AIB v Galvin Developments (Killarney) Ltd

JurisdictionIreland
JudgeMs. Justice Finlay Geoghegan
Judgment Date29 July 2011
Neutral Citation[2011] IEHC 314
CourtHigh Court
Date29 July 2011

[2011] IEHC 314

THE HIGH COURT

[No. 2787 S/2010]
[No. 211 COM/2010]
Allied Irish Banks PLC v Galvin Developments (Killarney) Ltd & Ors
COMMERCIAL

BETWEEN

ALLIED IRISH BANKS PLC.
PLAINTIFF

AND

GALVIN DEVELOPMENTS (KILLARNEY) LIMITED, SOUTER ENTERPRISES LIMITED, JEREMIAH GALVIN, COLM GALVIN, DENIS GALVIN, JOHN SHEE AND JOSEPH HANRAHAN
DEFENDANTS

SWEENEY v MULCAHY 1993 ILRM 289 1993/5/1452

LEO LABORATORIES LTD v CROMPTON BV (ORSE WITCO BV) 2005 2 IR 225 2005/36/7495 2005 IESC 31

ANALOG DEVICES BV & ORS v ZURICH INSURANCE CO & ANOR 2005 1 IR 274 2005 2 ILRM 131 2005/2/242 2005 IESC 12

INDUSTRIAL STEEL & PLANT LTD v SMITH 1980 1 NZLR 545

CHESHIRE & FIFOOT THE LAW OF CONTRACT 5ED (NZ) 1979 53-54

CHESHIRE & ORS CHESHIRE FIFOOT & FURMSTONS LAW OF CONTRACT 13ED 1996 66

CHITTY & ORS CHITTY ON CONTRACTS 29ED 2004 PARA 12.004

MCDERMOTT CONTRACT LAW 2001 PARA 6.42

CONTRACT LAW

Terms

Loan facilities - Default - Entitlement to call in borrowings - Terms of contract - Conflicting terms - Extent of liability - Guarantee - Surcharge interest - Construction of letters of sanction - Collateral contracts - Whether facilities repayable on demand - Whether plaintiff entitled to demand repayment - Whether general terms and conditions governing business lending formed part of agreement - Whether entitled to recover surcharge interest - Whether individual defendants liable for 50% or 100% of amount drawn down - Whether guarantee of loan restricted to interest in lands - Whether plaintiff entitled to surcharge interest - Sweeney v Mulcahy [1993] ILRM 289; Leo Laboratories Ltd v Crompton BV [2005] IESC 31, [2005] 2 IR 225; Analog Devices BV v Zurich Insurance Company [2005] IESC 12, [2005] 1 IR 274; ICS v West Bromich BS [1998] 1 WLR 896; Mannai Ltd v Eagle Star Ass Co Ltd [1997] AC 749; Antaios Compania SA v Salen AB [1985] AC 191 and Industrial Steel Plant Ltd v Smith [1980] 1 NZLR 545 considered - Relief granted (2010/2787S & 2010/211COM - Finlay Geoghegan J - 29/7/2011) [2011] IEHC 314

Allied Irish Banks plc v Galvin Developments (Killarney) Ltd

1

JUDGMENT of Ms. Justice Finlay Geoghegan delivered on the 29th day of July, 2011

2

1. This judgment relates to the plaintiff's ("AIB") claim for judgment in differing amounts against the first named defendant, Galvin Developments (Killarney) Ltd. ("GDK") and the third, fourth and fifth named defendants, Jeremiah Galvin, Colm Galvin and Denis Galvin, whom I will refer to collectively as the Galvin Brothers. Judgment has already been obtained (in default and by consent) against the second, sixth and seventh named defendants.

Historical Relationship
3

2. GDK is a company incorporated in 1992. The Galvin Brothers are its directors and shareholders. GDK is the successor to a longstanding partnership, originally of the parents of the Galvin Brothers, known as the Killarney Construction Partnership. GDK was, until the collapse of the property market and events giving rise to these proceedings, successful in the business of development and construction of residential housing and commercial projects.

4

3. AIB has been the banker to GDK since its incorporation and was the banker to the Killarney Construction Partnership. Originally, GDK was a customer of the Killarney branch. In 1995, its accounts were moved to the South Mall branch in Cork, and in particular, to the Commercial Lending Department which dealt with what were referred to as "Large Ticket" accounts.

5

4. At all material times since 1995, Mr. Jeremiah Galvin was the principal person who dealt with AIB on behalf of GDK and the Galvin Brothers. Since at least 2002, the primary relationship of GDK and the Galvin Brothers was with Mr. William Madden of the South Mall branch and, successively, his assistants, Mr. Conor O'Sullivan and Mr. Colm Spillane, all of whom gave evidence.

6

5. The events in issue in these proceedings commence in 2006. A strong relationship had been established between the Galvin Brothers and, in particular, between Mr. Jeremiah Galvin and Mr. Madden and Mr. O'Sullivan. I find that by the end of 2006, the relationship was such that Mr. Galvin considered Mr. Madden to be a financial advisor in relation to the business of GDK and the Galvin Brothers, and placed trust and confidence in him. Mr. Madden, for his part, respected the Galvins as, he stated in evidence, "cautious, careful businessmen". Mr. Madden also stated that he found Mr. Jeremiah Galvin to be "a capable and meticulous businessman". AIB organised (and, presumably, funded) Mr. Galvin to socialise with its employees by, inter alia, playing golf in the UK and attending a rugby World Cup game in Cardiff. When Mr. Conor O'Sullivan left AIB and took up a position elsewhere, he asked Mr. Jeremiah Galvin to act as a referee.

7

6. Notwithstanding this close relationship, the Galvin Brothers also sought banking facilities elsewhere. In particular, it obtained finance from Bank of Ireland for the development and construction of a shopping centre in Killarney. This lending predated 2007.

8

7. The AIB facilities, the subject matter of this claim, may broadly be divided into what were referred to as historical facilities and those relating to the Coolegrean development. The latter was a joint venture with the second named defendant, then called Mowlam Residential Care Ltd. ("Mowlam") and its principals, the sixth and seventh named defendants, Mr. Shee and Mr. Hanrahan.

Claims
9

8. The claims made in these proceedings relate to the following facilities:

10

(i) Against GDK in respect of historical facilities on loan accounts set out in a letter of sanction of 4 th September, 2008. The total sum claimed to be due as of 8 th March, 2011, is €32,341,553.28 ("GDK Historical").

11

(ii) Against GDK in respect of the Coolegrean development. The claim is made in respect of two accounts: Account No. 49884145 and Account No. 49884228. In respect of each of these, the original letter of sanction is 28 th March, 2007, and the facilities were renewed and extended by letter of sanction of 4 th September, 2008, which is the relevant agreement at the date of demand. The total amount claimed to be due in respect of these facilities as of 8 th March, 2011, is €13,607,030.52 ("GDK Coolegrean").

12

(iii) Against the Galvin Brothers on Account No. 49879145 in relation to Coolegrean. The original letter of sanction is dated 28 th March, 2007, and the facilities were renewed and extended by letter of sanction of 4 th September, 2008. The total sum claimed due as of 8 th March, 2011, is €10,469,701.72 ("Galvin Brothers Coolegrean").

13

(iv) Against the Galvin Brothers on Account No. 49577210 in respect of a loan for an interest in a hotel in Provence, France, pursuant to a letter of sanction of 19 th June, 2008. The amount claimed is €355,656.62 as of 8 th March, 2011 ("the Provence Loan").

14

(v) Against the Galvin Brothers pursuant to letters of guarantee of the GDK Coolegrean loans a sum of €13,607,030.52 ("Coolegrean Guarantee").

15

(vi) Against the Galvin Brothers pursuant to letters of guarantee of the GDK historical loan dated 12 th September, 2008, subject to a maximum amount of €19,480,000.00 with amended relief sought to the effect that such amount is well charged on the Galvin Brothers interest in 120 acres at Cappagh, Muckross, Killarney, County Kerry ("Historical Guarantee")

Defences and Counterclaims
16

9. The defences and counterclaims made by GDK and the Galvin Brothers are, in summary:

17

(i) In respect of all the facilities, GDK and the Galvin Brothers contend that AIB was not entitled to demand repayment on the dates of the respective letters of demand as none of the facilities were repayable on demand.

18

(ii) GDK is only liable for 50% of the amount drawn down on the GDK Coolegrean loan, and, if necessary, rectification of the accepted letter of sanction of 4 th September, 2008, is sought.

19

(iii) The Galvin Brothers are only liable for 50% of the amount drawn down on the Galvin Brothers' Coolegrean loan Account No. 49879145. If necessary, rectification of the accepted letter of sanction of 4 th September, 2008, is sought.

20

(iv) The Galvin Brothers' Coolegrean Guarantee is only for the liability of GDK ( i.e. 50% of the loan drawn down) and is restricted in recourse to the Galvin Brothers' interest in the lands at Cappagh.

21

(v) The Galvin Brothers' Historical Guarantee is restricted in recourse to the lands at Cappagh (this is agreed by AIB).

22

(vi) The Galvin Brothers' Provence Loan was not repayable at the date of demand for distinct reasons to the general contention.

23

(vii) AIB is not entitled to recover the surcharge interest applied to four accounts, as there was no agreement to this effect.

Issues
24

10. I propose considering and determining the issues arising in the following order:

25

(i) Whether or not AIB was entitled to demand repayment of the various facilities on the dates of the respective letters of demand.

26

(ii) Whether or not AIB is entitled to recover surcharge interest applied to four accounts.

27

(iii) Whether GDK is liable for 100% or 50% of the amount drawn down on the GDK Coolegrean Loan.

28

(iv) Whether the Galvin Brothers are liable for 100% or 50% of the amount drawn down on the Coolegrean Loan Account No. 49879145.

29

i (v)Whether or not the Galvin Brothers' Coolegrean Guarantee of the GDK liability on the Coolegrean Loan is restricted their interest in the lands at Cappagh.

30

(vi) The nature of the relief, if any, to which AIB is entitled in respect of the Galvin Brothers' Historical Guarantee of the GDK Historical Loans restricted to their interest in the lands at Cappagh.

31

11. The facts in dispute in the proceedings relate, primarily to the issues...

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