Governor and Company of Bank of Ireland v John Flanagan and Another

• Jurisdiction: Ireland
• Judgment Date: 19 March 2015
• Neutral Citation: [2015] IECA 56
• Date: 19 March 2015
• Court: Court of Appeal (Ireland)

Bank of Ireland v Flanagan & Lillis

(Article 64 transfer)

BETWEEN:

THE GOVERNOR AND COMPANY OF THE BANK OF IRELAND

PLAINTIFF/RESPONDENT

AND

JOHN FLANAGAN AND GERARD LILLIS

DEFENDANT/APPELLANTS

[2015] IECA 56

Kelly J.

Peart J.

Mahon J.

APPEAL NUMBER: 478/2014

THE COURT OF APPEAL

Banking and finance – Loan facilities – Commercial mortgage – Respondent seeking entitlement to judgment on foot of loan facilities – Whether appellants' grounds of defence meet the threshold of arguability

Facts: The respondent, the Bank of Ireland, claimed to be entitled to judgment in a sum of €1,743,896.15 plus accruing interest on foot of various loan facilities which were ultimately restructured on foot of a loan facility letter dated 4th March, 2009. Two loan agreements were the basis for the Bank's claim against the appellants, Mr Flanagan and Mr Lillis. The first was a loan facility dated 20th March, 2006 in the sum of €1,500,000 secured by way of a commercial mortgage for the purchase of a Guesthouse and Restaurant at Doolin, Co. Clare. The second loan was dated 31st May, 2007 in the amount of €230,000 being a bridging loan. That bridging loan was restructured by a further facility letter dated 2nd January, 2008, and in due course all these loans were restructured by a loan referred to in a loan facility letter dated 4th March 2009 which referred to two sums by way of loan (a) €1,449,471 (existing), and (b) €232,941 (existing). The proceedings were by way of summary summons. The Bank sought liberty to enter final judgment by Notice of Motion dated 11th May, 2011 pursuant to the provisions of Order 37 RSC. That motion came initially before the High Court in October, 2011. A number of affidavits were filed by each side, and the motion was ultimately transferred to the Judge's List and came on for hearing before the High Court which concluded in May, 2012 that none of the appellants' grounds of defence met the threshold of arguability required for the case to be adjourned for a plenary hearing, giving judgment to the Bank for the amount claimed. The appellants appealed the Court of Appeal, contending that the High Court erred in reaching its conclusion, and made the same arguments before the Court of Appeal: 1) each facility letter had as one of its terms that security consisting of a deed of covenant in respect of an intoxicating liquor licence for the premises whose purchase was being funded by the loans was to be put in place; 2) following the signing of facility letter No. 4 by the defendants, discussions continued in regard to the loan terms between the defendant and the Bank and this invalidates the Bank's reliance on that letter as a completed contract; 3) Facility letter No. 4 is an unenforceable contract because money was never actually drawn down and there was also no consideration; 4) the Bank misrepresented these loans for regulation purposes to make them look like performing loans and this again furnishes a defence; 5) the Bank is limited in its recourse to trading profits from the hotel premises only; 6) There was not a formal event of default or, alternatively, the Bank had not notified the appellants of same.

Held by Peart J that the appellants' reliance upon the first ground of purported defence was misplaced in that it was not a case where, as in Bauer v Bank of Montreal [1980] 2 SCR 102 relied upon by the appellants, the Bank has damaged the security which it held; rather, the Bank simply agreed to forego a piece of security which they would otherwise have been entitled to insist upon before any drawdown could take place. Peart J rejected the second ground, noting that it was not contended by the appellants that they had in fact reached any new agreement arising from the correspondence. Peart J held that for the appellants to try and argue that because the facility refers to drawdown and no actual drawdown in fact took place the Bank are in some way disentitled to the repayment of the monies the subject of this facility is a contrived and empty argument devoid of any merit whatsoever. Peart J held that the fourth and fifth grounds amounted to mere assertion by the appellants, and were unsupported by any evidence whatsoever. The Court was satisfied that the trial judge was correct in concluding that the appellants' failure to make repayments in accordance with the terms and conditions amounted to an event of default, entitling the Bank to issue a letter of demand for payment of the amount owing to the Bank on foot of the facilities.

Peart J held that in the circumstances, the appeal should be dismissed.

Appeal dismissed.

19 19th DAY OF MARCH 2015:

1 This is an appeal against the judgment of Ryan J. (as he then was) dated 14 ^th May 2012 in which he concluded that none of the issues raised by the appellants in their replying affidavits amounted to a bona fide defence to the respondent bank's claim to be entitled to judgment in a sum of €1,743,896.15 plus accruing interest on foot of various loan facilities which were ultimately restructured on foot of a loan facility letter dated 4 ^th March 2009. Accordingly, he refused the appellants' request that the Bank's claim be adjourned to plenary hearing, and gave judgment to the Bank for the amount claimed.

2 This appeal was conducted by the first named appellant, John Flanagan in person, on his own behalf and also on behalf of the second named appellant. This Court expressed concern at the outset of the appeal that Mr Flanagan could not represent the second named appellant. He has no legal entitlement to do so. The Court was assured by Mr Flanagan that it was the second named appellant's express wish that Mr Flanagan should look after his interests in the appeal, and expected that he would do so. The Court has proceeded on the basis that Mr Flanagan has represented himself, but that the second named appellant, being fully aware that the appeal was listed for hearing, is content that Mr Flanagan should make all possible arguments in support of the appeal, and that he himself had nothing to add in addition to anything being urged upon the Court by Mr Flanagan. The Court's conclusions are in respect of the appeal lodged by each appellant.

3 These proceedings were by way of summary summons. Once an appearance was entered by the defendants following service of the proceedings upon them the Bank sought liberty to enter final judgment by Notice of Motion dated 11 ^th May 2011 pursuant to the provisions of Order 37 RSC. That motion came initially before the Master of the High Court on the 28 ^th October 2011. A number of affidavits were filed by each side, and the motion was ultimately transferred to the Judge's List and came on for hearing before Ryan J.

4 Two loan agreements are set forth in the Schedule contained in the Special Endorsement of Claim in the Summary Summons as the basis for the Bank's claim against the defendants. The first is a loan facility dated 20 ^th March 2006 in the sum of €1,500,000 secured by way of a commercial mortgage for the purchase of a Guesthouse and Restaurant at Doolin, Co, Clare. The second loan referred to is one dated 31 ^st May 2007 in the amount of €230,000 being a bridging loan. That bridging loan was restructured by a further facility letter dated 2 ^nd January 2008, and in due course all these loans were restructured by a loan referred to in a loan facility letter dated 4 ^th March 2009 which refers to two sums by way of loan - (a) €1,449,471 (existing), and (b) €232,941 (existing). The purpose of this facility is clearly stated to be a restructuring of existing loans, and not an advance of new or additional funds to the borrowers.

5 There are two aspects of this facility letter which should be noted, since some reliance is placed on them by the appellants. Firstly, within the facility letter are references to a "drawdown" of the facility. The appellants submit that there was never any such drawdown. Secondly, there is a clause which provides " Deed of Covenant to be held in respect of the Liquor Licence for the above premises". It appears that no such deed was ever put in place, and the appellants seek to rely on that omission. These submissions will be considered in due course.

6 A number of matters were offered by the appellants in the High Court as amounting to a bona fide prima facie defence to the Bank's claim for the purpose of the claim being adjourned to a plenary hearing. These will be dealt with below.

7 Having, in this Court's view correctly, set forth the test for whether a prima facie bona fide defence had been put forward by the defendants by reference to the judgments of the Supreme Court in Aer Rianta v. Ryanair [2001] 4 I.R. 607, namely whether it is 'very clear' that the defendant has no case, and whether the defence is so far-fetched or so self contradictory as not to be credible, Ryan J. stated:

"The plaintiff must establish a clear case before it can get judgement. But that is not enough. Even in the face of an apparently strong prima facie case, the defendant will be allowed to defend and the matter will be sent to plenary hearing if he is able to demonstrate a basis of defence in law or fact that achieves a minimum level of arguability and/or credibility."

The jurisdiction in summary judgement is not limited to a case in which no ground of defence is to be found in the papers. The procedure exists for a plaintiff to recover judgement if no bona fide basis of resisting the claim is shown, albeit that the threshold is high where the facts are put in issue."

8 No submission is made by the appellants on this appeal that Ryan J. applied an incorrect test.

9 The judge proceeded to consider each of the grounds of defence advanced by the defendants, and concluded that none met the threshold of arguability required for the case to be...