All Sums Guarantee Continued Where Facility Restructured

In Allied Irish Banks Plc v McKeown & anor [2017] IEHC 363, the High Court (Costello J) granted orders for summary judgment, on the basis that the loans and guarantees were valid, and even if the defendants were to succeed in a counterclaim for overcharged interest, this would not be enough to set off the judgments awarded against them.

Facts

AIB sought judgment from the first named defendant in the sum of €1,429,166.22 and against both defendants on a joint and several basis in the sum of €40,548.60 in respect of facilities provided to him.  It also sought judgment against the second named defendant in the sums of €1,387,003.82 and €40,000 in respect of a guarantee provided by her.  The defendants were husband and wife who operated as commercial landlords.  In March 2009, the second named defendant provided a guarantee in respect of all monies then, or at any time thereafter, due by the first named defendant to AIB.  In May 2013, AIB refinanced the first named defendant's facilities and it was agreed that repayment was to be "On demand at the pleasure of the Bank subject to repayment/refinance on 31/12/2013"

The monies were not repaid at the end of December 2013 and despite a number of proposals and counter proposals between the parties there was no resolution of the matter and the monies were not repaid.

High Court

The defendants did not deny they entered into the facilities in question and that the monies were drawn down.  They also accepted that the monies had not been repaid.  However, they claimed that they had an arguable ground of defence to the application for summary judgment in respect of: -

(a)The proper construction of the facility letters;

(b)The alleged improper motives of AIB in its dealings with the defendants; and

(c)The guarantees granted by the second named defendant were discharged by a material alteration of the underlying loans.

Construction of the Facility Letters

AIB argued that the May 2013 facility was an "on demand" facility. However, the defendants argued that the inclusion of the word "refinance" in the May 2013 agreement necessarily qualified the fact that the facility was repayable on demand and gave rise to an implied term that the defendants would be given a "reasonable opportunity" to refinance with AIB.

The Court did not accept that the construction advanced by the defendants was tenable, as a term that a facility was repayable on demand meant just that: once a demand has been made it was repayable. Further, the construction of the clause advanced by the defendants involved implying a term into the contract which contradicted the express term of the contract itself which was not permissible.

Improper Motives of AIB

The defendants alleged that AIB had acted in bad faith and therefore could not call in the loans. They claimed that AIB had sought excessive security for loans, incorrectly stated that the defendants were in arrears, should not have classified the first named defendant as impaired or said that the loans were unsustainable, treated them improperly in relation to their family home, improperly failed to release security, and provided flawed and incorrect valuations.  They also claimed that they were not actually in arrears in respect of the facilities and their internal appeal was refused with no explanation.

With regard to these allegations the Court was of the view that, at best, the defendants' case was no more than a mere assertion that AIB ought not to have treated them as it did. They did not adduce any evidence to substantiate their allegations and, the actual complaints advanced, even if proved, did not afford a defence to AIB's right to repayment of monies advanced to them.

Discharge of the Guarantees

The first named defendant claimed that the second named defendant had "refused" to provide further guarantees when his loans were being restructured in May 2013. On that basis, the second defendant argued that the guarantees were discharged. She also argued that the guarantees were discharged in circumstances where there were material changes in the underlying contractual obligations between AIB and the first named defendant. The second named defendant also relied on the fact that previously, when the first named defendant sought further facilities, the plaintiff had sought a separate guarantee from her. This did not occur in respect of the 2013 facility.

AIB submitted that it was clear on its face, that the guarantee was a continuing all sums due guarantee up to the amount of €1,650,000. Therefore, it was not necessary for the plaintiff to obtain further guarantees in respect of the May 2013 facility. It followed that the refusal of the second named defendant to provide further guarantees was irrelevant to its right to rely upon the guarantee of 2009.

The Court accepted that while the May 2013 agreement might well have been a material variation of the facility in respect of which the guarantee was originally granted in 2009, that did not discharge the guarantee. AIB was expressly entitled to vary the first named defendant's facility without obtaining any consent from the guarantor and without affecting its rights or the guarantors' liability under the guarantee.

The Court held that there was no obligation on AIB to obtain a fresh guarantee and a failure to do so could in no way discharge the existing guarantee. The Court pointed out that the guarantee was not limited to a specific facility; but rather was a guarantee expressed to be a continuing all sums due guarantee.

Accordingly, the Court held that the defendants did not have any real or bona fide defence to AIB's claims for summary judgments.

Counterclaim

The defendants claimed that they had a counterclaim against AIB for prematurely and improperly calling in the loans and for overcharged interest. They claimed that they had suffered significant loss and damage by the negligent treatment of AIB and the refusal to offer a reasonable restructure.  AIB denied that it prematurely or improperly called in loans and therefore no claim for damages could arise. It submitted that the counterclaim was at best nebulous and unquantifiable and should not be the ground for a stay on a judgment.

AIB also argued that the alleged overcharging, which at its height, amounted to a claim for €57,857.67 could not amount to a defence to the summary judgment claims.  It also pointed out that it was not pursuing interest which had accrued since the commencement of proceedings, and had it sought this sum, it would have amounted to a figure greater than the alleged overcharged interest.

The Court held that as it had already held that the defendants did not have a defence to AIB's claim, no issue of set off could arise based upon an alleged wrongful calling in the loans.  Furthermore, the claim for damages was such that the Court was not prepared to impose a stay on the judgment pending the determination of the counterclaim.  

With regard to the claim in respect of the alleged overcharging of interest, the Court was of the view that, given the lack of evidence on the matter, it could not resolve this factual dispute at this point and it could not say that there was no case for a set-off. However, the Court noted the very wide discrepancy between the judgments to which AIB was entitled and the full amount of the overcharging claim of the defendants. The Court noted that if the defendants were to succeed in this claim that AIB would be in a position to pay it. On the other hand, given the scale of the debt due by the defendants, a set-off would, in reality, mean very little.

Accordingly, in exercising its discretion, the Court refused a stay and granted summary judgments to AIB.

For further information, please contact Paula Mullooly or your usual contact in A&L Goodbody.

Date Published: 4 July 2017