Status:
Approved
Result:
Dismiss
Judgments by
Link to Judgment
Concurring
Finlay Geoghegan J.
Link
Hogan J., Hanna J.
Hogan J.
Link
Finlay Geoghegan J., Hanna J.
THE COURT OF APPEAL
Neutral Citation Number: [2017] IECA 119
Finlay Geoghegan J.
Hogan J.
Hanna J.
No. 2016/32
A.C.C LOAN MANAGEMENT LIMITED
PLAINTIFF/RESPONDENT
AND
JOHN CONNOLLY AND MAURICE CONNOLLY
DEFENDANTS/APPELLANTS
JUDGMENT delivered by Ms. Justice Finlay Geoghegan on the 4th day of April
2017
1. This appeal primarily concerns the question as to whether a guarantor who does not contend that he entered into a guarantee under the undue influence or by reason of some other wrong of the principal debtor, such as misrepresentation, nevertheless has an arguable defence against a claim made by the creditor pursuant to the guarantee upon the grounds that the creditor, being on notice of a family relationship between the guarantor and the principal debtor, was obliged to take steps to ensure that the guarantor understood the nature of the guarantee and/or freely consented to the giving of the guarantee.
2. The respondent raises a preliminary objection to the appeal upon the grounds that it was out of time and the appellant has brought a motion seeking, if necessary, an order extending the time within which to bring the appeal.
3. There is also a subsidiary question in relation to the execution of the guarantee purporting to have been “signed, sealed and delivered” but without evidence that a seal was affixed.
Background facts
4. The appellant is the father of the first named defendant (“the son”). By a facility letter dated the 28th October, 2005, the plaintiff (“the bank”) offered credit facilities in the sum of €680,000 to the son. The purpose of the loan was to fund the purchase of a 1.7 hectare site with outline planning permission for five properties at Fethard-on-Sea, Co. Wexford. The loan was accepted by the son.
5. By a second facility letter dated the 30th November, 2007, the bank offered further facilities in the sum of €613,000 to the son for the purpose of building the first of the five houses and associated costs. That loan was also accepted by the son.
6. The security to be given for each loan pursuant to the facility letters included a guarantee and indemnity from the appellant supported by a first legal mortgage in charge on the 35 hectares of agricultural lands in Co. Wexford.
7. The bank contends that the appellant granted to it a first guarantee and indemnity dated the 4th November, 2005 and a second guarantee and indemnity dated the 23rd November, 2008.
8. There was default in repayment of the loans, and letters of demand were sent to the son and the appellant. The bank issued a summons on the 24th May, 2013, seeking judgment against the son as principal debtor and the appellant as guarantor pursuant to the first and second guarantee.
9. The bank in due course issued a motion seeking liberty to enter final judgment against both defendants. Affidavits were exchanged to which I will refer further below, and following the hearing of the application for summary judgment in the High Court (Fullam J.), that court, for the reasons set out in a written judgment delivered on the 12th February, 2015, granted judgment against the appellant in favour of the plaintiff pursuant to the first guarantee dated the 4th November, 2005 and remitted to plenary hearing the issue of the appellant’s liability under the second guarantee. Judgment was also given against the son for the full amount claimed, from which there is no appeal.
10. Pursuant to that judgment an order was drawn by the High Court dated the 12th February, 2015, and perfected on the 4th June, 2015. It provided, insofar as the appellant is concerned, that “the plaintiff do recover against the defendants jointly and severally in the sum of €1,185,255.55 in respect of the first loan and guarantee” and remitted the claim against the appellant in respect of the second guarantee to plenary hearing.
11. No step was taken by the appellant within the ten day period permitted for an expedited appeal following the perfection of the said order.
12. It appears that the bank subsequently ascertained that the figure of €1,185,255.55 was incorrect and it made an ex parte application to the High Court under O. 28, r. 11 and the order was amended by a further order made on the 16th November, 2015, which in accordance with its terms insofar as relevant, ordered that the order of the 12th February, be amended by “the deletion of the figure €1,185,255.55 where same appears in the said order and replacing same with the figure €1,061,357.98”. That order was perfected on the 14th January, 2016. The appellant issued a notice of expedited appeal on the 22nd January, 2016, i.e. within ten days of the perfection of the second High Court order. The respondent, in its notice, took as a preliminary point the fact that the appeal was out of time. The appellant issued a motion seeking an extension of time grounded on an affidavit of the appellant sworn on the 28th June, and it was agreed that the motion be heard with the substantive appeal.
13. In his affidavit, the appellant has sworn that it was always his intention to appeal the order of the 12th February, 2015, insofar as it related to the summary judgment granted against him, but that as the order was not perfected until the 4th June, 2015, neither he nor his solicitor became aware of the order having been perfected until after the period of time for filing the notice of appeal. He seeks to contend that as his appeal is against both orders, the second of which was perfected on the 14th January, 2016, that his appeal was in time. In the alternative he seeks an extension of time.
14. I do not consider that the appeal against the order granting summary judgment was lodged in time. The substantive order is the order of the 12th February, 2015. The amendment properly sought and obtained on behalf of the bank was to the benefit of the appellant as it reduced the amount for which judgment was ordered against him. The second order provides for an amendment to the substantive order.
15. I recognise that where there is significant delay in the perfection of an order, it may give rise to its perfection being overlooked by a client or his solicitor.
16. In accordance with the well known principles in Eire Continental Trading Company Limited v. Clonmel Foods Limited [1955] I.R. 170, by reason of the averment of the appellant that he always intended to appeal the decision granting the summary judgment against him, it appears that the primary matter for consideration by the court is whether or not the appellant has arguable grounds of appeal. In circumstances where the full appeal has been argued before the court and raises an important point, it appears preferable in the interests of justice that the court enlarges the time for bringing the appeal up to the 22nd January, 2016 and determines the appeal.
17. The bank, by an amended respondent‘s notice, has sought to advance additional grounds upon which the judgment of the High Court should be upheld. It has not, however, cross appealed against the remittal of the claim on the second guarantee to plenary hearing.
Evidence relating to the first guarantee
18. Mr. Scanlon, the deponent for the bank in the High Court, exhibited a copy of what he described as “guarantee and indemnity dated 4 November 2005”. The copy exhibited is not dated on the first page where a date ought to have been inserted. The guarantee on p. 11 opposite the printed words “signed, sealed and delivered” appears to have been signed by the appellant.
19. The final page, however, of the copy document exhibited contains the following printed words:-
“I, Maurice Connolly, hereby confirm that I have been afforded an opportunity of obtaining independent legal advice as to giving my guarantee for a Loan Facility of €686,000 which has been sanctioned by ACC Bank plc to John Connolly, under the terms set out in the Letter of Sanction by ACC Bank plc dated the 28th October, 2005 and that I have declined to avail of this opportunity or have been afforded with such independent legal advise (sic).”
Below it is dated the 4th November, 2005, signed “Maurice Connolly” and then witnessed by Carol Sinnott of Cathal O’Neill and Co., Solicitors, 10 Church Avenue, Rathmines, Dublin 6.
20. The appellant did not make any affidavit in response to the plaintiff’s application for summary judgment in the High Court notwithstanding being given the opportunity to do so and being legally represented. His son, the first named defendant, swore one affidavit in which he draws attention to the fact that the first guarantee is not dated; that it was signed by the appellant and also refers to the fact that the appellant “has signed an endorsement dated the 4th November, 2005, stating that he has been afforded independent legal advice in relation to the Guarantee”. The son deposed that the advice was given by Cathal O’Neill and Co. Solicitors, who were the solicitors representing him in the transaction and that his father did not receive independent legal advice in respect of the guarantee and indemnity. The affidavit of John Connolly makes no reference to his having exerted any pressure or undue influence on his father to give the guarantees. The appellant swore no affidavit and did not adduce any evidence to ground any arguable defence that he entered into the guarantee by reason of pressure, undue influence or any other wrongful act by his son or adduced any evidence in relation to the circumstances in which he executed the first guarantee or received the legal advice referred to.
High Court submissions and judgment
21. The trial judge helpfully records the submissions relevant to the issues on appeal made on behalf of the appellant at para. 9 of his judgment to the effect that:-
“(a) The second defendant had no independent legal advice and that there was nothing before the court as to the circumstances of the signing of the documents, and
(b) The transaction was an improvident one for the second defendant who was a vulnerable person in his late sixties who had had a heart operation.”
22. He records the submission made on behalf of the bank relevant to this issue at para. 11.1:-
“Not having legal advice is not a defence in Irish Law. If there was evidence of undue influence exerted by the first defendant on the second defendant, and in this case there is no such evidence, it might afford a defence (Ulster Bank v. Roche and Buttimer [2012] IEHC 166 Clarke J). In this regard, the second defendant, having been given time by the court to swear a replying affidavit has failed to do so.”
23. The trial judge then identified the applicable principles on an application for summary judgment in accordance with the judgments in Air Rianta. v. Ryanair [2001] 4 IR 607 and Harrisgrange Limited v. Duncan [2003] 4 IR 1. He then considered the judgments of Clarke J. in the High Court in Ulster Bank v. Roche and Buttimer [2012] 1 I.R. 765, O’Donovan J. in the High Court in Ulster Bank (Ireland Limited) v. Fitzgerald and Williams [2001] IEHC 159, the House of Lords in Royal Bank of Scotland v. Etridge (No. 2) [2002] 2 AC 773 and Birmingham J. in the High Court in ACC Bank plc v. McEllin [2013] IEHC 454. Having done so he then set out his own analysis and conclusion on the issue at paras. 22 and 23:-
“22. While there is no specific allegation of undue influence, either by the first defendant on affidavit or the second defendant through his counsel’s submissions, the relationship between the first and second defendant does place the plaintiff on inquiry and, therefore under an obligation to take some reasonable steps to ensure that the guarantees have been freely entered into by the second defendant. In this regard the plaintiffs obtained a declaration from the second defendant that he had been afforded independent legal advice in respect of the first guarantee. The second defendant’s declaration dated 4th November, 2005 was witnessed by Mr. O’Neill, the solicitor, who is an officer of the court. If the second defendant wished to contradict the import of that declaration, he has had ample opportunity to do so by swearing a replying affidavit. He has chosen not to make such affidavit.
23. In the circumstances I am satisfied that the obtaining of the declaration was a sufficiently reasonable step on the part of the plaintiffs and the declaration has not been dislodged by the assertions of the first named plaintiff on affidavit or the submission of counsel for the second defendant.”
Appeal
24. On the principal issue, counsel on behalf of the appellant submitted that the trial judge was correct and followed the judgments in Ulster Bank v. Roche and Buttimer and the House of Lords in Etridge in determining that even in the absence of any claim of undue influence, those judgments provide that where a bank is on notice of a familial relationship, between the borrower and the guarantor, such as between the father and son herein, that the bank is under an obligation to take some steps to ensure that the guarantees are being freely entered into by the guarantor. Alternatively it is put that the bank is under an obligation to ensure that the guarantor is given independent legal advice prior to executing the guarantee. Counsel submitted that on the facts herein, by reason of the fact that the same solicitor was acting both for the son and the appellant, that the appellant had an arguable defence that the bank was in breach of its obligation to him and that such constitutes an arguable defence against the bank enforcing the guarantee against him.
25. The bank submitted, as it had done in the High Court, that the appellant had not adduced any evidence or otherwise sought to ground a defence that he had entered into the guarantee under the undue influence of his son. They submitted that the trial judge erred in law in determining that the relationship between the appellant and his son as principal debtor placed the bank on inquiry and under an obligation to take some reasonable steps to ensure that the guarantees were freely entered into by the appellant. Counsel for the bank submitted that this does not follow from the judgments in Ulster Bank v. Roche and Buttimer nor the decision of the House of Lords in Etridge.
26. Counsel for the appellant at the oral hearing sought to make two slightly different submissions. When asked what was the proposed arguable defence which he contended gave the appellant a right to have the bank’s claim on the first guarantee remitted to plenary, hearing he initially submitted that it was a defence of undue influence. By that I understood him to mean that the appellant contended that he entered into the guarantee under the undue influence of his son. However, on further questioning by members of the court he also submitted that the appellant was seeking to pursue a second defence, independent of any defence of undue influence, that by reason of the fact that the bank knew of the father/son relationship it was placed on inquiry and under an obligation to take steps to ensure that the appellant was given independent legal advice prior to entering into the guarantee. He submitted that it was an arguable defence to the enforcement of the guarantee against the appellant that the bank had failed on the facts to comply with that obligation. He made that second submission in reliance upon what he understood had been determined by Clarke J. in Ulster Bank v. Roche and Buttimer and the House of Lords in Etridge.
Discussion and Decision
27. I cannot accept the submission made on behalf of the appellant that on the evidence before the High Court at the hearing of the application for summary judgment an arguable defence, as that term is used in the Supreme Court decision in Aer Rianta v. Ryanair [2001] 4 IR 607, has been made out.
28. My conclusion is by reason first of the absence of any evidence by or on behalf of the appellant that he executed the first guarantee by reason of the undue influence or any other wrongful act of his son, the principal debtor. There was no evidence before the High Court upon which it could be concluded that an arguable defence of undue influence or other wrong by the son was made out. Further, I am not satisfied that, in the absence of the father making out an arguable defence that he gave the guarantee under the undue influence of his son (or because of any other alleged wrong such as misrepresentation), there is any arguable defence available in Irish law to him that the bank was under an obligation by reason of the known fact that he, the proposed guarantor, was the father of the principal debtor to take steps to ensure that he received independent legal advice or otherwise ensure that the guarantee was freely entered into such that the failure of the bank to take such steps is an arguable defence to the enforcement of the guarantee against him.
29. My reason for this latter conclusion is that I consider that the decision of the House of Lords in Etridge and the judgment of Clarke J. in Ulster Bank v. Roche and Buttimer are only concerned with the entitlement of a bank to enforce a guarantee where the guarantor has established, or in the case of an application for summary judgment has raised arguable grounds for contending, that the guarantee was entered into by reason of the undue influence or other wrongful act, in particular any misrepresentation, of the principal debtor. Those judgments are not in my view authority for an independent or distinct defence for a guarantor, albeit related to the principal debtor, seeking to vitiate a guarantee executed in favour of a bank by reason of a breach of an alleged duty owed by the bank to him to ensure that he has obtained independent legal advice or has taken some further steps to ensure that he fully understood the nature of the guarantee being given. Further, counsel has not referred to any other judgment as authority for such a proposition other than what I consider to be an obiter comment by Birmingham J. in the High Court in ACC Bank plc v. McEllin [2013] IEHC 454.
30. In Ulster Bank v. Roche and Buttimer, Ms. Buttimer was in a relationship with Mr. Roche and guaranteed his debt to Ulster Bank. Clarke J. at para. 16 of the judgment identified the issues arising in relation to the defence of undue influence raised by Ms. Buttimer in the following terms:-
“As pointed out earlier, there are both factual and legal aspects to the argument under this heading. The first factual question is as to whether Ms. Buttimer was actually under the undue influence of Mr. Roche. The legal question (which involves, at least in one view, some further questions of fact) is as to whether there are sufficient circumstances that allow Ms. Buttimer to have the guarantee set aside on the basis of the undue influence of Mr. Roche where Ulster Bank was not, itself, guilty of any undue influence. I propose dealing with the first of those issues straight away.”
31. On the first issue identified, Clarke J. concluded that Ms. Buttimer signed the guarantee in question while under the undue influence of Mr. Roche. He then concluded at para. 18 that the case came down to a question as to whether “that fact affords Ms. Buttimer a defence to Ulster Bank’s claim in this case”.
32. Clarke J. then identified the relevant question on that issue as being:-
“The extent to which a bank may find itself unable to rely on a banking contract (including in this context a guarantee for a bank debt) where it can be shown that the relevant contract was entered into as a result of the exercise of undue influence by a third party not directly connected with the bank.”
33. Next, Clarke J. considered the judgment of O’Donovan J. in the High Court in Ulster Bank Ireland Limited v. Fitzgerald [2001] IEHC 159, where O’Donovan J. having been satisfied on the facts that the bank in question had neither actual or constructive notice of any undue influence, concluded that there was no obligation on the bank in question to seek to ensure that the surety should obtain independent legal advice. On the facts of Ulster Bank v. Roche and Buttimer it was accepted that the bank was not in any way aware of undue influence and that Ms. Buttimer’s defence would have to fail if Clarke J. had followed Ulster Bank v. Fitzgerald.
34. However, Clarke J. then went on to consider the reliance placed by counsel for Ms. Buttimer on the Etridge judgment of the House of Lords where as stated by Clarke J. “the House of Lords clarified the law in respect of third party undue influence so far as the United Kingdom is concerned”. Clarke J. at paras. 24 and 25 of his judgment identified the issue that he was then concerned with was one of constructive knowledge, and stated at para. 25:-
“Constructive knowledge can often usefully be broken down into two separate questions. The first is as to what factors place a party on inquiry. The second is as to the nature of the inquiry or action that may then be required. If, in circumstances where a party is put on inquiry, that party does not carry out the inquiries necessary or take whatever other form of action may be mandated, then the party will be fixed with knowledge of matters which it would have discovered had it made the appropriate inquiries or, at least, may be faced with the situation where the court views the case on the basis that appropriate steps were not taken.”
35. Having considered portions of the opinion of Lord Nicholls in Etridge, Clarke J. the concluded at para. 32:-
“. . . While not necessarily accepting that the precise parameters, identified in Royal Bank of Scotland plc v. Etridge (No. 2) [2001] UKHL 44, [2002] 2 AC 773, are those which give rise to an obligation on the bank to inquire, and thus represent the law in this jurisdiction, I am satisfied that the general principle, which underlies Royal Bank of Scotland plc v. Etridge (No. 2) [2001] UKHL 44, is to the effect that a bank is placed on inquiry where it is aware of facts which suggest, or ought to suggest, that there may be a non-commercial element to a guarantee. That general principle, at a minimum, goes far enough to cover the facts of this case where the bank was, for reasons set out, aware of the personal relationship between Ms. Buttimer and Mr. Roche and was also aware that Ms. Buttimer had no direct interest in the company (other than being a director) and was, indeed, in those circumstances, in a less secure position than a spouse or, in the modern context, a civil partner who has at least certain potential legal rights in the assets or income of the other spouse or partner. The potential for undue influence against a partner, such as Ms. Buttimer, who has very limited legal rights indeed and who has no interest in the company whose debts it is sought that she should guarantee, seems to me to be well on the side of whatever threshold might ultimately be fixed for determining the point at which a bank is placed on inquiry.
33. In those circumstances I am satisfied that the bank was on inquiry on the facts of this case.
34. That leads to the second question which is as to what a bank must do when placed on inquiry. I have already cited the position in the United Kingdom as per Royal Bank of Scotland plc v. Etridge (No. 2) [2001] UKHL 44, [2002] 2 AC 773. Again, under this heading, nothing which I say should be taken as necessarily implying that the full rigours of the regime which applies in the United Kingdom represents the law in Ireland. However, I am satisfied that a bank which is placed on inquiry is obliged to take at least some measures to seek to ensure that the proposed surety is openly and freely agreeing to provide the requested security. As Ulster Bank, in this case, took no such steps it is, in my view, unnecessary to consider the precise level of steps which a bank must take.
35. In those circumstances it seems to me that Ms. Buttimer is entitled to rely on the undoubted undue influence which Mr. Roche exercised over her by virtue of the failure of Ulster Bank to take any steps to seek to ensure that she was acting freely in circumstances where, for the reasons which I have sought to analyse, Ulster Bank was, in my view, placed on inquiry.
36. For those reasons it seems to me that Ulster Bank’s claim must fail.
37. I leave it to another case to deal with any different set of circumstances either as to when a bank is put on inquiry or the steps which a bank must take when put on inquiry.”
36. As appears from para. 35 of the judgment of Clarke J. above, his ultimate conclusion was that Ms. Buttimer was entitled to rely on the undue influence which Mr. Roche exercised over her as a defence to the bank’s claim, in circumstances where the bank was placed on inquiry and failed to take any steps to seek to ensure that she was acting freely in the circumstances.
37. The judgment to Clarke J. in Ulster Bank v. Roche and Buttimer cannot in my view be considered as authority for a defence, independent of any allegation of undue influence or other wrong by the principal debtor, on the basis of a breach by a bank of a free standing obligation to take any measures to seek to ensure that a proposed surety is openly and freely agreeing to provide the requested guarantee or security. The entire analysis in Ulster Bank v. Roche and Buttimer is in the context of the prior finding of undue influence by Mr. Roche, and as identified by Clarke J. at para. 19 of his judgment set out above, the difficult question being whether a bank can rely on a contract where it can be shown by the defendant that the contract of guarantee or security was entered into as a result of the exercise of undue influence by a third party not directly connected with the bank. That was the issue being considered and decided in Ulster Bank v. Roche and Buttimer.
38. Similarly, in my view, in Etridge, the House of Lords speeches are given in a context where the appeals in question all concerned claims where the wife had raised a defence of undue influence by the husband in relation to the bank’s claim to enforce a security given by the wife. The leading opinion of Lord Nicholls commences with an explanation of the appeals in eight cases in the following terms:-
“Each case arises out of a transaction in which a wife charged her interest in her home in favour of a bank as security for her husband’s indebtedness or the indebtedness of a company through which he carried on business. The wife later asserted she signed the charge under the undue influence of her husband [emphasis added]. In Barclays Bank Plc v O’Brien [1994] 1 AC 180 your Lordships enunciated the principles applicable in this type of case. Since then, many cases have come before the courts, testing the implications of the O’Brien decision in a variety of different factual situations. Seven of the present appeals are of this character. In each case the bank sought to enforce the charge signed by the wife. The bank claimed an order for possession of the matrimonial home. The wife raised a defence that the bank was on notice that her concurrence in the transaction had been procured by her husband’s undue influence [emphasis added]. The eighth appeal concerns a claim by a wife for damages from a solicitor who advised her before she entered into a guarantee obligation of this character.”
39. Whilst the opinions of Lord Nicholls and Lord Scott, as put by Lord Bingham, “show some difference of expression and approach”, each makes clear that what was under consideration were the circumstances in which, where a wife asserts that she gave security to the bank for her husband’s debt by reason of his undue influence, the bank is considered to have constructive notice of the undue influence, or as alternatively stated, is put on inquiry. Further, in those circumstances, what steps a bank must take if it is to avoid being fixed with constructive notice of the undue influence or other wrongdoing such as misrepresentation by the husband such that it may not enforce the security against the wife or the wife may assert as a valid defence against the bank the fact that she gave the security under the undue influence of the third party husband. The speeches of the Law Lords are not in my view authority for a defence for a wife, independent of undue influence, simply by reason of her position as a wife and the bank’s knowledge of that fact based upon a free standing obligation on a bank to take steps to ensure that she obtained independent legal advice or otherwise that her consent to entering into the guarantee or security was freely given. It is clear there is no general presumption of undue influence between spouses.
40. The opinions in Etridge are primarily concerned with a consideration of the earlier decision of the House of Lords in O’Brien’s case. In that case there was a single opinion given by Lord Browne-Wilkinson which sets out well the legal position. He identified the question on that appeal as being “whether a bank is entitled to enforce against a wife an obligation to secure a debt owed by her husband to the bank where the wife has been induced to stand as surety for her husband’s debt by the undue influence or misrepresentation of the husband”. In that opinion Lord Browne-Wilkinson summarised his views as follows:-
“Where one co-habitee has entered into an obligation to stand as surety for the debts of the other co-habitee and the creditor is aware that they are co-habitees:-
(1) the surety obligation will be valid and enforceable by the creditor unless the suretyship was procured by the undue influence, misrepresentation or other legal wrong of the principal debtor;
(2) if there has been undue influence, misrepresentation or other legal wrong by the principal debtor, unless the creditor has taken reasonable steps to satisfy himself that the surety entered into the obligation freely and in knowledge of the true facts, the creditor will be unable to enforce the surety obligation because he will be fixed with constructive notice of the surety’s right to set aside the transaction;
(3) unless there are special exceptional circumstances, a creditor will have taken such reasonable steps to avoid being fixed with constructive notice if the creditor warns the surety (at a meeting not attended by the principal debtor) of the amount of her potential liability and of the risks involved and advises the surety to take independent legal advice.”
41. The reason for which there is a reference to co-habitees is that whilst Lord Browne-Wilkinson had considered the position of husband and wife he also took the view that the same principles apply to co-habitees and indeed that other relationships including those between a son and elderly parents could give rise to a similar result.
42. In Etridge, Lord Nicholls had some difficulty with the use of the term “constructive notice” and also the phrase that the bank is “put on inquiry”. As stated at para. 44 of his opinion in relation to the latter phrase he stated “Strictly this is a misnomer. As already noted a bank is not required to make inquiries. But it will be convenient to use the terminology which has now become accepted in this context”. At para. 50 of his opinion, he identifies that the principal area of controversy in the Etridge appeal concerns “the steps a bank should take when it has been put on inquiry”. All the subsequent views expressed by him are in the factual context of the defence raised by the wife that the security or charge was given by reason of the undue influence of the husband.
43. The approach of both Lord Nicholls and Lord Scott to the individual appeal of Mrs. Etridge appears to me to put beyond doubt that they were only considering the position of a bank where the wife successfully raises a defence of undue influence against her husband. At para. 90 of his opinion, Lord Nicholls agrees that the appeal of Mrs. Etridge should be dismissed. Lord Scott, who considered in some detail the facts relating to the appeal by Mrs. Etridge, concluded at para. 221 of his opinion, in relation to the defence of undue influence, “In my view, the judge’s conclusion that there had been no undue influence was well justified on the evidence. That conclusion should have been an end of the case”. However, he then continued to consider a submission made by counsel on her behalf before the House of Lords that there had been misrepresentation to Mrs. Etridge by her husband. On that issue at para. 223 he concluded “The misrepresentation contention is, in my opinion, for both these reasons a hopeless one”. He then stated at para. 224:-
“There was, therefore, nothing, no undue influence and no misrepresentation, to which constructive notice could attach.”
44. Notwithstanding that conclusion he did go on to consider, at paras. 225 to 227 inclusive, the question of constructive notice and advice given to Mrs. Etridge by solicitors. However that appears to me to have been obiter given his earlier conclusion.
45. I am aware that my colleague Hogan J. in the judgment he is about to deliver takes a different view of what was decided in Etridge. With the greatest of respect I cannot agree, for the reasons set out that Etridge is authority for an arguable defence by a guarantor who is a spouse or, as in this instance father, of the principal debtor independently of any allegation of undue influence or other wrongdoing by the principal debtor.
46. Accordingly I have concluded that in this case the trial judge was in error in considering that in the absence of any evidence which could form the basis of arguable grounds for contending that the appellant entered into the guarantee under the undue influence of the principal debtor, his son, it is arguable that the bank failed in any duty to ensure the appellant received independent legal advice or take other reasonable steps to ensure that the guarantees have been freely entered into by the appellant. No submission was made correctly that in a father/son relationship there is a presumption of undue influence of by the son over the father.
47. If, however, an arguable defence of undue influence had been made out it may well be arguable, upon the authority of Etridge, that the approach in Ulster Bank v. Roche and Buttimer should also apply to a relationship between a son and an elderly father with no commercial interest in the transaction, which might include the situation of the appellant. However, in the absence of any evidential basis for an arguable defence that the appellant entered into the guarantee under the undue influence of his son, there is on the facts herein no arguable defence available to the appellant against the enforcement of the guarantee by the bank by reason of any alleged obligation on the bank to ensure or procure that he obtained independent legal advice. In those circumstances the question as to whether the advice given by a solicitor in the firm of solicitors acting also for the principal debtor and acknowledged by the appellant in the document signed was or was not sufficient does not arise.
48. It is important to distinguish the position in this appeal from that in ACC Loan Management Ltd -v- Sheehan [2016] IECA 343 where the bank had made a condition of drawdown of the loan receipt of a “letter from Guarantor Solicitor confirming Guarantor received independent legal advice prior to execution of Guarantee & Indemnity document” and only a letter from the borrower’s solicitor was received. The defendant had sworn that he had not received independent advice nor been advised (by the borrower’s solicitor) of the effect of the guarantee in question. On those facts, this court upheld a decision to remit to plenary hearing as it considered the High Court was entitled to conclude that it was arguable that the bank was not entitled to unilaterally waive a condition it had imposed but which arguably was for the benefit of both parties. No such condition was included herein and no submission was made (correctly) in reliance on either the certificate or note on the guarantee advising to take independent advice.
49. The appellant’s unfortunate position is that as a person of full age he has signed a guarantee in favour of the bank. Whilst he was referred to in submission as a “vulnerable” person there was no evidence of any particular vulnerability. He has not put any evidence before the court upon which it could be argued that he did not freely enter into the commitments under the guarantee he signed and permitted to be delivered to the bank in connection with the loans being given to his son. In the absence of evidence which would support an arguable duty imposed on the bank and arguable breach thereof there is no arguable defence.
50. I have also considered the line of authority referred to in the judgment about to be delivered by Hogan J in relation to the equitable jurisdiction to set aside unconscionable bargains or improvident transactions. However, again, in the absence of any evidence from the appellant there is no factual basis for consideration of any arguable defence in reliance on what would, in effect, be a counterclaim to set aside the guarantee upon which the appellant is sued.
51. I am aware that since the hearing of this appeal two judgments have been delivered by this Court in which the majority take a similar view to the conclusion I have reached above: Bank of Ireland -v- Curran & Anor. [2016] IECA 399 and Ulster Bank (Ireland) Ltd -v- De Kretser & Anor. [2016] IECA 371. As I have independently reached a similar view I did not consider it necessary to reconvene the parties.
No seal on guarantee
52. The copy guarantee exhibited by the bank indicates that it is “Signed, Sealed and Delivered”. It is only signed by the appellant, and it does not appear to have had a seal affixed. The trial judge rejected any arguable defence by reason of the absence of the seal upon the basis that the obligation to have a guarantee by an individual executed under seal was abolished by s. 64 of the Land and Conveyancing Law Reform Act, 2009. Counsel for the appellant submits that this provision only came into operation on 1st December, 2009 and is not retrospective. The guarantees were signed in November, 2005 and January, 2008, respectively.
53. The bank does not dispute that the trial judge incorrectly decided this issue by reference to s. 64 of the 2009 Act. However, it submits that even prior to that Act there was no requirement that a guarantee be executed under seal to be valid. It refers to Anglo Irish Bank p.l.c. v. McKenna & Ors. [2014] IEHC 122 in which Birmingham J. found that the guarantee in question was not executed under seal, but held that there was no such requirement where the bank had provided consideration for the guarantee by way of loan and overdraft facilities to the principal debtor. It submits that there was on the facts herein consideration for the guarantee in the form of the loan facility advanced to the first named defendant.
54. Reliance was also placed upon the judgment of this Court in McDonnell v. Ring & Ors. [2016] IECA 16 where Mahon J. giving the judgment of the Court stated at para. 30:
“Even if there had been an absence of consideration, the guarantee was “Signed Sealed and Delivered” by the appellant. Where a contract is executed “under seal” it is not necessary to establish the existence of consideration. In this case, although the guarantee is said to be “under seal” there is no evidence that the document was in fact sealed. However, the absence of a seal is not necessarily fatal to the respondent’s claim. In Halsbury’s Laws of England (Vol. 32/2012) the following is stated:-
‘Where a person executes a deed by stating that it has been “Signed, Sealed and Delivered” but without in fact sealing it, and another person relies on the deed to his detriment, the person executing the deed is estopped from denying that it was sealed.’”
55. Whilst the trial judge rejected any arguable defence by reason of the absence of a seal for an incorrect reason, the decision reached was correct for the reasons advanced in the above submissions on behalf of the bank.
56. Accordingly the appeal must, in accordance with law on the evidence adduced, be dismissed.
JUDGMENT of Mr. Justice Gerard Hogan delivered on the 4th day of April 2017
I
1. Where a parent guarantees a substantial business loan for one of his or her children, is the lending bank obliged to take appropriate steps to ensure that the surety has received independent legal advice prior to the execution of the guarantee? That is essentially the question presented by this application for summary judgment on the part of the creditor bank, ACC Loan Management Ltd., who now sues on foot of the guarantee given by a father in respect of his son’s business debts following default on the part of the debtor.
2. I have had the opportunity of reading in draft the judgment of Ms. Justice Finlay Geoghegan and I gratefully adopt her summary of the facts. In her judgment Finlay Geoghegan J. has also helpfully set out the basis on which Fullam J. arrived at his conclusions in the High Court on 12th February 2015. In the light of that summary it is sufficient to say that Fullam J. found no arguable defence in respect of the first guarantee (which had been executed in 2005) because the surety, Mr. Maurice Connolly, had executed a document which had been prepared by the solicitors who were acting for his son, Mr. John Connolly, to the effect that he had waived his opportunity for independent legal advice. Mr. John Connolly was the borrower. So far as the second guarantee (which had been executed in 2009) was concerned, Fullam J. ruled that an arguable defence had been raised in the absence of any similar declaration regarding independent legal advice: see ACC Bank plc v. Connolly [2015] IEHC 188.
3. At the outset I should first observe that the second defendant, Mr. Maurice Connolly, has not sworn any affidavit in support of this defence. This omission has done his case few favours and has greatly complicated the task of both the High Court and this Court.
4. As a further preliminary, I should say that I entirely agree with the conclusions of Finlay Geoghegan J. that the Court should extend the time for the bringing of an appeal against the decision of the High Court. I also agree with her conclusions regarding the execution of the deed under seal. I accordingly propose first to proceed to a consideration of the question of whether a surety should be given an opportunity for independent legal advice both by reference to the authorities (Part II) and to the issue of principle (Part III). I will then consider in Part IV the impact of two very recent decisions of this Court, de Kretser v. Ulster Bank [2016] IECA 371 and Curran v. Bank of Ireland [2016] IECA 399 so far as the issues of stare decisis are concerned.
II
The decisions of the House of Lords in O’Brien and Etridge
5. The decisions of the House of Lords in Barclays Bank v. O’Brien [1994] 1 AC 180 and Royal Bank of Scotland v. Etridge (No.2) [2002] 2 A.C. 733 and that of Clarke J. in Ulster Bank Ltd. v. Roche [2012] IEHC 166, [2012] 1 I.R. 765 concerning the duties of banks vis-à-vis potentially vulnerable sureties who guarantee the business debts of their spouses or partners have all been discussed at length in the recent decisions of this Court in de Kretser and Curran and, indeed, in the judgment of Finlay Geoghegan J. in this case which she has just delivered.
6. I have already expressed in summary form my views on this topic in de Kretser and it is probably unnecessary to repeat them here. It is sufficient perhaps to observe that those comments were, of course, made in the context of the threshold for summary judgment and whether the wife (who was the surety for her husband’s business loans) had raised an arguable defence. It is true, of course, that the decisions in O’Brien and Etridge are all predicated upon a claim of undue influence on the part of surety vis-à-vis her husband. It is also the case that no such claim is made in express terms in this case.
7. It is, however, necessary, I think, to understand the context in which such a claim was made. The claims of undue influence advanced in the standard modern authorities – the special facts of Roche represent something of an exception to this trend – are not, however, directly comparable to what one might term the classic Allcard v. Skinner-style instances of undue influence where the contention is that the plaintiff has been the victim of deceitful or knavish trickery or otherwise overbearing conduct. In Allcard v. Skinner (1887) 36 Ch.D. 145 the English Court of Appeal found that the plaintiff – who had donated most of her assets to a convent – had been unduly influenced by reason of what Lindley L.J. described as “insidious forms of spiritual tyranny.”
8. With the exception of Roche (where Clarke J. found that the partner in question who had guaranteed the debt was in an abusive relationship), none of the recent cases involving a family member acting as surety for the business debts of a spouse, partner or off-spring have presented Allcard v. Skinner-type issues of undue influence. Rather, the classic example – illustrated by the facts of O’Brien and many of the individual eight cases heard by the House of Lords in the Etridge litigation – is that of the stay-at-home wife who is asked to provide a guarantee in respect of the family home as security for the husband’s business loan. When the surety is called upon to honour the guarantee, the response is to plead undue influence in the sense of reliance upon the husband of whose business dealings she had but imperfect knowledge.
9. It is in these circumstances that the bank is put on inquiry to ensure that appropriate steps are taken to ensure that the spouse in question is fully aware of the extent of her obligations qua surety. As the headnote to the report of Etridge puts the matter:
“Where a wife sought to impugn a transaction into which she had entered on the ground of her husband’s undue influence their relationship did not fall within a special category of case where an irrebuttable presumption of trust and confidence arose. If she was able on the facts of the particular case to establish that she had placed trust and confidence in her husband in the management of her financial affairs and that the impugned transaction was not explicable in the ordinary way, she could rely on a presumption which, as an evidential forensic tool, shifted the burden of proof to her opponent and could be rebutted on appropriate evidence by that party. Since the fortunes of husband and wife were ordinarily bound up together, a guarantee given by the wife with a charge on her interest in the matrimonial home to secure her husband’s debts was not plainly to her disadvantage so as to be explicable only on the basis that the transaction had been procured by his undue influence.
Whenever a wife offered to stand surety for the indebtedness of her husband or his business, or a company in which they both had some shareholding, the lender was put on inquiry and was obliged to take reasonable steps to satisfy itself that she had understood and freely entered into the transaction…” (emphasis supplied)
10. I consider that the words which I have taken the liberty of highlighting illustrate the potential application of Etridge to the circumstances of the present case. In this case, there is every reason to suppose that – and, this is, in any event, implicit in the affidavit sworn by John Connolly – Mr. Maurice Connolly reposed his trust in his son in the management of the latter’s business affairs. Nor is there anything to suggest that the father stood to gain personally by the giving of a guarantee for such large sums. Here is a case plain and simple where the father offered to stand surety for the indebtedness of his son for large sums of money and, on at least one view of Etridge, I find it difficult to see why the bank was not put on inquiry to ensure that the father had understood and freely entered into the transaction and to take appropriate steps accordingly. As Fullam J. pointed out in his judgment in the High Court, as it happens, in similar circumstances Birmingham J. suggested (while still a judge of the High Court) that parents who guaranteed an off-spring’s commercial debts might be in a position to raise an Etridge-style defence: see ACC Bank plc v. McEllin [2015] IEHC 454, para. 30. While these comments were admittedly obiter – since Birmingham J. had found on the facts of that case that the parents and the offspring had jointly come together to borrow the money for their commercial purposes – the decision in McEllin is nonetheless indicative of an interpretation of Etridge upon which Mr. Maurice Connolly can rely, at least for the purposes of demonstrating the existence of an arguable case.
11. I agree, of course, that, as I have already observed at the outset of this judgment, the fact that Mr. Maurice Connolly has not sworn any affidavit which formally sets out this defence of undue influence is a hugely complicating factor, despite the fact that he was given every opportunity to do so in the High Court. One may nevertheless reasonably infer from the available facts that the circumstances of this case are not altogether distant from that of an Etridge-style case, save that the guarantees here were given by the parent in support of the son’s business. Putting this another way, if the father had sworn an affidavit which formally deposed to the fact that he relied on his son and that the loans were for the son’s business and that based on this he claimed undue influence in the Etridge sense of that term, the case for permitting him to defend on these grounds would, I think, have been irresistible. And since we know from the other available evidence that these either are or might well be the facts, the prospect of injustice raised by granting summary judgment by reason simply of the absence of an affidavit from the father is, I fear, just too great. This is why, but for the considerations of stare decisis addressed in Part IV of this judgment, I would have held that the Etridge defence was, in principle, at least available to Mr. Maurice Connolly. This is not to say that had the matter gone to plenary hearing that Mr. Maurice Connolly would necessarily have succeeded. It is, however, to say that on that view of his defence he had, at least, raised an arguable defence so that the Bank was not entitled to summary judgment against him.
III
Application of equitable principles independently of O’Brien and Etridge
12. Quite independently of the authority of O’Brien, Etridge and Roche, I consider that, in any event, there is at least an arguable duty cast upon a bank by equitable principles to take steps to ensure that a potentially vulnerable surety is appropriately advised in a case of this kind. Of course, the context is everything and, for my own part, I would fight shy of prescribing ex ante rules unless the force of experience demonstrated that such was necessary. Nevertheless, that which might suffice in the case of a guarantee to cover an ordinary consumer loan (such as for a car or a domestic appliance) should not necessarily be regarded as sufficient where – as in the present case – the sums guaranteed by the two guarantees were, by any standards, very large. The loans in question amounted to sums which, if the surety were called upon to honour the full amount, could have life changing implications for him in terms of the security of his dwelling, his livelihood and any prospects he might otherwise have had in terms of living out his advancing years in any comfort or degree of financial security.
13. This is certainly true in the present case where the Bank now claims judgment as against the surety in the sums of over €2.37m. in respect of both loans and where it was awarded summary judgment against the surety in respect of the first guarantee in the sum of €1.185m. (As I have already noted, in the High Court Fullam J. adjourned the claim in respect of the second guarantee in the absence of any evidence that the surety had been independently advised). One might further observe that a requirement that a bank should ensure that such a surety is appropriately advised in such circumstances does not impose significant burdens or create unnecessary barriers to supply of credit.
14. It may be objected that a requirement of this kind involves the imposition of new rules or requirements for which there is no legislative sanction. One may readily concede that no modern court could justifiably invent or conjure up a new equitable principle by reference to the subjective notions of fairness and equity on the part of individual judges. If the law is considered to be unsatisfactory or inadequate, far-reaching change of this kind is reserved to the Oireachtas by Article 15.2.1 of the Constitution. Accordingly, as Lord Greene M.R. put it in Re Diplock [1948] Ch. 465, 481-482, if a claim “in equity exists, it must be shown to have an ancestry, founded in history and the practice and precedents of courts administering equity jurisdiction.”
15. To my mind, however, such a requirement as I have suggested represents simply the application in a modern context of standard principles of equity for which there is much historical precedent. From Allcard v. Skinner (1887) 36 Ch.D. 145 to Grealish v. Murphy [1946] I.R. 35 to Lloyds Bank v. Bundy [1974] EWCA Civ 8, [1975] QB 326, , equity has shown itself prepared to come to the aid of the vulnerable who were not independently legally advised where the transaction is fundamentally improvident. This is true even where “the deed…was in law a transaction for value”: see Grealish v. Murphy [1946] I.R. 35, 49 per Gavan Duffy J.. If there is no modern willingness to re-fashion and adapt these principles to modern conditions in the case of vulnerable sureties, it may simply be that we the judges who are required to tend to the gardens of equity by ensuring that their verdure remains fresh, vibrant and relevant to the modern world have allowed an ancient path of escape from the gravel paths of the common law to become disused and overgrown.
16. Yet if equity will not bring that moral element to the common law and ensure that in a modern setting the vulnerable are adequately protected, the principles of equity will in time come to be seen as just another set of rules, as desiccated, inflexible and arid as they were in the days of Lord Eldon in the early 19th century. That is why I believe that this Court should be astute to hold the plaintiff as the privileged holder of a banking licence to the highest standards. This is not in any way to question the bona fides of the bank, but rather to ensure – as much for the bank’s interest as anyone else – that it takes appropriate precautions in the case of potentially vulnerable and elderly sureties to ensure that the implications of such a guarantee are fully understood and appreciated.
17. In this regard I have not overlooked the fact that Mr. Maurice Connolly has not sworn any affidavit in support of this defence. As I have already had occasion to remark elsewhere in this judgment, this omission has done his case few favours, as many critical details relevant to our consideration of these issues are absent from our knowledge as a result. It is nonetheless not unrealistic to suppose that when Mr. Maurice Connolly first acted as surety for his son in 2005, he was at least in his 50s at the time the security was executed. While I would be the last to regard a person in his 50s as “elderly”, the key point here really is that Mr. Maurice Connolly put what must have been a considerable amount of personal capital at stake by way of two guarantees in support of the business venture of his son and in respect of which business venture he stood to receive no direct personal benefit. If matters went wrong, he stood to lose possibly all of that capital which, doubtless, had been accumulated after a lifetime of hard work and effort, not least his farm at Dunanore, Folksmills, Co. Wexford. It can therefore be argued that in these circumstances the transaction was fundamentally improvident so far as this guarantor was concerned, so that in the words of Lord Denning in Lloyds Bank v. Bundy, it is “not right that the strong should be allowed to push the weak to the wall.”
18. One may also fairly infer from the affidavit of his son, Mr. John Connolly, that Mr. Maurice Connolly had no involvement at all in the proposed development which was the subject of the business loan. As Mr. John Connolly explained, the loan was in respect of a development venture involving the purchase and licensing of certain lands. It would seem from that affidavit that he was the unfortunate victim of a fraud in relation to the title to those lands and that he is awaiting the outcome of an action for deceit against the alleged perpetrators of this fraud before he (i.e., Mr. John Connolly) will be in a position to repay the moneys. Independently of these civil proceedings, a criminal prosecution is still pending against the two individuals who are alleged to have fabricated the title documents, an earlier conviction for fraud having been set aside by reason of an irregularity in the documents which were made available to the jury.
19. In these circumstances, I believe that, but for the considerations of stare decisis which I will next address in Part IV, Mr. Maurice Connolly has established at least an arguable case that, based on the equitable principles I have already described, the bank was under a duty to ensure that he was independently advised prior to the execution of these two guarantees. It is true that, as I have already noted, Mr. John Connolly’s solicitors provided a declaration that Mr. Maurice Connolly had been offered an opportunity of independent legal advice in respect of the first guarantee in 2005 and that this declaration was then executed by Mr. Maurice Connolly himself. But since these solicitors also acted for the borrower, Mr. John Connolly, they cannot be regarded as having provided the opportunity of independent legal advice to Mr. Maurice Connolly: see, e.g., the comments to this effect of Irvine J. in Darby v. Shanley [2009] IEHC 459. As McGovern J. stated in Danske Bank v. Madden [2009] IEHC 319, the usual meaning to be attributed to the term “independent legal advice”:
“is that it is advice obtained by the party himself from a lawyer retained by him and not advice coming from the legal advisor of a third party with whom he is entering into a legal relationship.”
20. Accordingly, were the issue res integra and not covered by recent authority (which I will deal with in Part IV), I would have gone further than Fullam J. did in respect of the first guarantee in that I would have permitted Mr. Maurice Connolly to defend the claims in respect of both guarantees and not just simply the second guarantee. In these circumstances I would accordingly have adjourned the entirety of the Bank’s claim to plenary hearing.
IV
The impact of recent authorities and the doctrine of stare decisis
21. I have thus far proceeded on the basis that the matters at issue are res integra and that the issue is not determined by recent authority. It is, however, clear that this is not so, at least so far as this Court is concerned, since within the last few weeks this Court has twice rejected arguments along the lines I have just canvassed.
22. In a judgment delivered on 7th December 2016 in de Kretser, I was the dissentient who argued that a surety had raised an arguable defence to the effect that the Bank was under an affirmative duty to see that she was independently advised. This argument was rejected by Birmingham J. who delivered the judgment of the majority and with whom Peart J. agreed.
23. A similar view to that of the majority in de Kretser was taken by Irvine J. (and with whom Ryan P. and Hanna J. concurred) when she delivered the judgment of this Court in Curran on 21st December 2016. The decision in Curran was a case where a mother executed a guarantee for some €1m. in respect of her son’s company with whom she had had a minor involvement and where she was not advised as to the necessity of securing independent legal advice. As Irvine J. stated in her judgment:
“It is only relevant to consider whether it is arguable that the bank was obliged to make inquiries to ascertain whether, having regard to her connection with the company, she fully understood and was freely entering into the guarantee, if she could first establish a credible or arguable case on the facts that she executed the guarantee in circumstances of undue influence. In turn, that required her to set out on affidavit the type of facts, details and circumstances upon which she would rely at the trial to establish that her will was overborne by her son, Michael Curran, when she executed the guarantee.”
24. It is clear from this judgment that the bank would be placed on inquiry only where Allcard v. Skinner-type undue influence – or, at least, something approaching this – had been established by the surety, even in the case of parent/offspring guarantees for large sums from which the surety stood to gain no personal benefit.
25. In these circumstances, it is plain that the settled view of this Court is to the effect that, at least absent an express claim of undue influence or a claim of misrepresentation, a bank is under no such affirmative duty to ensure that a surety receives independent legal advice. Although this Court has not yet since its establishment in October 2014 been required to formulate its own rules regarding stare decisis, I think that by analogy with the doctrine of precedent applicable in the case of prior decisions of a co-ordinate court (see, e.g., the comments of Parke J. in Irish Trust Bank v. Central Bank of Ireland [1976-1977] I.L.R.M. 50, 53 where the practice of one High Court judge following an earlier decision of another High Court judge was discussed), then absent special circumstances, an individual member of this Court should normally yield to the prevailing consensus as reflected in prior decisions of this Court which are clearly on point and which, in the words of Finlay C.J. in Finucane v. McMahon [1990] 1 I.R. 165, 207, represent decisions “reached after the most comprehensive and detailed consideration of all relevant factors.”
26. The decision in Finucane had concerned the proper interpretation of the political offence exception in s. 50 of the Extradition Act 1965 in respect of which there had been a range of divergent judicial views expressed by various Supreme Court judges in the case-law leading up to Finucane. Even though Finlay C.J. evidently disagreed with the majority view which ultimately emerged from that case-law and in Finucane itself, he stated that he was henceforth willing to accept the majority view and adopt it as his own by reason of stare decisis. By analogy, therefore, with the approach adopted by Finlay C.J. in Finucane, I consider that it would be appropriate that I should accept and adopt this majority view as reflected in de Kretser and Curran “so that the basic principles underlying it may clearly represent the decision of this Court”: see [1990] 1 I.R. 165, 207.
Conclusions
27. In summary, therefore, while I still respectfully adhere to the views which I have expressed on this topic of the duty of banks regarding the giving of guarantee by potentially vulnerable sureties in both my dissent in de Kretser and elsewhere in this judgment, it is important that in a collegiate court such as the Court of Appeal an individual member should ultimately submit to the settled views of the majority of that Court as reflected by stare decisis. As I consider that this issue has now effectively been determined by the majority decision in de Kretser and by the unanimous decision in Curran, it is, accordingly, therefore, simply for reasons of stare decisis that I agree with the decision of Finlay Geoghegan J. that Mr. Maurice Connolly has not raised any arguable defence in respect of the first guarantee.
28. In these circumstances, it follows that his appeal should accordingly be dismissed.