Danske Bank a/s trading as National Irish Bank (plaintiff) v RQB Ltd (formerly known as Redquartz Boundary Ltd)

• Jurisdiction: Ireland
• Judge: Mr. Justice Brian McGovern
• Judgment Date: 23 July 2010
• Neutral Citation: [2010] IEHC 347
• Court: High Court
• Docket Number: [No. 3108 S/2009]
• Date: 23 July 2010

Danske Bank A/S (t/a National Irish Bank) v RQB Limited (formerly known as Redquartz Boundary Limited) & Ors

BETWEEN

DANSKE BANK A/S TRADING AS NATIONAL IRISH BANK

PLAINTIFF

AND

RQB LIMITED (FORMERLY KNOWN AS REDQUARTZ BOUNDARY LIMITED), PADDY KELLY, NIALL MCFADDEN AND PAUL PARDY

DEFENDANTS

[2010] IEHC 347

[No. 3108 S/2009]

THE HIGH COURT

BANKING LAW

Guarantees

Construction - Intention of parties - Circumstances surrounding creation of document - Overdraft secured by joint and several guarantees - Facility restructured - Whether defendant bound by 2005 guarantee - Whether 2008 guarantee replaced or supplemented 2005 guarantee - Whether circumstances necessary to trigger 2008 guarantee had occurred - Whether restructuring had been completed - O'Toole v Heavey [1993] 2 IR 544; Igote Ltd v Badsey Ltd [2001] 4 IR 511 and Rohan Construction Ltd v Insurance Corporation of Ireland [1988] ILRM 373 followed - Reardon Smith Line Ltd v Yngvar Hansen-Tangen [1976] 1 WLR 989 applied; Analog Devices BV v Zurich Insurance Company [2002] IR 272 considered - Application granted (2009/3108S - McGovern J - 23/7/2010) [2010] IEHC 347

Danske Bank v RBQ Ltd

Facts: The plaintiff bank sought judgment against the third named defendant in the sum of €8,876,803.16 on foot of a guarantee dated 23 December 2005 to secure monies advanced by the Bank to RQB Limited. The plaintiff sought judgment against the third named defendant. The second, third and fourth defendants entered into two guarantees to secure the facilities either made available or offered to RQB Limited. The first was a guarantee of 23 December 2005. The second was a guarantee from September 2008. The third named defendant claimed that any liability which resulted was on foot of the 2008 guarantee, as it replaced the 2005 guarantee. At the conclusion of the case of the plaintiff, the third named defendant did not go into evidence. The Court had to determine whether on the balance of probabilities the third named defendant was bound by the 2005 guarantee. The issue arose as to whether the 2008 guarantee supplanted the 2005 guarantee and the question of a drawdown and the legal context of facility letters. The third named defendant argued that contracts of guarantee had to be construed strictly.

Held by McGovern J. that the Court was satisfied that the plaintiff had agreed that the 2008 guarantee would supplant the 2005 guarantee but only when the restructured facilities had been drawn down and all the security had been in place. The facilities offered on 4 September 2008 were required to be renegotiated as they had not been drawn down by 30 September 2008. It followed that the 2005 guarantee remained in place and the third named defendant was bound on foot of that guarantee. There was no ambiguity in the guarantees and the facility letters. The plaintiff was entitled to succeed and to judgment against the third named defendant for the sum claimed in the proceedings on foot of the guarantee of 23 December 2005.

Reporter: E.F.

O'TOOLE v HEAVEY 1993 2 IR 544 1992/12/3982

REARDON SMITH LINE LTD v HANSEN-TANGEN 1976 1 WLR 989 1976 3 AER 570

IGOTE LTD v BADSEY LTD 2001 4 IR 511 2001/12/3308

ROHAN CONSTRUCTION LTD & ROHAN GROUP PLC v INSURANCE CORPORATION OF IRELAND PLC 1988 ILRM 373 1987/4/1080

ANALOG DEVICES BV & ORS v ZURICH INSURANCE CO & AMERICAN GUARANTEE & LIABILITY INSURANCE CO 2002 1 IR 272 2002 2 ILRM 366 2002/1/187

Mr. Justice Brian McGovern

1 In these proceedings, the plaintiff (hereinafter referred to as "the Bank") seeks judgment against the third named defendant in the sum of €8,876,803.16 with contractual interest thereon on foot of a guarantee dated 23^rd December, 2005, to secure monies advanced by the Bank to RQB Limited. RQB Ltd. (the first named defendant) is in liquidation and the third named defendant was a director of that company since 2005. The plaintiff provided an overdraft facility to RQB Ltd. on terms set out in a facility letter of 19^th December, 2005. This facility was secured by joint and several guarantees given by the third named defendant and by Paddy Kelly (the second named defendant) and Paul Paddy (the fourth named defendant). RQB Ltd. failed to comply with the terms of the facility granted, and on 22^nd July, 2009, a demand for repayment of the debt was made of the first named defendant by the Bank. The first named defendant was not in a position to repay the monies advanced and by letters of demand dated 24^th July, 2009, the Bank wrote to each of the guarantors, namely, the second, third and fourth named defendants, demanding immediate repayment of the sums then due, namely, €8,563,306.30, in accordance with the terms of the guarantee.

2 In this hearing, the plaintiff seeks judgment against the third named defendant, Niall McFadden. Summary judgment has been obtained by the plaintiff against the second and fourth named defendants on 12^th August, 2009, and against the first named defendant on 23^rd September, 2009. On 16^th October, 2009, the proceedings against the third named defendant, Niall McFadden, were adjourned for plenary hearing.

3 The second, third and fourth named defendants entered into two guarantees to secure the facilities either made available to or offered to RQB Limited. The first was a guarantee of 23^rd December, 2005, and the second was a guarantee of 10^th September, 2008. These proceedings are brought against the second, third and fourth named defendants on foot of the 2005 guarantee. The summary judgment already obtained against the second and fourth named defendants on 12^th August, 2009, was in respect of that guarantee.

4 The third named defendant claims that if he has any personal liability for the debts of the first named defendant it is on foot of the guarantee of 10^th September, 2008, as it replaced the 2005 guarantee. This is denied by the plaintiff. The issue in this case is a relatively simple one, namely, whether the plaintiff is bound under the 2005 guarantee or the 2008 guarantee. It is not disputed that he executed both guarantees and that they were proper as to their form.

5 At the conclusion of the plaintiff's case, counsel for the third named defendant informed the Court that he did not propose going into evidence. It is accepted by the parties that the principles set out inO'Toole v. Heavey [1993] 2 I.R. 544, apply. In this case, there do not appear to be any notices claiming contribution or indemnity, and since judgment has been obtained against the other defendants, it seems to me that the ruling in O'Toole and Heavey can be applied as though there was just one defendant. That rule is as follows:

"If, upon a applying for a non-suit at the conclusion of the plaintiff's case, in a case where one defendant only has been sued, it is indicated that the defendant does not intend if the application is refused, to go into evidence, then, in effect, the learned trial judge is being asked to determine the following question, which is: having regard to his view of the evidence of the plaintiff, whether the plaintiff has (that being the only evidence before him) established as a matter of probability the facts necessary to support a verdict in his favour. Unless he is so satisfied, he must dismiss the action; if he is so satisfied, it appears to me that he must give judgment for the plaintiff."

6 Expressed in simple terms, what this means is that I have to decide whether the plaintiff has established, at the conclusion of its Case, on the balance of probability, that the third named defendant is bound by the 2005 guarantee.

7 6. On 19^th December, 2005, the plaintiff Bank issued an overdraft facility to the first named defendant ("RQB") offering the company an overdraft facility in the sum of €12m. for the purpose of assisting with the acquisition of properties and other investments, pending the injection of investor equity. The offer contained in the facility letter was subject to the acceptance of same by RQB and to compliance with the terms and conditions set out therein. The facility letter, at clause 7 thereof, provided for security and stated:

"The overdraft facility will be secured by;"

(a) Joint & Several Guarantees of €12,000,000 (Twelve million Euro) from Patrick Kelly, Niall McFadden and Paul Pardy.

8 Any security held now or at any future time shall be security for all the Borrowers' liabilities to the bank (actual or contingent and whether as principal or surety)."

9 The terms of the offer in the facility letter were accepted by RQB and monies were drawn down against the facility. At the time of the letter of demand, dated 11^th June, 2009, the outstanding liability of RQB was €8,521,006.62.

10 7. The 2005 facility was repayable on demand and subject to review on 21^st December, 2006. At the end of 2006, the Bank had discussions with RQB and it was agreed to continue the 2005 facility on the understanding that it was repayable on demand.

11 8. In the early summer of 2008, RQB requested that the Bank would restructure the 2005 facility and discussions took place between the parties. On 10^th June, 2008, Mr. Kenneth Dobson, Head of Corporate Banking Ireland, for the plaintiff, sent an email to Mark Buckley of the first named defendant, setting out in broad terms the way in which they were prepared to restructure the facility.

12 9. The restructuring of the facility involved the creation of a €2m overdraft available until 30^th June, 2009, to fund business restructuring costs and a loan of €8m to restructure existing borrowings for a three-year term, expiring on 30^th June, 2011. The security was stated in the email to be:

"Continuation of existing Joint and Several Personal Guarantee of shareholders (N. McF., P.K and P.P.) - the bank will, however, agree to review these on an annual basis, and without commitment, consider a...