ACC Loan Management Ltd v Sheehan

JudgeMs. Justice Murphy
Judgment Date17 December 2015
Neutral Citation[2015] IEHC 818
Docket Number[2013 No. 3218 S]
CourtHigh Court
Date17 December 2015

[2015] IEHC 818


Murphy Deirdre J.

[2013 No. 3218 S]


Banking & Finance – Non-payment of loan – Execution of indemnity & guarantee – Non-commercial element of guarantee – Legal charge over property – Summary judgment – Bona fide defence

Facts: The plaintiff sought an order for summary judgment against the defendant for non-payment of a loan advanced to the company of which the defendant and his brothers were the directors in terms of a facility letter and upon execution of guarantee and indemnity whereby the defendant agreed to create a first legal charge in favour of the plaintiff over a portion of the defendant's property. The defendant pleaded the defence of undue influence arising from the non-commercial element of the guarantee, namely the sibling relationship between the defendant and his brother and inadequacy of legal advice.

Ms. Justice Murphy refused to grant an order for summary judgment to the plaintiff. The Court held that the power to grant summary judgment should be exercised sparingly and only in cases where the defendant had an arguable defence. The Court found that it was no defence that the defendant had been pressurized by his brother to act as a surety for it was a common parlance for the siblings being the directors of the same company to enter into commercial transactions. The Court, however, observed that the reliance of the plaintiff on the words of the borrower's solicitor that the sureties had waived their right to independent legal advice without requiring the signed waivers from the sureties was a material breach on the part of the plaintiff. The Court found that the issue of whether the sureties sought independent legal advice or waived their right was indeed a triable issue and hence, summary judgment could not be granted in the present case.

JUDGMENT of Ms. Justice Murphy delivered the 17th day of December, 2015.

These proceedings come before the Court as a motion for liberty to enter final judgment against the defendant, Mr. Gerard Sheehan, in the sum of €183,732.14 on foot of a guarantee entered into by the defendant on 12th March, 2008. The plaintiff seeks summary judgment on the basis that the defendant does not have a bona fide defence to the plaintiff's claim.


The defendant entered into a transaction with the predecessor of the plaintiff, ACC Bank plc, in March 2012, as a director of Newmarket Foods Limited (‘the Company’). Newmarket Foods Limited was a private company established by the defendant's brother, Mr. Vincent Sheehan. The defendant asserts on affidavit that the Company was effectively owned and exclusively run by his brother. However, during the course of the proceedings documentation was produced which was registered in the Companies Registration Office indicating that the defendant owned 5% of the issued shared capital at the relevant times for the purpose of this application. The defendant disputes having any knowledge or awareness of this fact, however he does accept that he had a commercial arrangement with the company worth €500 per week up until the date of its liquidation on 6th July, 2010, whereby he unloaded deliveries at a warehouse on his lands and received and made up orders for the company.


By a facility letter dated 5th March, 2008, the plaintiff agreed to provide the Company with a term loan facility in the sum of €151,500 to assist with the set up costs for a new factory in Castlemahon, County Limerick. The defendant and his brother both signed the facility letter in their capacity as directors of the Company on 12th March, 2008. The facility letter stipulated inter alia that the defendant was to provide the plaintiff with a guarantee and indemnity with respect to the facility. It further provided that this was to be supported by a first legal charge over a 1625 square foot warehouse and 2 acres of land at Gorteen, Dromcollogher, County Limerick, owned by the defendant.


On 7th March, 2008, the plaintiff wrote to Mr. David O'Connor, the borrower's solicitor, informing him that the Bank were prepared to release the funds to his client on receipt of a number of documents including a ‘letter from Guarantor Solicitor confirming Guarantor received independent legal advice prior to execution of Guarantee & Indemnity document’. By letter dated 12th March, Mr. O'Connor wrote to Mr. Graham O'Sullivan of the plaintiff where he stated:-

‘We confirm that Vincent Sheehan and Gerard Sheehan were offered independent legal advice and they waived same. We conform that the Guarantee and Indemnity was explained to them in full and they understand the nature and effect of same by (sic) nevertheless they decided to waive their right to independent legal advice.’


The defendant executed the guarantee and indemnity on 12th March, 2008, and his signature was witnessed by the solicitor for the Company, Mr. David O'Connor, of High Street, Newmarket, County Cork. On the same date, 12th March, 2008, the defendant also executed an indenture of charge over the property at Gorteen, Dromcollogher, County Limerick and this was subsequently registered in the Land Registry on 19th January, 2009. The property over which the security was provided was part of a larger folio of lands (Folio 3690F) owned by the defendant consisting of 23.9760 hectares. A new folio was created (Folio 61958F) for the purpose of creating a first legal charge in favour of the plaintiff over a portion of the defendant's property. The limiting of the charge to this particular piece of property, as opposed to providing it over the defendant's entire lands, was the subject of correspondence between Mr. O'Connor and the defendant dated 11th March, 2008, where Mr. O'Connor advised the defendant:-

‘…if you are giving a charge over the lands to the ACC Bank then you would want to limit it to a particular piece of the property rather than give them all your lands.’


Ultimately the Company defaulted in the repayment of the term loan facility as agreed and went into liquidation on or about 6th July, 2010. By letter dated 19th June, 2013, the plaintiff demanded payment of all sums due and owing on foot of the defendant's guarantee and indemnity. Despite this demand the defendant has failed to discharge the sums due and owing resulting in these proceedings being issued by summary summons dated 7th October, 2013.


The defendant has raised two primary defences to the plaintiff's claim for summary judgment. The first defence relates to potential undue influence arising from the non-commercial element to the guarantee, namely the sibling relationship between the defendant and Mr. Vincent Sheehan. The second relates to the legal advice provided to the defendant by Mr. David O'Connor, solicitor, which the defendant claims was wholly deficient.

Undue Influence

The defendant in his first affidavit of 18th July, 2014, avers that he felt that he was under ‘severe pressure’ at the time of executing the guarantee. He stated that he believed from speaking with his brother that had he not entered into the guarantee it would have resulted in his brother not obtaining the loan from the plaintiff and consequently the failure of his brother's business.


Furthermore, it is the defendant's position that the Bank were on notice of potential undue influence in circumstances where the guarantee in question had a non-commercial element. The defendant argues that it would have been obvious to even the most casual of observers that both parties to the transaction shared a surname and therefore it was a strong possibility that there was some non-commercial element to the transaction being entered into.


The defendant relies on the House of Lords decision in Royal Bank of Scotland plc v. Etridge (No.2) [2001] UKHL 44 where the court examined the existing jurisprudence arising form the decision in Barclays Bank v. O'Brien [1994] 1 A.C. 180, which dealt with undue influence between husbands and wives, and stated that there was no rational cut-off point whereby certain types of relationships could be susceptible to the O'Brien principal and others not. Lord Nicholls at p814 of his decision said:-

‘…if a bank is not to be required to evaluate the extent to which its customer influence over a proposed guarantor; the only practical way forward is to regard banks as “put on inquiry” in every case where the relationship between the surety and the debtor is non-commercial. The creditor must always take reasonable steps to bring home to the individual guarantor the risks he is running by standing as surety’


The general principle espoused by the House of Lords in Etridge was adopted by the Irish High Court in the case of Ulster Bank v. Roche [2012] 1 I.R. 765, where Clarke J. stated:-

‘I am satisfied that the general principal, which underlines 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.’


In Roche, the second named defendant provided a guarantee in respect of the debts of her partner, the first named defendant. The guarantor was a director of the company but took no active role in the business. The bank's knowledge as regards the commercial relationship between the first and second named defendants was described by Clarke J. as indirect and limited but nevertheless was found to be sufficient to place the bank on inquiry requiring it to take steps to ensure the transaction was being entered into freely.


The defendant submits that based on the decision of the House of Lords in Etridge and on the decision of Clarke J. in Roche the plaintiff bank in the instant case was put on enquiry as to a potential claim of undue influence on...

To continue reading

Request your trial

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT