Governor & Company of Bank of Ireland v Flanagan & Lillis

• Jurisdiction: Ireland
• Judge: Mr Justice Sean Ryan
• Judgment Date: 14 May 2012
• Neutral Citation: [2012] IEHC 197
• Court: High Court
• Docket Number: [No. 1059 S./2011]
• Date: 14 May 2012

[2012] IEHC 197

THE HIGH COURT

[No. 1059 S./2011]

Governor & Company Of Bank Of Ireland v Flanagan & Lillis

BETWEEN

THE GOVERNOR AND COMPANY OF THE BANK OF IRELAND

PLAINTIFF

AND

JOHN FLANAGAN AND GERARD LILLIS

DEFENDANTS

AER RIANTA v RYANAIR 2001 4 IR 607

NATIONAL COMMERCIAL BANK v ANGLIN 1996 1 IR 75

BAUER v BANK OF MONTREAL 1980 2 SCR 102

CHINA & SOUTH SEA BANK LTD v TAN SOON GIN 1990 1 AC 536

Commercial law – Banking law – Summary judgment – Credit and security – Terms of loan – Whether real or bona fide defence – Whether Bank entitled to summary judgment.

Facts The plaintiff brought proceedings for summary judgment for €1,743,896 against the defendants. The Bank claimed that the money was advanced to the defendants pursuant to a series of facility letters and that the defendants had failed to keep up repayments. The defendants resisted the claims and contended that discussions had been continuing regarding the loan terms as between the parties. The Bank had misrepresented these loans for regulation purposes to make them look like performing loans. The Bank was limited to trading profits from the hotel premises only. It was also submitted that the Bank did not ensure that all the security was in place before advancing the loans.

Held by Ryan J in granting summary judgment to the plaintiff: The plaintiff must establish a clear case before it could get summary judgment. A case would be sent for plenary hearing if a defendant was able to demonstrate a basis of defence in law or fact that achieved a minimum level of credibility. There was no doubt but that the defendants were in default and that the Bank was entitled under the terms of the facility letter to call in the loans. The fact that the loan was advanced in ease of the borrowers and represented a waiver by the lender of its right to require a particular piece of security did not mean that it was prevented from recovering its loan. There was no evidence to suggest that the Bank was limited in its recourse on foot of the loans to the trading profits from the hotel premises.

Mr Justice Sean Ryan

1 This is a motion for summary judgment brought by the Bank to recover €1,743,896.15 plus accruing interest in respect of two loan accounts held by the defendants. The Bank claims that the money was advanced to the defendants pursuant to a series of facility letters, as follows:

2 1. 20^th March, 2006 issued in respect of a loan of €1,500,000 by way of commercial mortgage. The letter was accepted by the defendants on the 22^nd March, 2006. The loan was on terms and conditions set out in the letter.

3 2. 31^st May, 2007 for €230,000 by way of bridging loan on terms and conditions as contained in the letter which was accepted by the defendants on the same date as the letter.

4 3. 2^nd January, 2008 was a restructuring of the bridging loan and it was accepted by the defendants on the 22^nd February, 2008.

5 4. 4^th March, 2009 was intended to restructure the loans that had previously been advanced by way of commercial mortgage and bridging loan respectively and this letter was accepted by the defendants on the 24^th March, 2009. This fourth facility letter is the relevant one for the purpose of this application but the Bank takes the position that if for any reason this letter is found to be defective it is entitled to rely on the previous letters.

6 In fact the Bank has sued on the basis of two loans accounts that arose by virtue of the advances that the Bank made for the commercial mortgage of €1,500,000 and the bridging loan of €230,000.

7 At para. 7 of the grounding affidavit Mr. Derek O'Neill sets out the default on which the Bank relies. He says that the defendants failed to pay the bridging loan in accordance with the terms of facility letter No. 4 and they also failed to repay the commercial mortgage. The defendants' failure to make payments in accordance with the terms and conditions of that facility letter amounted to an event of default.

8 By letter of the 19^th August, 2010 the Bank wrote to the defendants notifying them that their loan repayments were significantly in arrears and by letter of the 10^th November, 2010 the Bank demanded payment of the balances due on the two loans. The Bank's solicitors wrote on the 1^st February, 2011, formally demanding payment of the amount outstanding as of the 31^st January, 2011, which was €1,752,257.28.

9 It is not in dispute that the defendants borrowed the money and have not kept up their repayments as they fell due.

10 The first defendant, Mr. Flanagan filed affidavits on his own behalf and on behalf of the other defendant Mr. Lillis. At the hearing of this motion for summary judgment, Mr. Flanagan represented himself and his co-defendant.

11 The defences put forward by Mr. Flanagan on his and Mr. Lillis's behalf may be summarised as follows:-

12 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.

13 2. Following the execution by signing of facility letter No. 4, by the defendants, discussions continued in regard to the loan terms between the defendants and the Bank and this invalidates the Bank's reliance on that letter as a completed contract.

14 3. Facility letter No. 4 is an unenforceable contract because money was never actually drawn down and there was also no consideration.

15 4. The Bank misrepresented these loans for regulation purposes to make them look like performing loans and this again furnishes a defence.

16 5. The Bank is limited to trading profits from the hotel premises only.

17 6. In addition, Mr. Flanagan argued at the hearing that there was not a formal event of default or, alternatively, that the Bank had not notified him and his co-defendant of same.

18 InAer Rianta v Ryanair [2001] 4 I.R. 607, the Supreme Court endorsed two tests from the English jurisprudence that the Court had previously adopted in FirstNational Commercial Bank v. Anglin [1996] 1 I.R. 75. In the latter case, Murphy J delivering the judgment of the Court said:

"For the court to grant summary judgment to a plaintiff and to refuse leave to defend it is not sufficient that the court should have reason to doubt thebona fides of the defendant or to doubt whether the defendant has a genuine cause of action (see Irish Dunlop Co. Ltd. v. Ralph (1958) 95 I.L.T.R. 70). "In my view the test to be applied is that laid down in Banque de Paris v. de Naray [1984] 1 Lloyd's Law Rep. 21, which was referred to in the judgment of the President of the High Court and reaffirmed in National Westminster Bank Plc v. Daniel [1993] 1 W.L.R. 1453. The principle laid down in the Banque de Paris case is summarised in the headnote thereto in the following terms:-

19 'The mere assertion in an affidavit of a given situation which was to be the basis of a defence did not of itself provide leave to defend; the Court had to look at the whole situation to see whether the defendant had satisfied the Court that there was a fair or reasonable probability of the defendants having a real orbona fide defence.'

"In theNational Westminster Bank case. Glidewell L.J. identified two questions to be posed in determining whether leave to defend should be given. He expressed the matter as follows:-"

20 'I think it right to ask, using the words of Ackner L.J. in theBanque de Paris case, at p. 23, 'Is there a fair or reasonable probability of the defendants having a real or bona fide defence?' The test posed by Lloyd L.J. in the Standard Chartered Bank case, Court of...