George Maloney v Danske Bank A/S
| Jurisdiction | Ireland |
| Judge | Mr. Justice Cregan |
| Judgment Date | 06 October 2014 |
| Neutral Citation | [2014] IEHC 441 |
| Court | High Court |
| Date | 06 October 2014 |
[2014] IEHC 441
THE HIGH COURT
BETWEEN
AND
COMPANIES ACT 1963 S280
RSC O.74 r126
COMPANIES ACT 1963 S231(1)
DANSKE BANK A/S (T/A NATIONAL IRISH BANK) v RQB LIMITED (FORMERLY KNOWN AS REDQUARTZ BOUNDARY LIMITED) & ORS UNREP MCGOVERN 23.7.2010 2010/10/2446 2010 IEHC 347
ICDL & ORS v EUROPEAN COMPUTER DRIVING LICENCE FOUNDATION LTD 2012 3 IR 327 2012/18/5066 2012 IESC 55
MCDERMOTT CONTRACT LAW 2001 993
FURMSTON & GUBB LAW OF CONTRACT 4ED 2010 699
O'CONNOR v COADY 2004 3 IR 271 2005 1 ILRM 256 2004/38/8706 2004 IESC 54
MCDERMOTT CONTRACT LAW 2001 308
THE MOORCOCK, IN RE 1889 14 PD 64 1886-90 AER REP 530
SHIRLAW v SOUTHERN FOUNDRIES (1926) LTD 1939 2 AER 113 1939 2 KB 206
TRADAX (IRELAND) LTD v IRISH GRAIN BOARD LTD 1984 IR 1
CARNA FOODS LTD & MALLON v EAGLE STAR INSURANCE CO (IRL) LTD 1997 2 IR 193 1997 2 ILRM 499 1998 13 4384
COMPANIES ACT 1963 S99
Loan agreement s - Official liquidator - Directions to determine legal status - Floating charge - Whether floating charge enforceable - Security for loan - Personal guarantee - Condition precedent - Lapse of contract terms
Facts An application was brought by the official liquidator of RQB Limited for directions to determine the legal status of a floating charge dated 10 th September 2008 entered into between RQB Limited and Danske Bank. The liquidator, in his affidavits and written submissions, submitted that the floating charge was not valid or enforceable; conversely the Bank claimed that the floating charge was enforceable.
On the 19 th December 2005, National Irish Bank (predecessor of Danske Bank) provided RQB Ltd with an overdraft of €12m on agreed terms. The terms stated the loan was to be repayable on demand subject to review and that security for the overdraft was to be a joint and several guarantee in the sum of €12m from three guarantors, Mr Patrick Kelly, Mr Niall McFadden and Mr Paul Pardy. In 2008 the company requested a restructuring of the 2005 facility. This involved a new loan facility of €8m and an additional overdraft facility of €2m. This offer was signed and accepted by all the parties and a contract came into being on 10 th September 2008. Security for the loan was outlined in s.5 of the loan agreement. The loan facility was to be secured by joint and several guarantee in the sum of €8m from Paddy, Niall and Paul and by first fixed and floating charge over assets and undertaking of the company. On the 10 th September 2008 personal guarantees were executed by Paddy, Niall and Paul and the floating charge was executed by the company. On 17 th September 2008 National Irish Bank sent an email to the company stating a decision had been made not to proceed with the new facilities until all the security was in place. The Bank claimed this was on foot of recent and protracted guarantor problems and that the required personal asset statements were not in satisfactory format. Thus the loan facility and the overdraft facility were not advanced by the Bank to the company; the restructuring envisaged was therefore never completed. The financial position of the company later deteriorated and the Bank made formal demands for repayments of the amount outstanding under the 2005 facility. On 11 th June 2009, the Bank issued a letter of demand for €8.5m and stated it would seek to rely on its security. On 23 rd July 2009, the company replied stating the floating charge was only signed in context of the loan agreement dated 4 th September 2008 and was intended to satisfy security of that facility letter. It also argued the Bank never advanced the new loan facility and that as the company never enjoyed the benefits of the new loan facility the Bank could not now seek to rely on the floating charge.
The company failed to comply with the formal demands. The Bank therefore issued proceedings seeking judgment against the company and the guarantors. Judgments was entered against Paddy, Niall and Paul in sum of €8, 577,105 on foot of their personal guarantees and judgement was entered against the company in sum of €8,615, 830.31. The company was wound up a few months later.
Held The judge considered the terms of the loan agreements. He explained by virtue of the failure to comply with the condition precedent, the agreement by the Bank to provide a loan lapsed, the agreement by the company to repay the loan also lapsed and the agreement between the parties in relation to the security also lapsed. Thus the floating charge signed 10 th September 2008, lapsed. In the circumstances the judge ruled the floating charge unenforceable. He indicated that the floating charge was valid at the time of its creation but it lapsed by virtue of the fact that it was subject to a condition precedent and that condition precedent was not fulfilled; because the condition precedent was not fulfilled the remainder of the contract lapsed. The judge went on to reject the Bank”s further arguments concerning implied terms; consideration and registration of the charge in the Company Registration Office. For such reasons the floating charge was unenforceable.
JUDGMENT of Mr. Justice Cregan delivered the 6 day of Oct, 2014
1. This is an application by the official liquidator of RQB Limited (in liquidation) pursuant to s. 280 of the Companies Acts for directions to determine the legal status of a floating charge dated 10 th September, 2008, entered into between RQB Limited (in liquidation) ("the company") and Danske Bank ("the Bank").
2. Although the notice of motion originally sought an order pursuant to O. 74, r. 126 of the Rules of the Superior Courts and s. 231(1) of the Companies Act 1963, this was amended on consent to an application seeking an order pursuant to s. 280 of the Companies Acts 1963 - 2012, at the commencement of the hearing.
3. The liquidator filed an affidavit of 24 th September, 2013, (together with various exhibits) and a supplemental affidavit of 1 st April, 2014. Michael Leonard on behalf of Danske Bank filed a replying affidavit with exhibits on 15 th November, 2013. Both parties also filed written legal submissions on this issue.
4. The liquidator, in his affidavits and written submissions, has submitted that the floating charge is not valid or enforceable; the Bank for its part, has claimed that the floating charge is enforceable. I will address the substance of these submissions in greater detail in a later section of this judgment.
5. On 19 th December, 2005, National Irish Bank, (the predecessor of Danske Bank,) provided RQB Limited with an overdraft facility of €12 million on agreed terms. This overdraft facility was stated to be repayable on demand but subject to review on 21 st December, 2006. Clause 7 of the overdraft facility letter provided that the only security for the overdraft facility was a joint and several guarantee in the sum of €12 million from Patrick Kelly, Niall McFadden and Paul Pardy.
6. The personal guarantees were signed by the three guarantors on 23 rd December, 2005. Mr. Leonard (for Danske Bank) states in his affidavit that in December 2006 there was an agreement between the Bank and the company to continue the 2005 overdraft facility on the understanding that it was repayable on demand.
7. In early 2008 the company requested a restructuring of the 2005 facility and discussions took place between the parties. The restructuring of the 2005 overdraft facility involved:-
(a) a new loan facility of €8 million; and
b) an additional overdraft facility of €2 million
8. On 4 th September, 2008, the Bank wrote to the company offering a new loan facility of €8 million on the terms set out in that loan facility letter.
9. In addition, on 4 th September, 2008, the Bank also offered an overdraft facility to the company in the amount of €2 million on similar terms.
10. This offer of a loan facility by the Bank was signed and accepted by the company on 10 th September, 2008. (It appears to be accepted by all sides that the overdraft facility was also accepted and signed by the company on the same date.) Thus a contract between the parties came into being on that date (ie 10 th September, 2008).
11. It is also agreed between the parties that these two agreements (i.e. the loan facility agreement of 4 th - 10 th September, 2008 and the overdraft facility agreement of 4 th - 10 th September, 2008), are to be construed together as they refer to each other. Indeed the relevant provisions of the loan agreement and the overdraft agreement are identical.
12. Section 5 of the loan agreement (dated 4 th September 2008 and signed on 10 th September 2008) provided as follows:
The loan facility will be secured by:-
a "(a) Joint and Several Guarantee in the amount of €8 million from Patrick (Paddy) Kelly, Niall McFadden and Paul Pardy ("The Guarantors";) (to be provided)
(b) First Fixed and Floating charge over assets and undertaking of the company (to be provided)." (Emphasis added).
13. On 10 th September, 2008 personal guarantees were executed by Patrick Kelly, Niall McFadden and Paul Pardy.
14. On 10 th September, 2008 the floating charge was also executed by the company.
15. However the loan agreement quickly ran into difficulties and on 17 th September, 2008 National Irish Bank sent an email to the company in relation to the loan facilities which stated inter alia as follows:
"Further to our discussions in relation to...
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