ACC Bank Plc v McCann

• Jurisdiction: Ireland
• Judgment Date: 20 June 2012
• Neutral Citation: [2012] IEHC 236
• Date: 20 June 2012
• Docket Number: [2010 No.1294S]
• Court: High Court

BETWEEN/

ACC BANK PLC

PLAINTIFF

AND

SEAN McCANN AND MICHAEL GRIFFIN

DEFENDANTS

2012 IEHC 236

[2010 No.1294S]

THE HIGH COURT

Banking - Loan - Loan for purchase and development of land - Guarantee - Defendant acting as guarantor

Facts: The plaintiff had loaned substantial sums to a company in 2006 for the purpose of purchasing a site in County Kerry. The loan was repayable in two years and the site was to be developed post purchase. As part of the issuing of the loan the first defendant, a director of the company, had signed a guarantee for the sums borrowed. The loan was subsequently varied in 2007 and 2008.

After the purchase of the site, the County Council's initial grant of planning permission for the development was reversed by An Bord Pleanála. This impaired significantly the potential of the site, and the company defaulted on repayment in late 2008. The plaintiff now sought to enforce the guarantee against the defendants.

Held by McGovern J, that the first defendant had advanced three main points in his defence. Firstly, he submitted the 2007 variation was made without notice to him. However, the Court considered the terms of the loan expressly provided for such a variation, and the mere lack of notice was not sufficient to invalidate it.

The first defendant also contended that the 2008 variation was not effective and equated to a new agreement outside the ambit of the guarantee. He further claimed that the variation was obtained by fraud on the part of the company. The Court considered that both the plaintiff and the first defendant were third parties to the fraud, but that the burden of the resulting loss should fall on the plaintiff as to hold otherwise would adversely affect any case of suretyship. The 2008 variation was therefore not effective against the first defendant.Ruben v Great Fingall Consolidated [1906] AC 439 not followed, Royal British Bank v Turquand 119 ER 474 considered.

As such, the Court considered that the guarantee remained valid, subject to the 2007 variation but not the 2008 variation, and invited submissions on the appropriate order to be drawn up.

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1 With this application the plaintiff bank ("ACC") seeks judgment as against the first defendant, Sean McCann, for the sum (including interest) of €7,842,284.34 in his capacity of guarantor of that loan. It is not in dispute but that on October 6, 2006 the plaintiff bank sanctioned a loan facility in the sum of €5,555,000 to a company entitled Killorglin Ventures Ltd. ("Killorglin"). The loan was expressed to be for a two year period and its purpose was to assist in the purchase of a development site in Co. Kerry and the subsequent development of that site, with a view to the possibility of a further sale should the general circumstances prove propitious for this purpose..

2 Proposals of that kind were not uncommon during this period when house prices continued on an upward spiral. Many developers and investors sought to identify sites for potential housing development and for this purpose borrowed from financial institutions. Securing planning permission was a vital step in this process, but as Mr. McCann explained in evidence, during this remarkable period of intense activity in the construction sector, even the fact of applying for permission was thought to be enough to increase the value of the property.

3 So far as the guarantee is concerned, it should be pointed out that Mr. McCann is an experienced businessman and his own solicitors wrote to the plaintiffs solicitors at the time of the execution of the guarantee on two occasions in December, 2006 confirming that his client did not require independent legal advice as he "fully understood what [he was] signing".

4 So far as this development is concerned, at first all went well and the land duly was acquired for the sum of €5m, together with stamp duty in the same of €450,000. The loan agreement envisaged that planning permission would be acquired in a relatively short space of time, since it stipulated that if planning permission had not been received by 1^stFebruary, 2007, extra security was to be given sufficient to bring the loan to value ratio to 65% or lower. That date was ultimately extended to June 2007.

5 Planning permission for this development was originally granted by Kerry County Council in June, 2007. Following an appeal by local residents, this decision was, as we shall see, overturned on appeal by An Bord Pleanála in February, 2008. The refusal of planning permission naturally was disastrous so far as this project and its promoters were concerned. Once the inspector's report subsequently came to hand, it became clear that An Bord Pleanála must have had serious concerns regarding whether the proposed development would have presented a traffic hazard and would also have materially contravened the development plan with regard to the provision of a by-pass between two national secondary routes.

6 While the company made efforts to consider re-submitting an application in the wake of this refusal - to the point, indeed, where Mr. Fitzgerald was informing ACC in late April 2008 "that the issues raised by the inspector and a revised application will be submitted shortly" - in the end these proved desultory and the endeavour petered out. It is only fair to record that the issue of making a revised application was discussed by all parties in a meeting between the Bank and the developers (including Mr. McCann) in May 2008. The topic was also raised by Killorglin's financial adviser, Mr. Goold, when he had what proved to be abortive discussions with ACC in January, 2009.

7 There seems little doubt but that during the period in the lead-up to what proved to be adverse planning decisions, Mr. McCann became quite apprehensive regarding the future direction of the market. Those with an eye for prevailing market conditions could sense that the property market was beginning to deteriorate quite sharply. He was anxious that the company should simply sell its assets at the best possible price and negotiate the best deal possible from the bank.

8 The grant of the loan from ACC was subject to a number of conditions, including a requirement that the sum in question would be guaranteed by the three directors of the company, namely, the two defendants and Brian Fitzgerald. The three directors executed a guarantee on 11^th December, 2006. As we have just noted, there was a further condition to the effect that if planning permission had not been received by 1^st February, 2007, extra security would be required to bring the loan to value ratio to 65%. In Mr. McCann's case, he was also required to offer a charge over a site which he owns at Firies, Co. Kerry.

9 This loan facility was varied by letters dated 13^th February, 2007, and 1^st February, 2008. Under the terms of the loan facility as thus varied the loan was to be repaid by 11^thDecember, 2008. The company defaulted on the repayment and the loan remains undischarged in its entirety.

10 In September, 2009 ACC made a demand for payment on the three guarantors on foot of the guarantees in respect of the principal and interest. It is this demand which has given rise to the present proceedings. In a judgment delivered on 11^th May, 2011, I refused ACC's application for summary judgment and directed that the case proceed to full hearing. This is now my judgment following this full hearing so far as the claim on the guarantee as against Mr. McCann is concerned.

The response of Mr. McCann

11 While Mr. McCann does not really dispute ACC's principal contentions regarding the loan advanced, he nonetheless now seeks to defend the proceedings on the three principal grounds. First, it is said that as the February 2007 variation was effected without notice to him, it is invalid and ineffective on that account. Second, it is contended that the February, 2008 variation was not truly a variation, but that in effect it amounted to a new agreement between the parties so as to take it outside the reach ofthe guarantee. Third, the defendant objects to the February, 2008 variation on the ground that it was procured by forgery. If, however, this amendment was ineffective, it will not be necessary to consider the second question.

12 The February 2008 amendment was prompted by the decision of An Bord Pleamila to overturn the original decision to grant planning permission for house construction on the site owned by Killorglin. In the wake of this refusal, ACC requested that new loan documents be executed which provided for a higher interest rate of 3% (rather than the pre-existing interest rate of 2%) on the loan. The three guarantors purportedly signed this document on 11^th February, 2008, but Mr. McCann gave evidence - which was not challenged - that his signature to the two loan variations has been forged.

13 So far as the February, 2008 agreement is concerned, Mr. McCann gave evidence that he had lengthy discussions and disagreements with his fellow directors in early 2008 in relation to whether the loan should be varied/extended or whether Killorglin should repay whatever it could and sell its assets. Specifically, Mr. McCann spoke to Mr. Fitzgerald by telephone at the end of February, 2008 at time when they had just become aware of the fact that An Bord Pleanála had refused permission. Mr. McCann made it clear to Mr. Fitzgerald that while he (i.e., Mr. Fitzgerald) and Mr. Griffin had the controlling majority, they had no authority from him to vary or extend the loan.

14 There seems little doubt but that on 25^th February, 2008, a meeting of Killorglin did take place as a result of which the variation (along with the additional 1% interest) was agreed to. It is equally clear, however, that Mr. McCann was not present at the meeting and that, insofar as the minutes of the company meeting record the contrary, they are false. It is also plain that Mr. McCann's name...