Allied Irish Banks Plc, Kennedy v

• Jurisdiction: Ireland
• Judge: Hamilton C.J.
• Judgment Date: 01 January 1998
• Neutral Citation: [1996] IESC 9
• Court: Supreme Court
• Docket Number: [S.C.
• Date: 01 January 1998

[1996] IESC 9

THE SUPREME COURT

HAMILTON C.J.

O'FLAHERTY

DENHAM J.

257/95

KENNEDY v. ALLIED IRISH BANKS PLC

BETWEEN:

PATRICK KENNEDY, HUGH McGILL, METHUEN PARK INVESTMENTS LIMITED, CARGAGH CONSTRUCTION LTD. AND TOWERLOUGH PROPERTIES LIMITED

Plaintiffs/Appellants

and

ALLIED IRISH BANKS, PLC. AND A.I.B. FINANCE LIMITED

Defendants/Respondents

Citations:

HAY V O'GRADY 1992 1 IR 210

MONTGOMERY WARD & CO V SCHARRENBECK TEXAS SUPREME COURT

TULSK CO-OP LIVESTOCK MART LTD V ULSTER BANK LTD GANNON 1983/12/3661, IR PRO NEG LR 55

HALSBURYS LAWS OF ENGLAND 4ED V3(1) PARA 149

TAI HING COTTON MILL LTD V LIEU CHONG HING BANK LTD 1986 1 AC 80

HENDERSON V MERRETT SYNDICATES LTD 1994 3 AER 506

NATIONAL BANK OF GREECE SA V PINIOS SHIPPING CO (NO 3) 1988 2 LLOYDS 126

HEDLEY BYRNE & CO LTD V HELLER & CO LTD 1963 2 AER 575

TOWEY V ULSTER BANK LTD 1987 ILRM 142

TE POTTERTON LTD V NORTHERN BANK LTD 1993 1 IR 413

LLOYDS BANK PLC V COMP UNREP 18.12.91 (UK)

Synopsis:

[1998] 2 IR 48

1 Judgment delivered on the 29th day of October 1996 by Hamilton C.J. [NEM DISS]

2 This is an appeal brought by the above named plaintiffs, and each of them, against the judgment of the High Court (Murphy J.) delivered on the 18th day of May 1995 and the order made in pursuance thereof which was perfected on the 26th day of May 1995, whereby the plaintiffs claim against each of the respondents for damages alleged to have been suffered by them and each of them by reason of the defendants" alleged breach of contract and duty owed to them, and each of them, as bankers was dismissed and judgment was granted in favour of the first named defendant on its counterclaim in the following terms viz. that the first named defendant do recover

3 (1) as against the third named plaintiff the sum of £220,510.50 (being a principal sum of £160,658.63 together with interest thereon up to the 15th day of March 1995 in the sum of £59,851.87) on account no. 13562001;

4 (2) as against the fourth named plaintiff the sum of £245,639.00 (being a principal sum of £184,548.48 together with interest thereon up to the 15th day of March 1995 in the sum of£61,090.52) on account no. 02652011;

5 (3) as against the fifth named plaintiff the sum of £66,680.08 (being a principal sum of £50,096.77 together with interest thereon up to the 15th day of March 1995 in the sum of £16,583.31) on account no. 20903016;

6 (4) as against the first and second named plaintiffs in respect of the indebtedness of the third named plaintiff the sum of £143,563.49 (being a principal sum of £110,000 together with interest thereon up to the 15th day of March 1995 in the sum of £33,563.49) pursuant to the terms of a guarantee in writing dated the 8th day of January 1991;

7 (5) as against the first and second named plaintiffs in respect of the indebtedness of the fourth named plaintiff the sum of £54,754.82 (being a principal sum of £43,000 together with interest thereon in the sum of £11,754.82) pursuant to the terms of a guarantee in writing dated the 8th day of January 1991;

8 (6) as against the first and second named plaintiffs in respect of the indebtedness of the fifth named plaintiff the sum of £66,680.08 (being a principal sum of £50,096.77 together with interest thereon up to the 15th day of March 1995 in the sum of £16,583.31) pursuant to the terms of a guarantee in writing dated the 8th day of January 1991.

9 By consent it was ordered that the second named defendant's counterclaim be dismissed.

10 The plaintiffs" claim against the defendants arose out of the following circumstances.

11 The first and second named plaintiffs/appellants are and were at all times material hereto Co-Directors of the third, fourth and fifth named Plaintiff Companies, hereinafter consecutively referred to as "Methuen", "Cargagh" and "Towerlough".

12 The first named plaintiff, Mr. Patrick Kennedy was the owner of 50% of the shareholding in each of the said companies and the second named plaintiff, Mr. McGill was the owner of 50% of the shareholding in "Cargagh" and "Towerlough". The first named plaintiff's wife was the owner of the balance of the shareholding in "Methuen".

13 Both the first and second named plaintiffs were property developers, carrying on their business through the medium of the said Companies, viz. "Methuen", "Cargagh" and "Towerlough".

14 Though the said companies are legal entities separate and distinct from each other and from the first and second named plaintiffs, the activities of each of the said plaintiffs were, as the evidence at the trial disclosed, so interlinked that the learned trial judge correctly regarded them as being in partnership.

15 In April, 1990, Methuen owned lands situate at Cabinteely on which it was intended to build fifty detached houses in respect of which planning permission and bye-law approval had been granted by the local authority.

16 "Cargagh" ,were the owners of three acres of land situate at Loughlinstown and known as Sunnyhill, Bray Road in the County of Dublin.

17 "Towerlough's" main business was the purchase and running of a hotel known as O'Meara's Hotel, Nenagh in the County of Tipperary, which purchase was completed in October 1990.

18 The plaintiffs were customers of the Defendant Companies, Allied Irish Banks Plc. (hereinafter referred to as A.I.B.) and A.I.B. Finance Limited (hereinafter referred to as A.I.B.F.) and as found and stated by the learned trial judge were in the spring and summer of 1990 "treated as highly favoured customers; given very substantial facilities and permitted to effect their financial transactions with a minimum of formality or enquiry and perhaps even a suggestion of irregularity".

19 The learned trial judge however went on to say that "this privileged position was not continued in the following year".

Methuen

20 In or about the beginning of 1990 it was decided that Methuen would develop their lands at Cabinteely and it was alleged by the plaintiffs that the Defendant Banks agreed to finance the said development and provided Current Accounts and Term Loans to Methuen.

21 On the 7th day of March 1990 the first and second named plaintiffs applied on behalf of Methuen to the defendants for a Business Advance, which included £500,000 from the second named defendant for what was described as "working capital" and stated to be required for "¾ months maximum".

22 By letter dated the 18th day of April 1990 A.I.B.F. agreed to provide to Methuen the sum of £500,000 subject to the terms and conditions contained in the said letter. These included the conditions that:-

23 (i) the entire facility was subject to quarterly review and that the interest payable in respect thereof be serviced quarterly;

24 (ii) the securities required comprised the following:-

25 (a) equitable mortgage over freehold title to c.8 acres at Johnstown Road, Cabinteely, zoned residential;

26 (b) Guarantee: Cargagh Construction Ltd. for £375,000 supported by an equitable mortgage over freehold site known as Sunnyhill, Bray Road comprising c. 3 acres with SPP for 3 houses;

27 (c) Guarantee: Hugh McGill for £500,000 Paddy Kennedy for £500,000

28 (iii) The Bank reserved the right to withdraw this offer or vary the repayment requirements or any other terms and conditions of sanction at any time should the Bank at its sole discretion consider it prudent so to do.

Cargagh

29 By letter dated the 26th day of February, 1590 "Cargagh" was informed by John Pardy, Development Manager, Commercial (Dublin) of A.I.B.F. that A.I.B.F. had sanctioned accommodation for "Cargagh" in the sum of £175,000 subject to the terms and conditions set forth in the said letter.

30 This accommodation was stated to be by way of bridging finance to assist in the purchase of the property situate at Sunnyhill, Bray Road, Cabinteely and repayment was to be at the pleasure of the Bank "it being noted that clearance will be effected within three months from date of drawdown" and that the interest payable thereon was payable quarterly in arrears each year.

31 The security for the said loan required by the Bank was in the said letter stated to be:-

32 2 "1. Registered Equitable Mortgage over freehold site known as Sunny hill, Bray Road, Cabinteely comprised of c. 3 acres with SPP for three houses vesting in the name Cargagh Construction Limited.

33 2. Letters of Guarantee signed by Mr. Hugh McGill and Mr. Paddy Kennedy for the total amount borrowed together with interest."

34 The Bank reserved the right to withdraw the said offer should it at its sole discretion consider it prudent to do so.

Towerlough

35 By letter dated the 18th day of April, 1990 signed on behalf of the aforesaid Mr. Pardy, A.I.B.F. sanctioned accommodation for "Towerlough" in the sum of £595,000 as an advance to purchase O'Meara's Hotel in Nenagh, Co. Tipperary subject to the terms and conditions set forth in the said letter.

36 Though O'Meara's Hotel was purchased by "Towerlough" in 1990 the facilities afforded by the said letter were not availed of by the plaintiffs for that purpose and alternative funding for the said purchase was arranged by the plaintiffs.

37 The alternative funding arranged by the plaintiffs for the purchase of O'Meara's Hotel consisted of

38 (i) a loan of £55,000 made by "Cargagh" to "Towerlough"; and

39 (ii) a mortgage for £500,000 from the Irish Nationwide Building Society which was sanctioned on the 31st May 1990 and reissued on the 12th day of October 1990.

40 As appears from the letter of offer of this loan dated the 12th October 1990 it was condition of such offer that "Towerlough" would deposit £100,000 with the Irish Nationwide Building Society and that sum would remain on deposit with the Society until the debt was reduced to £250,000.

41 In order to raise the sum of £100,000 which was required to be deposited with the Irish Nationwide...