ACC Bank Plc v Friends First Managed Pensions Funds Ltd and Others

CourtHigh Court
JudgeMs. Justice Geoghegan
Judgment Date26 October 2012
Neutral Citation[2012] IEHC 435
Date26 October 2012

[2012] IEHC 435

[2010 No. 7215 P] [2011 No. 79 COM]

Commercial law -Contract law - Loan - Facility letter - Property funds - Breach of clause - Interest - Interest during terms of facility - Surcharge - Insurance - Supplemental agreement - Material variation - Interest on facility - Wilful misconduct - Waiver by estoppel election

Facts: The proceedings related to the proper construction of a facility letter in connection with a property fund. ACC, the plaintiff, made a formal demand for repayment of a loan to the defendant and contended that the defendants were in breach of a clause in the facility letter. ACC contended that there was a material variation of the co-ownership agreement by the actions of the defendant, Friends First. ACC contended that Friends First was guilty of wilful misconduct. The Court considered whether the limitation on recourse to Friends First lapsed pursuant to a clause in the letter by reason of material variation to the borrowers co-ownership agreement or by the actions of Friends First in paying interest at 36.988% rather than 46.6%, whether it lapsed pursuant to the facility letter by wilful misconduct and whether ACC was now estopped from waiving its right to pursue a claim and the extent of Friends First liability for interest. The Court considered overall the question of material variation by a supplemental agreement and interest during the term of the Facility. Friends First submitted that it had no liability for interest after the expiry of the term of the facility. ACC claimed that it was entitled to claim surcharge interest.

Held by Finlay Geoghegan J. that ACC was not entitled to judgment in the amount claimed or the declaration sought. Friends First was liable for such interest. ACC was entitled to judgment for 46.6% of the internet accruing under the Facility up to 1 April 2012 less Eur 138,404.47 paid in October 2009. ACC was not entitled to recover surcharge interest. The surcharge interest could not be considered as a reasonable pre-estimate in 2007 of the likely loss of ACC if the Facility was to go into default. It was reasonable for ACC not to take any steps to realise the security until the end of 2009. The supplemental agreement did not change the way in which the percentages were held in the properties and did not change the obligations thereunder nor the liability in the Facility Letter. It did not constitute material variation. The supplemental agreement did not constitute a material variation of the co-ownership agreement within the meaning of the Facility letter. The failure of Friends First to make any interest payment did not amount to wilful misconduct.

Ms. Justice Geoghegan
JUDGMENT of Ms. Justice Finlay Geoghegan delivered on the 26th day of October 2012

This judgment is given in the claim brought by the plaintiff (‘ACC’) against the first named defendant, Friends First Managed Pension Funds Ltd. (‘Friends First’). A judgment on consent has already been given on 11th October, 2011, against the second named defendant (‘Mr. Lyne’) and the third named defendant (‘Mr. Connellan’).


Correctly, no reliance was placed in the course of the claim against Friends First on the consent judgment given against Mr. Lyne and Mr. Connellan.


ACC is a licensed financial institution and a subsidiary of Rabobank Nederland. Friends First is a regulated life insurance company in Ireland. Its portfolio of business includes unit link funds including property funds. The claim in these proceedings arises out of a facility given by ACC to the defendants in connection with one such fund.


The issues in the proceedings primarily relate to the proper construction of the facility letter issued on 30th October, 2007 and accepted by the defendants on 13th November, 2007 (‘the Facility Letter’).


Both parties are in agreement that the Facility Letter, being a commercial document, should be construed in accordance with the well known principles set out in this jurisdiction by Geoghegan J. in the Supreme Court in Analog Devices B. V. v. Zurich Insurance Company [2005] IESC 12, [2005] 1 I.R. 274, at p. 280, where he cited with approval the principles set out by Lord Hoffman in ICS v. West Bromwich BS [1998] 1 WLR 896, at p. 912:

"(1) Interpretation is the ascertainment of the meaning which the document would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract.

(2) The background was famously referred to by Lord Wilberforce as the 'matrix of fact' but this phrase is, if anything, an understated description of what the background may include. Subject to the requirement that it should have been reasonably available to the parties and to the exception to be next mentioned, it includes absolutely anything which would have affected the way in which the language of the document would have been understood by a reasonable man.

(3) The law excludes from the admissible background the previous negotiations of the parties and their declarations of subjective intent. They are admissible only in an action for rectification. The law makes this distinction for reasons of practical policy and, in this respect only, legal interpretation differs from the way we would interpret utterances in ordinary life. The boundaries of this exception are in some respects unclear. But this is not the occasion on which to explore them.

(4) The meaning which a document (or any other utterance) would convey to a reasonable man is not the same thing as the meaning of its words. The meaning of words is a matter of dictionaries and grammar; the meaning of the document is what the parties using those words against the relevant background would reasonably have been understood to mean. The background may not merely enable the reasonable man to choose between the possible meaning of words which are ambiguous but even (as occasionally happens in ordinary life) to conclude that the parties must for whatever reason, have used the wrong words or syntax; see Mannai Investment Co. Ltd. v. Eagle Star Ass. Co. Ltd. [1997] A.C. 749.

(5) The 'rule' that words should be given their 'natural and ordinary meaning' reflects the commonsense proposition that we do not easily accept that people have made linguistic mistakes, particularly in formal documents. On the other hand, if one would nevertheless conclude from the background that something must have gone wrong with the language, the law does not require judges to attribute to the parties an intention which they plainly could not have had. Lord Diplock made this point more vigorously when he said in Antaios Compania S.A. v. Salen A.B. [1985] 1 A.C. 191, 201:

'If detailed semantic and syntactical analysis of words in a commercial contract is going to lead to a conclusion that flouts business commonsense, it must be made to yield to business commonsense'."


The evidence given in these proceedings included both the admissible background and also in some instances the previous negotiations of the parties and declarations of subjective intent. There is no application for rectification in these proceedings and, accordingly, I do not propose referring to and have not taken into account evidence which falls within that excluded category.

Background to the Facility Letter


In 2006, Friends First established the Crystal Property Development Fund (‘the Crystal Fund’). The Crystal Fund was a unit-linked fund. A unit-link fund was explained, without dispute, as one where the rewards for the customer are linked to the pool of assets which the insurance company keeps in a separate account for the benefit of the unit-linked investors in that fund. All assets are registered in the name of the insurance company, but the insurance company must retain and account for them separately for the individual investors and this separation requirement is prescribed by the regulatory regime governing unit-linked funds.


Friends First acted as the arranger of the Crystal Fund which was an Irish geared property development fund with Crystal Partners Ltd. (‘Crystal Partners’) as the investment manager. The principals of Crystal Partners were Mr. Lyne and Mr. Connellan who were experienced property investors and developers. They were the owners of significant property interests in 2006.


Following the launch of the Crystal Fund in the summer of 2006, €35.9m was available for investment. In addition, the parent company of Friends First, Friends First Life Assurance Company Ltd. added €5m by way of a strategic investment making a total initial investment pool for the linked fund of €40.9 million.


The focus of the investment was the acquisition of a portfolio of ‘brownfield’ sites outside of the Dublin Metropolitan Area. The Crystal Fund had indicated from the outset that it proposed financing the site purchases with a combination of equity and ‘limited recourse (secured by the land) bank debt’.


Unit-linked funds operated by regulated insurance companies in Ireland do not have their own legal status. The commitment to incoming investors in these funds is that their policy values will be derived from the performance of the assets to which their fund is ‘linked’, even though such assets are held in the name and ownership of the insurance company itself i.e. Friends First. Hence, borrowings taken in connection with the Crystal Fund, including the loan at issue in these proceedings, were taken in the name of Friends First rather than the Crystal Fund which has no separate legal personality. Similarly, the lands were held by Friends First.


ACC was first approached in May, 2006 by Crystal Partners as the investment...

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