Guarantees - undue influence and independent legal advice

The High Court has recently considered two cases involving defences of undue influence and independent legal advice in the context of enforcement of guarantees. 


This case concerned an application for summary judgment against Maureen Curran (the Defendant) for payment of sums due under a guarantee.  The Defendant had guaranteed the obligations of a company, XL Fuels Group (the Company), under various loan facility arrangements but with maximum principle liability of €1m (the Guarantee).

The Guarantee was signed at the home of the Defendant, who was a 73 year old widow and who lived alone, in the presence of a bank official in May 2008.  The Defendant claimed that the bank official advised her at the time of signing the Guarantee, that the presence of a solicitor was not required.  The Defendant also claimed that she had no active part in the day to day running of the business of the Company, was not a shareholder and did not derive any benefit from the transactions entered into between the Plaintiff and the Company.

The Company defaulted in repaying its loan and the Guarantee was called in by the Plaintiff.

The Defendant claimed that the Guarantee was unenforceable on the grounds of undue influence; unconscionable bargain; and non est factum.

The Judge noted the following:

  • That the Guarantee was executed at the home of the Defendant because the Defendant had so requested as that was more convenient for her.
  • That prior to entering into the Guarantee, the Defendant had received independent legal advice in relation to the execution of other security documents.  The advising solicitor at that time had strongly cautioned the Defendant against entering into any personal guarantees.  That advice had been given only a short time before the Guarantee was entered into.  The Judge noted therefore that the Defendant had received advice, albeit at an earlier date, but chose not to accept that advice.  In addition, the Judge noted that the Defendant did not argue that had she received independent legal advice, she would have acted differently.
  • That the evidence presented to the Court included evidence that the Defendant had been a director and secretary of the Company for many years, had inherited the buildings and lands on which the Company operated on her husband's death and had entered into various facility arrangements on behalf of the Company.
  • That the Guarantee contained a clear warning that the Defendant would, upon execution, be liable for the debts of the Company and that the Defendant had signed a "Certificate concerning independent legal advice" in which she wrote, "I understand the nature of the liability incurred and I have no wish to be independently advised by a solicitor". In addition, the Judge noted that the Defendant had confirmed to the Plaintiff in September 2008 that the Plaintiff could "continue to rely on my Guarantee of €1m in favour of XL Fuels Group Limited".

In relation to the defence of undue influence, in considering the judgment Ulster Bank V Roche and Buttimer [2012], the Judge queried whether or not the Plaintiff was aware of any facts that suggested that there was a "non-commercial" element to the Guarantee or that the Defendant "was not a free agent" on signing the Guarantee.  The Judge determined, taking into account the Defendant's connection to the Company, that there were no facts which ought to have put the Plaintiff on notice to ensure that independent legal advice in respect of the Guarantee should have been sought.

In relation to a defence of unconscionable bargain, the Judge noted that the Defendant had not put forward any credible evidence and again, taking into account the Defendant's connections with the Company, this defence was dismissed.

In relation to the defence of non est factum, where somebody signs a document believing it to be essentially different from that which he/she had signed, this defence was also dismissed as the Guarantee clear on its face and the Defendant had signed the document and refused the opportunity to obtain legal advice.

The Judge further noted that fraud and misrepresentation are often ingredients in a defence based on non est factum but that there was no evidence at all in this instance to suggest that there was fraud or misrepresentation on the part of the Plaintiff.

The Judge ordered judgment in favour of the Plaintiff.



The Plaintiff in this case was seeking summary judgment in relation to a guarantee that was entered into by the Defendant in favour of ACC Bank plc, the predecessor to the Plaintiff, in March 2008 (the Guarantee).  The Guarantee was to secure a loan facility made in favour of a company of which the Defendant, together with his brother, was a director and shareholder.  The loan fell into default and the Plaintiff demanded repayment of the sums due under the Guarantee in June 2013.

The Defendant raised two defences:

  • undue influence due to the sibling relationship between the Defendant and his brother; and
  • that the legal advice obtained in connection with the Guarantee was deficient.

Undue Influence
The Defendant gave evidence that he was under "severe pressure" at the time of executing the Guarantee and believed that if he had not entered into the Guarantee, his brother's business would have failed.  In reliance on decisions given in the case of Royal Bank of Scotland plc V Etridge (No.2) [2001] and Ulster Bank v Roche [2012], the Defendant claimed that the Plaintiff was put on enquiry as to a potential claim of undue influence due to the non-commerical element of the transaction i.e. the sibling relationship between the parties.  As a result, the Defendant further argued that the Plaintiff should have taken steps to ensure that the Defendant was properly advised and was entering into the Guarantee in a free manner.

The Plaintiff argued however, that undue influence only arises in circumstances where the will of the Defendant is overborne and his/her entry into the transaction is not of free will.  In this case, the evidence suggested that the Defendant and his brother were "quite close" and that there was no suggestion of a "dependent" relationship.  In addition, the Plaintiff argued that the Defendant knew that he was entering into the Guarantee but did not fully appreciate the scope of the Guarantee.  The Defendant had stated in his affidavit that "I simply would not have risked by livelihood if I had understood that the Guarantee was unlimited in its scope".

The Plaintiff further argued that this admission reinforced its position that the Defendant knew his own mind and that this was a case of mistake as opposed to undue influence.  The Plaintiff also submitted that a sibling-sibling relationship is not one that automatically gives rise to a presumption of undue influence and that there was no precedent to support such a position.

Legal Advice
As a pre-condition to the release of funds under the loan agreements, the Plaintiff has requested from the Defendant's solicitor, a confirmation that the Defendant had received independent legal advice prior to the execution of the Guarantee.  The Defendant's solicitor had responded stating that the nature and effect of the Guarantee had been explained to his client but that the right to receive independent legal advice had been waived.

The Defendant claimed that the legal advice he received was inadequate and that the solicitor in question, was not in a position to offer such legal advice as he had a conflict of interest in acting for both the borrowing company and the Defendant.  The Defendant further claimed that the only way in which the Plaintiff could have satisfied its own pre-condition of independent legal advice, was to have received a letter from an independent legal advisor confirming that such advice had been given.

The Plaintiff argued that the Defendant was in receipt of adequate legal advice as he was represented by a solicitor in connection with the transaction and further argued that as a director and a shareholder (albeit a minority shareholding of 5%) the Defendant was competent to provide the Guarantee for the borrowings of the company in which he was involved.

The Judge noted that there was no evidence of undue influence which could give rise to an arguable defence and a mere desire to be of assistance to a sibling is not evidence of undue influence.  To extend the principles laid down in Etridge to brothers who are both directors and participants in a commercial enterprise, would "constitute a major evolution of the principles".

The Judge however went on to say that as contracts of guarantee always require careful scrutiny, the persons seeking to rely on such contracts need to ensure that all formalities have been properly complied with. 

In this case, as the Plaintiff had requested a confirmation that the Defendant had received independent legal advice as a pre-condition to the release of funds but had instead relied solely on an assurance from the Defendant's solicitor, the Plaintiff had thereby altering its position.  Further, without having received signed waivers of entitlement to legal advice, this was sufficient to constitute an arguable defence for the Defendant not to be bound by the terms of the Guarantee.

For further information please contact Louise McNabola,

Date Published: 19 January 2016