Danske Bank A/S t/a National Irish Bank v McFadden

• Jurisdiction: Ireland
• Judge: Mr. Justice Clarke
• Judgment Date: 20 April 2010
• Neutral Citation: [2010] IEHC 116
• Court: High Court
• Date: 20 April 2010

[2010] IEHC 116

THE HIGH COURT

[No. 4213 S/2009]

Danske Bank A/S (t/a National Irish Bank) v McFadden

COMMERCIAL

BETWEEN

DANSKE BANK A/S TRADING AS NATIONAL IRISH BANK

PLAINTIFFS

AND

NIALL MCFADDEN

DEFENDANT

ST EDMUNDSBURY & IPSWICH DIOCESAN BOARD OF FINANCE & ANOR v CLARK (NO 2) 1975 1 WLR 468 1975 1 AER 772

HALSBURYS LAWS OF ENGLAND 4ED VOL 9(1) PARA 771

HALSBURYS LAWS OF ENGLAND 4ED VOL 9(1) PARA 776

CHUEN & ANOR v BANK OF CREDIT & COMMERCE HONG KONG LTD 1996 2 BCLC 69 1996 BCC 388

CLARKE THE LAW OF INSURANCE CONTRACTS 5ED 2006 PARA 15.5

LEWISON THE INTERPRETATION OF CONTRACTS 4ED 2007 261

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

ROHAN CONSTRUCTION LTD & ROHAN GROUP PLC v INSURANCE CORP OF IRELAND LTD 1986 ILRM 419 1986/4/1406

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

LEVISON & ORS v FARIN & ORS 1978 2 AER 1149

OXONICA ENERGY LTD v NEUFTEC LTD 2008 EWHC 2127 (PAT)

ANDREWS & MILLETT LAW OF GUARANTEES 5ED 2008 PARA 9.029

SWIRE & ANOR v REDMAN & HOLT 1875-76 1 QBD 536

WITTMANN (UK) LTD v WILLDAV ENGINEERING SA 2007 BLR 509 2007 EWCA CIV 824

GABBS v BOUWHUIS UNREP MASUHARA 20.6.2007 2007 BCSC 887

HIGH MOUNTAIN FEED DISTRIBUTORS LTD v PAW PLEASERS LTD & MCCANN-SUCHOWER 188 MAN R (2D) 288 2004 MBQB 220

GUARANTEES

Construction

Terms - Bridging facility - Construction of terms of guarantee - Whether guarantee discharged - Meaning of âÇÿamendment' - Whether extension of duration of bridging facility amounted to âÇÿamendment' of agreement - Meaning of âÇÿagreement in writing' - Difference between âÇÿagreement in writing' and âÇÿagreement evidenced in writing' - Whether oral agreement subsequently confirmed in letter from plaintiff creditor amounted to âÇÿagreement in writing' - Whether defendant guarantor himself had to assent in writing to amendment to agreement - Whether mere knowledge of amendment sufficient to bind defendant guarantor - Whether assent of debtor company sufficient to bind defendant guarantor where defendant guarantor involved in debtor company - Whether assent by defendant guarantor must be formal or may be implied by conduct - Whether guarantee once discharged can be revived - Whether conduct of defendant guarantor sufficient to revive guarantee - Whether participation by defendant guarantor in negotiations with plaintiff creditor subsequent to discharge of guarantee sufficient to revive guarantee - Whether contra preferentem rule applicable - Whether defendant guarantor estopped from relying on entitlement to discharge guarantee - Guarantee enforced - St Edmundsbury and Ipswich Diocesan Board of Finance v Clark (No 2) [1975] 1 WLR 468 and Wittmann (UK) Ltd v Willdav Engineering SA [2007] EWCA Civ 824 followed; Tam Wing Chuen and anor v Bank of Credit and Commerce Hong Kong Ltd(in liq) [1996] 2 BCLC 69, Rohan Construction Ltd v Insurance Corporation of Ireland Ltd [1986] ILRM 419, Levinson and ors v Farin and ors [1978] 2 All ER 1149, Oxonica Energy Ltd v Neuftec Ltd [2008] EWHC 2127, Swire v Redman (1876) 1 QBD 536, Gabbs v Bouwhuis [2007] BCSC 887, High Mountain Feed Distributors Ltd v Paw Pleasers Ltd et al [2004] MBQB 220 considered; Analog Devices BV v Zurich Insurance Company [2005] IESC 12, [2005] 1 IR 274 applied; Claim allowed (2009/4213S - Clarke J - 20/4/2010) [2010] IEHC 116

Danske Bank A/S trading as National Irish Bank v McFadden

Facts A commercial transaction was entered into involving the takeover of a particular company ("B&S"). As part of the transaction one of the loans which was provided for the takeover was guaranteed by the defendant. Funding for the takeover was provided by the plaintiffs. The plaintiffs now sought to enforce the terms of the guarantee. The loan in question was a bridging loan which was intended to provide temporary finance until such time as equity finance was put in place. The personal guarantee had been given in respect of the bridging loan. It was disputed by the defendant on a number of grounds as whether the guarantee was still valid. The bridging facility had lasted for a much longer period than had been originally envisaged. The defendant had contended that there had been a material alteration in the loan terms which had not been assented and thus the original guarantee could no longer be relied upon.

Held by Clarke J in finding in favour of the plaintiffs. A guarantee could well cease to have effect where a material alteration had taken place in the contract under which the principal debt was owed, save in circumstances where the guarantor could be said to have assented to that change. In construing the terms of the guarantee the court was not satisfied that the proper construction of a particular clause required the defendant's agreement in writing to any relevant amendment. However any extension of time which did not comply with the clauses in the guarantee but which was legally binding, would extinguish the guarantee unless the subsequent conduct of the defendant in relation to any such extension, could be said to amount to a reaffirmation of his guarantee. Each of the extensions, which included a legally binding arrangement, were agreed to in writing, were in compliance with the clauses of the guarantee which in turn meant the guarantee was effective as against the defendant notwithstanding the various extensions of time. A guarantor who was a principal or significant player in a corporate entity whose liabilities were guaranteed would be taken to assent by virtue of active participation in the relevant changes.

Reporter: R.F.

1. Introduction

2 2 1.1 This case arises out of a takeover of Buy and Sell Limited ("B&S") from Associated Newspapers Limited. Funding for the takeover was provided by the plaintiffs ("NIB"). One of the loans which was provided for the takeover was guaranteed by the defendant ("Mr. McFadden"). In these proceedings NIB seeks to enforce the guarantee in question.

3 3 1.2 The vehicle used for the relevant takeover was a company called Naldin Ltd ("Naldin"). Mr. McFadden was the founder and is currently the chairman of a group of companies known as the Boundary Capital group of companies (collectively "Boundary"). While there was some debate at the hearing before me as to the extent to which Boundary was, in any formal or legal sense, a party to the relevant takeover, there is little doubt but that the takeover, and Naldin as the vehicle for that takeover, was associated with Boundary and Boundary personnel. To the extent that it is necessary in the resolution of the issues which arise in this case, I will return to the precise role of Boundary in due course.

4 4 1.3 A series of loans were advanced to Naldin to enable it to takeover B&S. One such loan was in the nature of a bridging loan which, it would appear, was intended to provide temporary finance until such time as equity finance was put in place. The other loans, which are not relevant to this case, were of a different nature and were designed to provide Naldin with ordinary ongoing loan facilities.

5 5 1.4 It is only in respect of the so called "bridging facility" that Mr. McFadden gave a personal guarantee. There is no dispute as to the amount now due by Naldin to NIB under that bridging facility. Neither is there any dispute but that a valid guarantee was entered into by Mr. McFadden in respect of the bridging facility. However, on a number of bases, Mr. McFadden now asserts that he no longer has any liability to NIB on foot of the relevant guarantee. In substance, this case turns on whether those assertions on the part of Mr. McFadden are well founded. In that context, it is appropriate to turn briefly to the issues which arise.

2. The Issues

2 2 2.1 At the time of the execution of the documentation required to put the various arrangements between NIB and Naldin into place, Mr. McFadden executed a guarantee in favour of NIB the text of which would, on the evidence, and subject to one caveat to which I will shortly turn, appear to have been prepared by NIB's solicitors, Messrs. Matheson Ormsby Prentice ("MOP"). No witness was called from NIB or from MOP who was actually present or directly involved in the closing concerned. Likewise, Mr. McFadden was not called to give evidence. I did not, therefore, have the benefit of any witness who was directly involved in the circumstances in which that personal guarantee came to be executed or handed over to MOP on behalf of NIB. However, of particular relevance to these proceedings, is the fact that a handwritten insertion is to be found in the relevant guarantee which adds a new clause 3.3 to same. It will be necessary to turn to the text of that clause in due course. At this stage it is important to note that NIB accepts that the relevant clause would appear to have been inserted in Mr. McFadden's handwriting. No case is made on behalf of NIB that the clause in question does not form part of the guarantee or that the guarantee should not be interpreted in the light of the presence of that clause.

3 3 2.2 Furthermore, by way of important background, it is common case that the relevant bridging facility lasted for a much longer period than had been originally envisaged (the original facility was, in substance, for a three month period). The precise circumstances in which that came to pass and the proper characterisation of same by reference to the guarantee, is an important issue in the proceedings.

4 4 2.3 It will be necessary to turn to certain of the relevant legal principles in due course. However, in general terms, and in the absence of specific contractual provisions which provide otherwise, a guarantee may well cease to have effect where a material alteration takes place in the contract under which the...